From the New York Times
U.C. Proxy Voting Skirts Review Guidelines, Documents Show
By TESS TOWNSEND
The University of California, which prides itself as a leader on social and environmental issues, voted against hundreds of shareholder resolutions designed to promote human rights, environmental sustainability and efforts to fight discrimination, a review of U.C.’s voting record shows.
The resolutions involved corporations like Exxon Mobil, PepsiCo and Occidental Petroleum and pertained to about one-third of the university’s $65 billion investment portfolio, a portfolio that includes some 5,000 companies. Like many other universities, U.C. employs a private firm to manage its investments and vote on its behalf.
Under U.C.’s proxy voting guidelines, the university is required to review case by case all shareholder resolutions that are “controversial or relate to social issues.” But thousands of documents obtained from sources and under a California Public Records Act request by The Bay Citizen show that, over the past two years, Institutional Shareholder Services, a proxy voting service, voted on behalf of U.C. against hundreds of resolutions that appeared to fall within the university’s guidelines.
The documents show that the university voted against nonbinding resolutions that would have encouraged companies to set goals for lower emissions of greenhouse gases, carry out policies prohibiting discrimination against individuals based on sex or sexual identity, report political contributions, form human rights committees and improve treatment of animals. The university voted against 188 such resolutions in 2008, and at least 50 in 2009.
Melvin Stanton, the university’s associate chief investment officer, said in an e-mail that U.C. focused primarily on growing its investments. Mr. Stanton added that no evidence existed of “a significant correlation between proposals brought by shareholders/activist groups and additional shareholder value,” on social or environmental issues.
“Our focus is doing what is best to improve the financial wherewithal of a particular company,” Mr. Stanton said in a telephone interview. “We’re not really focusing on social issues.”
But critics say the university is violating its own policy by failing to review issues touching on social responsibility and the environment before it votes against them.
“If the issue has to do with a company that’s running sweatshops in India, then U.C. is supposed to look at that company and say, ‘Should we stay invested in that company?’ ” said D’Artagnan Scorza, a former student representative on the U.C. Board of Regents and a U.C.L.A. graduate student.
A student activist group, U.C. Responsible Investments Coalition, of which Mr. Scorza is a founding member, is encouraging U.C. to adopt a proxy voting committee of students, faculty members and administrators. Nine percent of American universities have such committees, according to the 2010 College Sustainability Report Card by the Sustainable Endowments Institute, a nonprofit organization dedicated to promoting sustainability in college campus operations and endowment practices.
Mr. Stanton said U.C. was adhering to its policy. According to the university, the proxy service uses a coding system to categorize each resolution, including those involving environmental, social and governance issues, to ensure that votes comply with U.C. policy. The university’s proxy voting system is under review, he said.
Until 2001, regents voted on each shareholder resolution individually. But as the university’s portfolio grew, from fewer than 200 companies to more than 5,000, the university shifted management of some of those investments from its internal staff to “external equity managers,” a U.C. spokesman said.
The money in those accounts comes from state and employee contributions, individual donations and student fees, among other sources, according to the California Legislative Analyst’s Office.
Over the past year, some students have urged the university to divest from companies doing business in Israel in response to the Israeli-Palestinian conflict. In the 1980s, U.C. spearheaded the anti-apartheid divestment movement, which persuaded universities to terminate holdings in companies doing business in South Africa. In 2009, U.C. divested from companies doing business in Sudan in response to the genocide in Darfur.
Students said they were not asking U.C. to move its investments, only to use them as leverage for social change. “We’re not saying vote one way or the other; we’re saying pay attention to it,” Mr. Scorza said.
In May 2008, the Unitarian Universalist Committee, a shareholder of PepsiCo, submitted a resolution that Pepsi recognize water as a human right. The proposal noted that Pepsi’s water-use license was revoked in 2003 in India after the company was accused of “overconsuming and depleting community groundwater.” U.C. voted against the resolution, which failed.
That same month, the university voted against a proposal encouraging Exxon Mobil to research alternative energy options. According to published reports, the resolution, which failed, was supported by the heirs of John D. Rockefeller, who founded Exxon.
In May 2009, the university voted against a Humane Society resolution suggesting that McDonald’s use cage-free eggs at its American restaurants, noting that the corporation had already done so in Britain. That proposal also failed.
On average, shareholder proposals receive 20 percent support from shareholders. Votes are nonbinding but can influence company practices. PepsiCo adopted the Unitarian Universalist Committee’s 2008 resolution on its own in 2009.
U.C. provides voting guidelines to the State Street Corporation, which is paid $1.3 million a year to manage $19.8 billion of the university’s $65 billion retirement, pension and endowment accounts. State Street also receives $2.1 million for holding the university’s assets. Institutional Shareholder Services, which receives about $131,000 annually, is responsible for carrying out the guidelines and voting.
Institutional Shareholder Services offers customized voting packages in which investors can vote on resolutions based on core values, like the United Nations principles for responsible investments, or religious-based investment practices. Neither the company nor the university could disclose the terms of their proxy-voting package.
Thomas Joo, a law professor at the University of California, Davis, who specializes in corporate governance, said that with pension funds failing across the country, U.C. must consider the “ultimate beneficiaries” of its investments and focus on the financial implications. If the university votes to abolish animal testing at a company, and that company follows that recommendation, product development could stall, leading to a dip in sales.
“What do the beneficiaries want?” Mr. Joo asked. “Do they want to be socially responsible or do they want to have retirement money when they retire?”
Stanford University established the first university proxy voting committee in 1971. Mark Landesmann, who sits on the committee and was involved in the anti-apartheid divestment campaign as a Stanford student, said it was important for universities to consider the impact of their investments, socially and financially.
“It’s about open transparent debate and dialogue and it’s about being active in society, not just being out there and doing your own thing without regard for what your impact is on others,” Mr. Landesmann said.