Harvard Faces a Flood Of Shareholder Resolutions

For most people, the year consists of four seasons; but for the corporate world, there is a fifth, running from late winter through spring--the proxy season. During this period companies send annual reports and proxy statements to all their shareholders, in preparation for annual meetings. The proxy statements often include shareholder resolutions.

Under a set of rules established by the Securities and Exchange Commission (SEC), any issue related to a corporation's policies or major social questions is subject to shareholder resolutions, while matters pertaining to the ordinary affairs and day-to-day operations of a company are not. The SEC has final authority to decide what is an appropriate resolution, and decides on the final wording of the resolution also.

Any shareholder, private citizen or gigantic institution, may initiate a resolution, if he disagrees with the corporation's policy. Initiating a resolution involves thoroughly researching the issue at hand, formulating a stand on the question, and filing the resolution with the corporation in compliance with SEC rules. Resolution sponsors may include statements to support their positions, and companies may include statements in rebuttal.

The resolutions and ballots appear in the corporation's proxy statement mailed to all the shareholders. Resolutions which the management does not support are almost always defeated by substantial majorities, because many, if not most, shareholders do not bother to vote at all. Abstentions are counted as votes with management.

With investments of several hundred million dollars in dozens of corporations, Harvard must contend with a plethora of resolutions each year. This year, for example, the Corporation will consider 40 shareholder resolutions in more than 20 corporations. Before the Corporation votes on the resolutions, however, the Advisory Committee on Shareholder Responsibility (ACSR) considers each resolution and advises the Corporation how to vote. The ACSR will spend the next month discussing resolutions.


When times were simpler, and shareholders didn't raise such a fuss about the way management was running things, there were much fewer resolutions to worry about. Before the early '70s, most resolutions were on technical decisions that management wanted the shareholders as a whole to ratify. Then church groupshlike the activist Interfaith Center for Corporate Responsibility realized that initiating resolutions was a good way to put public pressure on corporations.

This year the Corporation will consider resolutions asking Philips Petroleum and the 3M company to withdraw their operations from South Africa, a resolution asking Kodak to stop sales of certain kinds of photographic equipment to the South African government, a resolution calling on Exxon not to expand its South African operations, a resolution calling on Bristol Meyers to change its Third World infant formula marketing practices, resolutions prohibiting ex-government officials from taking jobs with General Electric and several other companies, and resolutions on redlining, political contributions, and journalistic practices.

The Kodak resolution is similar to one defeated at the annual meeting last year. Unless a resolution gets 5 per cent of the proxy votes it cannot be reintroduced the next year. The SEC makes sure slightly-reworded resolutions do not slip through.

One resolution particularly worth noting asks Mobil to recognize black trade unions. The resolution is sponsored by a group of Cornell students called the Corportate Responsibility Project, which studies its University's investment practices and buys stock in specific companies so it can introduce shareholder resolutions. Cornell's student trustees serve on the project, as well as undergraduates and law students. The money to purchase stocks comes partly from student fees.

Before Bok established the ACSR, the Harvard treasurer decided how to vote the proxies. Before shareholder activism kicked up, this posed few problems. But in the early '70s, as the number of resolutions rose, then-Treasurer George F. Bennett '33 continued to routinely throw out the proxy statements, or vote with management. The University had no way to collect information on resolutions and make responsible decisions.

President Bok established the ACSR in 1972 to advise the Corporation on shareholder resolutions and on the general social and ethical responsibilities it faces as a shareholder. The Corporation follows the ACSR's recommendations 85 to 90 per cent of the time, according to Lawrence F. Stevens '65, secretary of the ACSR. By the time the ACSR germinated, the university had already spent several years wrestling with its relationship with the corporate world.

In 1970, then-President Pusey '28 assigned the Committee on University Relations with Corporate Enterprise, chaired by Robert W. Austin, the task of "examining and clarifying the relationship of universities (and in particular this University) with corporate enterprise in general in the United States," in order to "recommend ways in which universities and corporate enterprise can work together for constructive social purpose."

In its report released in January 1971 the committee listed several propositions it considered "basic, if not axiomatic" in examining university-corporate relations. Because the University is foremost a "center of free inquiry," the committee stated, it should maintain a neutral stance on political and social matters except those "where there is no longer room for argument among people who accept our basic socio-economic political system." One such unarguable issue, the committee stated was racism. Harvard adopted an official position of "hostility (whether in the University's role as center of learning, contractor, employer, or investor) to anything smacking of racism."

Pusey echoed that sentiment in a letter to then-Dean John T. Dunlop, chairman of the University Committee on Governance, saying the Corporation would not make investments that support "activities whose primary import is contrary to fundamental and widely shared ethical principles." Furthermore, he said, in deciding on investments the University would consider whether a company "acts as a good citizen in the conduct of its business."

The Austin committee also reached some specific conclusions on Harvard's role as an investor. While urging the University to make investments to achieve "maximum return," the committee noted some exceptions to that general rule. It said Harvard should avoid investments in South African corporations but added. "When it comes to investing in American corporations that do business in foreign countries, a policy line would be even more difficult to draw." (The University had no investments in South African corporations at the time of the Austin committee report and now has a policy of not investing in such companies.)