Calvert Plays Role in Shaping Corporate Governance Reform
Moving from Crisis to Opportunity
The current financial crisis has shaken the foundations not only of Wall Street but of the broader economy, severely affecting the performance of countless companies and entire industries, with the recession deepening and unemployment mounting. Experts have identified numerous factors that have contributed to the current recession, among which it is widely agreed are lack of effective regulatory oversight of financial markets and corporate governance failures. As fundamental assumptions are being challenged as to the appropriate balance between governments and markets in general, Calvert is right in the middle of the debate, using our position as shareowner to press for governance improvements and increasingly adding our voice to the policy debate in Washington, D.C. around regulatory reforms.
We view the current crisis as an opportunity to strengthen corporate governance and regulation of financial markets. We believe this is necessary to help promote economic recovery and enhance corporate accountability to investors and the public. Good corporate governance is very much in line with our investment philosophy. In fact, Calvert’s actively managed sustainable and responsible equity funds avoided certain financial services companies, such as Lehman Brothers, Citigroup, and Merrill Lynch, which took severe hits as the financial crisis unfolded, because of our corporate governance analysis and criteria. However, as investors with broad exposure to the markets, we have a profound interest in governance reforms. We advocate for increased shareholder and regulatory oversight to ensure that our clients’ investments, retirement funds, and college savings are better protected in the future.
Restoring Investor and Public Trust
Governance reforms, which are more likely to win approval given the current crisis, are an essential piece of the strategy to restore investor and public trust in the financial markets. Reforms are also necessary to ensure that not only is accountability to shareholders strengthened but that fiduciary duty is broadened to ensure accountability to society and a broad set of stakeholders. Calvert sees a direct connection between a comprehensive and enforceable regulatory structure, combined with corporate governance best practices and enhanced board accountability. Ultimately, reinforcing these linkages will better align incentives for corporate executives and companies that are managed to achieve sustainable long-term performance.
Helping to Shape Future Reform
On January 9, Calvert developed a set of recommendations for the new Administration and Congress including critical governance reforms that were sent to members of the Obama transition team. We also helped to shape a policy document released by the Social Investment Forum (SIF) on January 14. The SIF document focuses on:
- shareholder rights, especially in corporate board elections and executive compensation;
- a definition of fiduciary duty that includes consideration of environmental, social and governance (ESG) issues; and
- ESG disclosure.
In March, Calvert joined SIF leaders and other SIF members at meetings with SEC Commissioners and senior staff highlighting shareholder rights and the need for greater ESG disclosure on the part of companies.
Strengthening Investor Oversight of Executive Compensation
Much of the discussion around the corporate role in the crisis has focused appropriately on executive compensation. During the past two years, Calvert has stepped up its involvement in this core governance issue. Given the importance executive compensation has had in the discussions around the credit crisis and the massive federal support to financial firms, we expanded our activity by either filing or co-filing shareholder resolutions to promote strengthened investor oversight within this sector.
We filed proposals with financial services companies American Express and Huntington Bancshares, asking the companies to provide shareholders with a “say on pay”. As both of these financial services companies were participants under the TARP program, on February 17th this advisory vote became law and they are mandated to provide such a vote during next year’s proxy season. As such, both companies agreed to give Calvert public statements of support, and we successfully withdrew our resolutions with the companies. The public statements by these two companies put pressure on other companies that have received taxpayer money to acknowledge say on pay as an evolving standard of good governance practice.
Tracking Political Spending
Calvert also signed on to a letter written by the Center for Political Accountability that was sent to 19 financial companies that received more than $1 billion under TARP. The letter called for these companies to establish board level oversight and disclosure of corporate political spending. This action builds upon Calvert’s direct engagement during the past several years with companies to advocate for such disclosure. During the most recent proxy season, Calvert filed a resolution with U.S. Bancorp that resulted in an agreement from the company to provide the requested disclosure. These measures are part of the transparency and accountability necessary to rebuild investor and public trust.
Working toward the End Goal
By working directly with companies and joining forces with like-minded investors and other partners, Calvert remains committed to seizing opportunities presented by the current crisis to strengthen corporate governance and regulation of financial markets as a means of both restoring the economy and enhancing corporate accountability to investors and the public.
As of February 28, 2009, American Express represented 0.05% of CSIF Balanced Portfolio, 0.19% of CSIF Enhanced Equity Portfolio, and 0.31% of Calvert Social Index Fund. Huntington Banchsares represented 0.13% of Calvert Social Index Fund. US Bancorp represented 0.49% of CSIF Enhanced Equity Portfolio, 0.63% of Calvert Social Index Fund, and 1.94% of Calvert Large Cap Growth Fund. Citigroup, Lehman Brothers, and Merrill Lynch were not represented. Calvert may or may not still invest in, and is not recommending any action on, companies listed.
Stu Dalheim, Director, Shareholder Advocacy
Mr. Dalheim directs the company's shareholder advocacy program, which continues to grow as Calvert engages with more companies through direct dialogue, standard-setting exercises and partnerships as well as shareholder resolutions. Mr. Dalheim has focused on the homebuilding, construction, and natural resource industries, with an emphasis on business practices. He currently serves as Steering Committee Chair of the Advocacy and Public Policy Committee (APP) of the Social Investment Forum. Before joining Calvert in 2000, he worked for Greenpeace USA and American Lands Alliance. He earned a BA in philosophy from Wesleyan University and is a LEED accredited professional.