Proxy power: Part 2

By Todd Cohen

Foundations hold an estimated $400 billion in U.S. companies but are not paying much attention to the way those companies do business, says Doug Bauer, senior vice president at Rockefeller Philanthropy Advisors in New York City.

While 54 percent of foundations surveyed last year by the Council on Foundations do not automatically vote with management, for example, 90 percent of that group have no written policies for voting proxies on social or environmental issues, Bauer says.

“There’s clearly a disconnect between their investment strategies and their programmatic interests as foundations,” he says.

Asked by three of its individual clients to look into the issue, Rockefeller Philanthropy Advisors found shareholder activism underway at only a tiny group of foundations, including the Nathan Cummings Foundation and Jessie Smith Noyes Foundation, both in New York City.

“Foundations are perhaps the only significant institutional investors left that pay little attention to the proxy process, and in essence regularly support management positions that are opposed to their foundations’ position,” says Michael Passoff, associate director of the corporate responsibility program at the As You Sow Foundation in San Francisco. “They are similar to mainstream investors who pay little attention to proxies and have little understanding of the impact they can have.”

The “socially responsible investment” movement for years has included endowed religious orders such as the Sisters of Mercy, union pension funds and state treasurers who oversee state employee pension funds such as Calpers in California, Bauer says.

What’s more, labor pension funds, mutual funds, investment managers and bank trust departments all are required by federal law or regulation to disclose their proxy votes or proxy-voting guidelines, says Caroline Williams, chief financial and investment officer for the Nathan Cummings Foundation.

“Even if nobody mandates it for foundations,” she says, “if it’s important for other investment funds, why wouldn’t it be for foundations.”

The Council on Foundations in Washington, D.C., does not directly encourage its members to use their proxy power, says Dorothy Ridings, president and CEO.

“But we do have strong statements on the necessity of having foundations get more involved in public policy that is in the subject matter of what they fund,” she says. “You could clearly extrapolate from that that the use of the proxy power is a legitimate means of achieving that goal.”

Using proxy power to further grantmaking goals “is just as legitimate as attempting to increase the dollars you have to spend toward your grantmaking goals,” she says. “It’s a public-policy technique or tool, just one of many tools that can be used by investors, including foundations, to further their goals.”

Other stories in the series:

Part 1: Foundations flex proxy muscle.

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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