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Resolving Shareholder-Stakeholder Conflicts

January 31, 2012 By Lee Egerstrom, Economic Development Fellow

Part two of a two-part series. Read part one.

Two years ago when Minnesota was engaged in a gubernatorial election, a furor erupted when campaign finance filings revealed prominent corporations had poured massive dollars into political action committees promoting social agendas and tax policies out of step with socially conscious Minnesotans.

Minneapolis-based Target Corp., considered by many as a socially responsible corporation, came under fire from the GLBT community for its campaign contributions. It quickly set about mending fences with stakeholders its campaign donations offended.

Less attention was paid to similar donations from Best Buy Corp., another large Minnesota-based retailer, or to Red Wing Shoes, a manufacturer of footwear for the working class, or “middle class,” or “the 99 percent,” to borrow terms from current political rhetoric.

This second of a two-part series looks at how church groups, social activist organizations, protest movements like Occupy Wall Street and seasoned corporate social responsibility advocates are starting to bridge the gap between shareholder value and stakeholder interests in American democracy.

Hunger, jobs, unemployment, housing and foreclosures, and tax equity are all issues that should unite shareholders and stakeholders, said Eric Fought with Minnesotans for a Fair Economy. These common, interrelated problems are bringing together socially conscious people and organizations such as his, he said, and protest movements are creating a large umbrella for all these reform partners.

From a shareholders’ perspective, companies such as Target, Best Buy and Red Wing Shoes have this in common with other retailers, manufacturers and service providers: America and Minnesota, by extension, depend on consumption and household spending for 70 percent of Gross Domestic Product.

Therefore, weakening household purchasing power and standards of living for the majority of people–consumers–are shareholder matters just as they are for stakeholders.

Where distinctions between shareholders and stakeholders become cloudy comes from most Americans having a foot on both sides of the divide, explains Peter Rachleff, a labor historian at Macalester College in St. Paul.

You might be a working class person, he said. But if you have a pension program, or insurance coverage, or any stake in an investment portfolio as an individual or a member of a group, you also have shareholder interests.

“It was the American dream. Own your own home and have some kind of investment for retirement,” he said.

ISAIAH, the coalition of about 90 religious congregations in the Twin Cities metro area and St. Cloud, advocates for an increasing number of Minnesotans for whom that American Dream is beyond reach. These people of faith address community problems with housing, education, transportation, healthcare and other humanity issues that are ignored or improperly funded through public policies.

Side by side are other groups that seek social justice through more equitable tax policy, said Fought with the Minnesotans for a Fair Economy. Studies by national groups such as Citizens for Tax Justice and Public Campaign show major corporations spend more on Washington lobbying than on federal taxes, prompting David Cay Johnson to write about “The Corporations that Occupy Congress” for the Reuters news agency.

The Sisters of St. Francis of Philadelphia, a number of other orders of nuns, and the New York-based Interfaith Center on Corporate Responsibility are pushing back. Among others, they have taken on giant investment bank Goldman Sachs over political contributions, executive salaries, operating transparency issues and support for the poor.

These church-related groups use investment stakes in companies to bring shareholder resolutions to influence corporate board and management behavior. Pending shareholder resolutions filed with Minnesota companies this year call on 3M Co. to reveal campaign contributions, another would prohibit 3M campaign spending, instruct C.H. Robinson Worldwide to make election of directors more democratic, two others would direct Target to lessen the environmental impact of electronics recycling and reveal its lobbying expenditures, and another calls on UnitedHealth Group to reveal its lobbying expenses.

Macalester’s Rachleff said such shareholder actions are making corporations think more about stakeholder interests. But these are still small steps towards the protected rights of stakeholders found in Germany and other European countries.

In a paper by the Wharton School at the University of Pennsylvania, a team of researchers noted that the German legal system makes firms “stakeholder-oriented” while social norms achieve the same effect in Japan.

Austria, Denmark, France, Luxembourg and Sweden also have laws in place that protect worker interests in companies and require their inclusion on board of directors under differing circumstances, such as numbers of people employed. The Dutch, meanwhile, have a system (structuurvennootschap) similar in some ways to German and Austrian law, but representation is indirect with employees giving approval to directors.

While such discussions are largely ignored in the United States and at state levels, serious academic and industry-specific research is conducted abroad that deal with stakeholder-shareholder frictions that lead to public policies to mitigate or legitimize these relationships.

Rachleff said it will take time to turn around the political and economic system in America and align shareholder value with stakeholder interests. Change will be gradual. It will follow public education and awareness raised by the Occupy movement and the continuing work of nonprofit organizations, corporate social responsibility groups and advocacy organizations like United for a Fair Economy, Minnesotans for a Fair Economy and Isaiah Minnesota.

This will influence corporate and public behavior over time, Rachleff said. “It brings to mind one of my favorite quotes from [the late Sen.] Paul Wellstone: ‘We all do better when we all do better’.”

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