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Proxy power: Part 1

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By Todd Cohen

Pfizer, the giant drug-maker, has agreed to publish on its web site, once a year, a list of contributions it makes to political candidates.

Smithfield Foods, the world’s biggest producer and processor of hogs, is fighting shareholder requests that it track the environmental impact of its hog operations.

And Starbucks, the coffee conglomerate, has started offering customers milk without the bovine growth hormone.

Each of those firms has been the target of shareholder groups led by or including charitable foundations that are part of a small but growing movement that believes philanthropy involves more than giving away money.

Shareholder activism, ranging from voting proxies to talking to   corporations and filing shareholder resolutions, is in keeping with foundations’ fiduciary role as investors, and with their charitable role as organizations with a social mission, foundation activists say.

“Proxies and proxy voting constitute an intrinsic aspect of the value of the investments,” says Jim Pitts, an adviser to The Boston Foundation who retired August 31 as its chief financial officer and chief investment officer.

“If you’re going to hold yourself out to be a steward of charitable funds,” he says, “you can’t ignore the economic value of the proxies, and therefore you need to vote them, and you need to vote them along the same set of values that the institution is founded on.”

The Boston Foundation, whose organizational values include “diversity” and “equity,” believes “there would be a significant amount of dissonance between the foundation’s values, and the investments and stewardship, if we didn’t close the loop on informing ourselves of the proxy matters and voting according to the foundation’s value system,” Pitts says.

Yet while they invest their assets to generate income to make grants, which typically represent 5 percent of assets, foundations generally do not treat all their assets as resources to advance their philanthropic goals, activists say.

“Foundations can have as much if not more impact with the 95 percent of endowments sitting in investments than with the 5 percent they give away,” says Michael Passoff, associate director of the corporate responsibility program at the As You Sow Foundation, a San Francisco-based group that conducts shareholder actions on its own behalf and for socially responsible investors and nonprofit clients such as Amnesty International in Washington, D.C., and the Education Foundation of America in Westport, Conn.

“Shareholder activism is very effective these days and it’s a whole area where foundations are not active,” he says. “And 95 percent of their money can be activated by, at a minimum, voting their proxies and talking to corporations and filing shareholder resolutions. We call it the ‘95 percent solution.’”

And even in their role as investors, he says, foundations should be more active.

The slumping stock market and rash of corporate scandals have hurt the portfolios of foundations, he says.

“That highlights the need for foundations to play an active role in monitoring corporate governance and corporate responsibility,” he says.


Other stories in series: 

Part 2: As shareholders, foundations can take a stand.

Part 3: Foundations have options for being more active shareholders.

Part 4: Foundations use proxies to link investments, program interests.

Part 5: Foundations say proxy activism can boost returns, mission.

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