NEW YORK (TheStreet) -- Activist shareholders such as hedge funds aren't the only ones getting more effective at convincing large public companies to change their behavior -- so, too, are activist groups trying to promote social goals such as sustainability, the environment and animal rights.
In April, Domino's Pizza (DPZ) - Get Report investors will be voting on a handful of shareholder proposals, including one brought by People for the Ethical Treatment of Animals on whether to add vegan cheeses and meats to its menu. This follows on the heels of PETA snatching up Shake Shack (SHAK) - Get Report shares off of its IPO to push for the addition of vegan options to the better-burger chain's menu.
Other groups are also taking more creative approaches to effect change. Earlier this month, grassroots social action group Earth Quaker led the way in putting pressure on companies that pursue mountaintop removal of coal in Appalachia -- not by aiming directly at the firm themselves but by getting banks such as PNC Financial (PNC) - Get Report to stop financing their capital-intensive activities. Also this month, advocacy groups such as the U.S. Public Interest Research Group and Rosenthal Group succeeded in pressuring McDonald's (MCD) - Get Report to curtail the use of antibiotics in the chicken it serves.
According to non-profit organization As You Sow, which promotes shareholder advocacy and has also filed proposals of its own, investors concerned with environmental and social issues filed 452 shareholder proposals in U.S. companies in 2014, up from 402 proposals filed the year before. "They want to get a seat at the table," said James Copland, director of and senior fellow with the Manhattan Institute Center for Legal Policy, a think tank based in New York.
Any shareholder with at least $2,000 worth of stock in a publicly traded company can introduce a resolution to its management to be put up for vote at its annual meeting. About half of such proposals go to a vote, while other times, companies try to avoid a vote and instead agree to start a dialogue with activist parties, who may, in turn, withdraw their proposals. Corporations may also appeal to the SEC to omit shareholder resolutions from proxy filings.
Shareholder proposals rarely win a majority vote at meetings -- according to ProxyMonitor, just 4% of all shareholder proposals, social or otherwise, were supported by a majority of voting shareholders in 2014. However, companies don't like them, since managing them requires time and resources and sometimes generates negative publicity.
"They try to keep them off of the ballot because they're a distraction," Copland explained. "Because of that, activists know they might be able to negotiate, and even if the company doesn't want to do [what they're asking], it will modify its behavior."
A recent example of a corporation negotiating to get a proposal withdrawn occurred when Dunkin' Brands (DNKN) - Get Report, parent company of Dunkin' Donuts, agreed to remove titanium dioxide from all powdered sugar used to make its donuts. As You Sow claimed that the chemical gives rise to nanoparticles that can harm human health. Last year, the same shareholder proposal received 18.7% support at Dunkin's annual meeting.
The primary way that social activist groups used to try to influence companies was through divestment campaigns in which institutions and shareholders declined to invest in companies for financial, social or political reasons -- and encouraged others not to do so as well.
The strategy came to rise in the 1970s and 1980s as part of a campaign against apartheid in South Africa, when retirement funds, mutual funds and other institutions in the U.S. sold off stocks of companies doing business in the country.
The tactic continues to be used today, though its effectiveness is often questioned, as it often fails to make a notable enough impact on companies for them to make a change. One major reason is that there's nothing to stop divested shares from being picked up by other investors -- often at an attractive discount price.
"Shareholder divestment is only going to be an effective and justifiable strategy in very rare circumstances," said Scott Wisor, a lecturer and deputy director of the Center for the Study of Global Ethics at the University of Birmingham.
Evidence points to companies becoming more reactive to social pushes, but the explanation as to why goes far beyond yes votes to shareholder proposals and divestment.
"To the extent that companies are more conscious of these sorts of social issues today, I think it is more a function of social media and the internet than actual shareholder proposals, which I think they're beating back as well as ever," said Copland. "But because of Twitter and Facebook, all it takes is getting it out into social media. The world has shrunk, to a certain extent." The internet also allows activists to bypass the traditional gatekeepers of media outlets and newspapers and reach the public directly.
And then there is the simple fact that some maneuvers are just better for business.
"I think the reason why companies like McDonald's make those decisions is they have a business reason for making them," said Steven Balet, managing director at FTI Consulting, a business advisory firm. "There are a host of reasons [companies have for making changes], although for business reasons it might not make sense immediately."
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
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