The animal welfare group PETA, or People for the Ethical Treatment of Animals, is skilled at grabbing headlines with provocative street protests and hidden camera exposés.
Some of the group's biggest victories against large corporations, however, have come through a subtler approach: buying stock and pressuring management to make changes by filing shareholder resolutions.
"Our shareholder program is one of our most meaningful ways to engage companies that are not making progress on animal welfare issues," said Anne Kellogg, PETA's manager of corporate affairs. "No company or shareholder wants to be associated with companies that are cruel to animals."
PETA is not alone in this form of shareholder activism, a realm typically associated with the likes of Carl Icahn and Bill Ackman. Shareholder resolutions related to environmental, social, and governance issues made up two-fifths of all resolutions in 2013, a 60% increase from a decade prior. Although they almost never pass, average support for such proposals doubled in the same period, to 21% of votes.
The flurry of social-issue shareholder proposals has led some, including the U.S. Chamber of Commerce, to call for tighter restrictions on the shareholder resolution process. Typically, groups like PETA have to own just $2,000 worth of a company's stock for one year to get proposals on the proxy ballot.
"There are many socially valuable causes, but the SEC and corporate law are not the places for dealing with social causes," former Securities and Exchange Commissioner Troy Paredes said at a conference in November. To the extent it's easier to advance social causes through shareholder campaigns, Paredes asked, "is that looking out for investor interests?"
The answer may not be so simple, though.
PETA began using activist shareholder tactics in 1987, buying stock in several companies that tested cosmetics and household products on animals and filing a resolution urging Procter & Gamble (PG) to stop the practice. Though the resolution failed, P&G did eventually phase out animal testing not required by law. (Chinese regulators still conduct live animal testing on many products sold there, a point of contention between PETA and several companies.)
All told, PETA owns stock in 56 companies for activist purposes, according to spokesman Ben Williamson. But typically, the group tries to work with companies behind the scenes before making waves at a shareholder meeting.
One of PETA's biggest victories has also been one of its worst investments, from a financial perspective. Long opposed to live-animal performances, PETA bought stock in SeaWorld (SEAS) in its first week of public trading in 2013. Though the stock is down over 50% since the IPO, SeaWorld agreed in March to stop breeding animals in captivity, a proposal PETA had previously submitted and subsequently withdrew.
Of course, PETA is not a traditional investor, and doesn't mind if share prices drop. That's what worries some opponents of shareholder activism on social policy issues, who say that forcing management and boards to respond to such proposals is a waste of resources, and a distraction from boosting earnings.
A recent study on the question found that merely submitting a proposal on social issues tends to spur management action, even though such proposals almost never get majority support. The study, co-authored by Harvard Business School Associate Professor George Serafeim, found that shareholder proposals on environmental, social, or governance (ESG) issues are associated with a subsequent decline in firm value, but only if the proposal is on an immaterial issue.
On the other hand, social-issues proposals on material topics -- which ask a company to make some fundamental change to its business model, process, or products -- are associated with a subsequent increase in relative firm value, the study found. Counter-intuitively, it could be that the more significant a social-issue proposal is to a company's core business, the more it benefits regular shareholders.
"ESG issues are not only about 'values' but also in a very real way about 'value,'" Serafeim told The Street.
Why might this be? PETA's history of activism offers some clues. In the late 1980s, opposition to live-animal testing was something of a fringe issue. Now it is de rigueur. Perhaps social activists are often a leading indicator of future norms, in which case companies would be wise to pay attention to their concerns.
Unfortunately, Serafeim found that just two-fifths of social-issues proposals are on material concerns -- the kind that tend to increase value. That share hasn't increased in two decades, he finds. "Perhaps that will change in the future as the responsible investing scene is becoming more competitive," he said.
PETA focuses on four core issues: the treatment of animals in the food industry, clothing manufacture, laboratory testing, and entertainment. Here are some of the stocks the group owns as an activist shareholder:
Issue: Promotions for tickets to circuses, marine parks, and other live-animal entertainments
Outcome: PETA's shareholder resolution failed at the June shareholder meeting.
Issue: Exotic animal skins used for bags
Outcome: PETA reached the one-year threshold as a shareholder last month, and should be eligible to submit a shareholder resolution next spring.
Laboratory Corp. of America
Issue: Animal experimentation
Outcome: In May, shareholders rejected a resolution asking the company to report on its efforts to "prevent, detect, and control Zika virus infection of nonhuman primates" at its facilities.
Issue: Exotic animal skins, including ostriches, used for bags
Outcome: PETA purchased stock in April, and should be eligible to submit a shareholder resolution next year.
Issue: Use of down and goose feathers in pillows and cushions
Outcome: The company has introduced a line of down-alternative bedding; PETA continues to advocate for it to eliminate all down.
Issue: Animal testing of company products by regulators in China
Outcome: Shareholders rejected a 2014 resolution for the company to report annually on any animal testing of its projects, but Revlon did exit its China business that year.
Issue: Live animal entertainment
Outcome: In March, PETA withdrew a shareholder resolution calling for the company to end breeding in captivity, after SeaWorld announced it would halt the practice.