Investor Relations: Rousing rebellion in the investors’ ranks - Human rights activists and environmental campaigners are finding that lobbying a company’s shareholders is one way to get the City at least to listen to their arguments

Shell won, the Financial Times told its investor readers last week after chairman John Jennings used four blocks of institutional votes to defeat a motion for an independent policy audit promoted by ethical pension investment campaigner Pirc.

Shell won, the Financial Times told its investor readers last week

after chairman John Jennings used four blocks of institutional votes to

defeat a motion for an independent policy audit promoted by ethical

pension investment campaigner Pirc.



No it didn’t, said the Guardian, which highlighted the defeated vote as

the largest ever against Shell’s board, while claiming the company had

effectively lost the argument.



Neither interpretation is surprising given the leanings of both titles

but the fact that Pirc amassed 11 per cent of investors’ votes suggests

many FT readers had already adopted the Guardian’s stance.



The result says less about Shell’s PR or IR but says a great deal more

about the amount of quiet lobbying ethical investment campaigners and

environmentalists are now doing in the City. This lobbying blurs the

distinction between IR and PR and aims to force companies to re-think

communications.



Pirc attributes its success to two years of talks with the fund managers

in charge of the pounds 150 billion assets owned by its pension fund

membership.



Pension funds whose stakeholding makes them Shell’s ultimate owners.



’The key issue for fund managers is whether shareholder value would be

affected by Shell’s intransigence,’ says Pirc joint managing director

Alan McDougall. ’But they want to keep quiet. It’s a natural instinct to

deal with problems behind closed doors.’



Pirc saw its role as unblocking the line of communication from investors

through the fund managers that represent them to Shell’s board. That the

City listened to Pirc comes amid signs that it is quietly paying more

attention to environmental campaigners - groups who do not represent

company owners but whose opinions could affect future sales.



’We’ve certainly talked to different groups of investors of a range of

types,’ says Friends of the Earth spokesman Blake Lee-Harwood. ’But we

wouldn’t choose to go public about those discussions because they’re

more fruitful conducted behind closed doors.’



The City has recognised, says Hogarth chief executive Chris Matthews,

that public concern isn’t going to go away. He cites the burning of

Shell petrol stations in Germany during the Brent Spar controversy.



’There’s a whole generation of German youth growing up thinking Shell is

a monster,’ he says. ’They’ll drive on to the next service station.



Investors don’t like that.’



Institutional investors are concerned about being seen investing in

environmentally-destructive companies. But even harder to fend off are

the allegations of social exploitation - issues that even non-greens

find offensive.



For example, several UK companies have taken a pounding in the media in

the last two years after allegations of child labour in the overseas

factories of suppliers.



But for Shell, the fault line ran between its claims of social

enlightenment and its refusal to intervene on behalf of the condemned -

and subsequently executed - Nigerian writer and activist Ken Saro-Wiwa,

despite the company’s huge economic influence in that country.



By elevating green and social issues to its AGM Shell conferred

respectability on any shareholders who wanted to use its AGM as a

platform for criticism over its record.



That’s a lesson that corporate PR people seem slow to learn. Asked about

the implications of the Shell AGM for corporate communications, one

leading PR practitioner said: ’None. It’s an IR issue. The papers said

Shell won.’



And one year after then-chairman and chief executive Dr Chris Fay’s

admission to PR Week that Shell’s mistake was not to be open enough,

Shell refused to discuss the AGM this week. A spokesman said only that

Shell was known to be talking to investors, NGOs and staff around the

world.



It’s not the approach Matthews would advocate.



’Open a dialogue with the NGOs,’ he says. ’But look at the internal

issues first.’ Once you’ve identified problem operations, start

improving them incrementally and tell staff what you’re doing. Then, and

only then, contact the NGOs and ask their advice.



’Then they’re demonstrating with their behaviour,’ he says, warning

against what he calls ’the reflex PR approach of issuing public

statements.’



But Laura Sandys, managing director of LSA, believes that life gets

tougher in trying to negotiate with NGOs or trying to out-shout them.

She thinks it is better for companies to re-examine the contract between

directors and shareholders, to take on the role that Pirc is now

doing.



She recommends: ’Increased market research plus on-going shareholder

communications on key issues, and a close examination of corporate

reputations and values.’ Unless your corporate communications team has

found a way to out-shout the minority.



Pirc practice



Joint managing directors Alan McDougall and Anne Simpson set up Pirc in

1985 to bring ethical investment advice to public body pension funds

whose concerns were poorly represented in the City, mostly union

funds.



It has for most of the intervening 12 years, been seen as something of a

joke, a woolly single issue campaigning group with none of Greenpeace’s

ability to attract media attention. In reality it has built up a

50-client membership with assets of pounds 150 billion in the UK and

abroad. Around half its clients are now private pension funds.



Its most visible tactic is to maintain an open dialogue with target

companies and publish all correspondence in critical reports and,

morerecently, a web-site (http://www.pirc.co. uk). It rarely criticises

the fund managers whose proxy votes it needs to swing, instead it tries

to persuade them to exert pressure too. The Shell AGM will undoubtedly

have made that job easier.



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