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Shareholders press environmental issues.

A 10-point environmental code known as the Valdez Principles has once again captured the limelight at many of this year's annual meetings.

The environmental took center stage at many of this year's annual meetings with shareholders. Global warming, ozone depletion, and the plight of the rain forests were among the issues raised in a raft of more than 50 environment-related shareholder proposals. Yet a 10-point environmental code known as the Valdez Principles once again captured the limelight.

Shareholder proponents -- in the third year of proxy campaign -- filed 44 Valdez resolutions in 1992, 30 of which came to votes. Nineteen of the proposals asked companies to sign the Valdez Principles, and 11 others requested shareholder reports on management's reactions to the principles. Of the remaining Valdez resolutions, 10 were withdrawn following constructive dialogue between management and the proponents and four were excluded on technical grounds by the Securities and Exchange Commission.

The Valdez Principles were drafted nearly three years ago by a coalition of environmental groups, social investment advisers, unions, church groups, and trustees of two public pension funds. Collectively, member organizations of the Coalition for Environmentally Responsible Economies, or CERES, control $180 billion in investment assets. Signatories of the Valdez Principles pledge, among other things, to reduce pollution, conserve energy, report to "stake holders" on environmental matters and commit the attention of their managers and directors to these issues.

All of the environmental proposals on the ballot were opposed by management and a majority of shareholders this proxy season -- although nearly all garnered sufficient votes to be eligible for resubmission in 1993. Under the proxy rules set by the SEC, first-year shareholder initiatives must receive support from at least 3% of the shares voted; second-year resubmissions must obtain at least 6% support; and third-year resubmissions at least 10%. As this article went to press, all of the votes on the Valdez Principles have been tabulated at the involved companies.

Resolutions asking companies to sign the Valdez Principles received support from an average of 8% of the shares voted, ranging from 4.1% at Wheelabrator to 12.2% at Occidental Petroleum. Resolutions asking management to prepare reports on their reactions to the Principles fared much better, with average support of 12.3%. Votes in favor of the reporting resolutions ranged from 6.2% at Oregon Steel to 22.2% at Burlington Resources. The outcome at Burlington Resources marks the first time that a "social" proxy issue other than a South Africa-related proposal has crossed the 20% support level.

Thirty-seven private companies and three small publicy traded firsm have signed the Valdez Principles. But major corporations have declined to endorse the code. Those targeted with shareholder resolutions listed their reasons in their 1992 proxy statements. Exxon, whose ill-fated oil tanker gave rise to the name of the Valdez Principles, remarked that they "do not recognize the need to balance environmental protection with the importance of adequate energy resources and a stable, healthy economy. The Principles stress environmental values to the virtual exclusion of all other consierations, such as relative cost as well as benefit."

Critics of CERES

Other companies were critical of CERES, the Boston-Based coalition that drafted the Principles. Atlantic Richfield charged in its proxy statement that "CERES, as distinct from its members, has no financial or ownership interest in ARCO but would nonetheless seek comprehensive oversight of ARCO's [Environmental, Health, and Safety] matters. This is wholly unacceptable." Similarly, Champion International maintained that "The establishment and enforcement of environmental policy should not be ceded to a private, self-appointed organization like CERES, which, no matter how intentioned, is accountable to no one but itself." At Union Carbide's annual meeting, Chairman and CEO Robert D. Kennedy gave CERES its stiffest rebuke, calling it "a self-appointed vigilante group" that is running around to companies' annual meetings seeking support for the Valdez Principles -- and then asking signatory companies to pay an annual filing fee. The fee is based on a corporation's annual revenues and ranges up to $15,000.

Representatives of CERES insist that Valdez signatories enter into a mutual and voluntary agreement with CERES that does not obligate management to act in any particular way. Ariane van Burren, who helped coordinate the Valdez shareholder campaign on behalf of the church-affiliated Interfaith Center on Corporate Responsibility, says, "Neither CERES nor the environmentally concerned shareholders would in any way want to infringe upon the board of directors' authority or responsibility for environmentally sound management." Rather, she says, the Valdez Principles seek "a commitment by companies to have adequate environmental auditing and, separately, to be willing to engage in regular and acceptable environmental disclosure."

A Matter of Accountability

Van Buren emphasizes, however, that "A company should make itself accountable not only to itself but also to persons outside of the company who are affected by its operations, and that those persons be able to verify the company's claims." To provide such accountability, she recommends that management take the following voluntary steps: * "Report all environmental costs -- past, present, and future -- not only for the company but also for its employees and those outside of the company n neighboring communities who are affected by its operations. * "Rather than showcase examples of best behavior, report on what the company has done to resolve environmental problems, especially those in the press. * "Standardize environmental reporting between companies, so that investors can assess one company's performance in relation to another's. * "Allow affected persons to participate in setting environmental standards and verifying compliance. * "Make any lobbying and actual dealings with communities consistent with |green' claims. * "Assess corporate environmental accountability and public disclosure in relation to the Valdez Principles, which are the only standards based upon public interests rather than upon the industry's self-interest."

Publicly traded companies until recently have resisted calls by CERES and shareholder proponents to sign the Valdez Principles, largely because the principles were draffted originally without input from industry and because they were considered too vague for companies to know what they would be committing themselves to. The board of directors of CERES approved amendments to the Principles in April 1992 and is hoping that corporations will give them a second look. "We've consulted with hundreds of companies and we think that we've lowered the barriers to signing significantly," says Joan Bavaria, co-chair of CERES and president of Franklin Research & Development Corp. (The amended Valdez Principles are shown on page 56.)

One of the most significant amendments to the Principles concerns Principle 9 on environmental directors and managers. Originally, the language stipulated that signatories "establish a committee of the board of directors with responsibility for environmental affairs" and that "at least one member of the a person qualified to represent environmental interests to come before the company."

No Special-Interest Directors

Many companies interpreted this provision as a mandate for a specia-interest director to serve on their boards. GTE was among several companies to raise such an objection in its 1992 proxy statement. "GTE believes that each director should represent the corporation and its shareholders as a whole and not just a single issue," it wrote. "The selection of a director from any special interest group, environmental or otherwise, is inappropriate and could have a detrimental and divisive affect upon the corporation and the management of its affairs." A number of investing institutions concurred with this interpretation of Principle 9 and cited its perceived meddling in corporate governance matters as a reason for voting against the Valdez resolutions.

The newly amended Principle 9 -- now entitled "Managemen Commitment" -- does away with the call for a specially designated board director and board committe. While still stressing that the board and chief executive officer be "fully informed about pertinent environmental policy," Principle 9 now asks merely for "demonstrated environmental commitment as a factor" in selecting the board of directors.

"We're trying to make it clear that we are not out to micro-manage companies," says CERES' Bavaria. "CERES is not going to get into corporate governance matters" that are rightfully prerogatives of management. "Direct oversight responsibility for environmental affairs is, and always will be, at the signatory companies, as set by their boards and administered by their staffs."

A number of companies familiar with the Valdez Principles are heartened by the changes to Principle 9. Yet some have lingering concerns about the new language. Bill Donahue, a staff attorney for Sun Co., notes, for example, that "demonstrated environmental commitment' moves away from what was perceived, for lack of a better term, as |the environmental director.' But we're still a little puzzled by what [the commitment] means and how companies will interpret it."

CERES wants to be accommodating on this point. "We purposely left that statement as vague as possible," explains CERES staffer Ken Pruit. "For one company, |demonstrated environmental commitment' may be having someone on the board with a master's degree in forestry. For another, it could be making contributions to environmental groups. Or it could simply be an expression by the board of avowed concern for the environment. The point is, environment will be a factor. There are a million factors that go into making up the composition of a board, and it's up to the companies to decide which ones they will choose."

What's in a Name?

Other company representatives simply have a problem getting past the name of the Valdez Principles. Says AT&T's Rhoda Andrews: "My personal perspective, after talking to many companies, is that it's like going to a shipbuilding company and asking them to sign something named after the Titanic. It raises a red flag, it stirs up negative emotions in what are supposed to be positive principles. When you ask people what's actually in the Valdez Principles, few can tell you, but almost everyone [in the corporate community] says they are against them. That suggests to me that the name just doesn't work." Andrews stresses, however, that AT&T has been in constructive dialogue with CERES for more than two years and that discussions with the coalition are ongoing.

Ken Pruitt of CERES puts a different spin on the Valdez name. "When you ask the average person on the street what he thinks when he hears the name |Valdez,' the response you get is, |irresponsibility on the partof corporations.' That's exactly what we're trying to get at --reversing irresponsible acts. It many seem like we're slapping Exxon in the face, but we're really not out to embarrass anyone. The message we want to convey is one of addressing corporate environmental responsibility."

Status of Valdez Resolutions: 1992 Annual Meeting Season

The following chart shows the companies where Valdez shareholder resolutions were proposed this year and have come to votes or were withdrawn after agreements. Where available, percentages of shareholder votes in favor of the resolutions are provided. Votes in parentheses are from 1991.

Resolutions to Sign the Principles
American Cyanamid -- 10.8% (12.1%) Mobil -- 6.7% (8.3%)
Amoco -- withdrawn Occidental Petroleum -- 12.2% (14.9%)
Browning-Ferris -- withdrawn PepsiCo -- 9.7% (7.9%)
Champion International -- 5.7% (7.7%) Phillips Petroleum -- 11.4%
Chrysler -- 10.1% (9.6%) Safety-Kleen -- 7.5% (10.4%)
Corning -- 7.1% Southern -- withdrawn
Exxon -- 7.9% (6.3%) Sun Co. -- 6.5%
General Motors -- 10.7% (9.0%) Union Carbide -- 5.5%
International Paper -- 6.0% (5.0%) USX -- 6.9%
Kimberly-Clark -- 7.4% (5.6%) Waste Management -- 8.4% (9.5%)
Louisiana Pacific -- 8.8% (8.5%) Westinghouse -- withdrawn
McDonald's -- withdrawn Wheelabrator -- 4.1%

Resolutions to Report on the Principles
American Electric Power -- withdrawn Great Lakes Chemical -- 17.0%
Atlantic Richfield -- 12.2% (9.5%) GTE -- 14.7% (10.3%)
Bristol-Myers Squibb -- withdrawn Kerr-McGee -- 15.4% (16.8%)
Burlington Resources -- 22.2% Oregon Steel -- 6.2%
Chevron -- 7.8% Raytheon -- withdrawn
Coastal -- 8.8% Tenneco -- 11.1%
Cooper Industries -- 12.4% Texaco -- withdrawn
Emerson Electric -- withdrawn Union Pacific -- 12.4% (10.1%)

Source: Investor Responsibility Research Center

The Valdez Principles

This amended version of the Valdez Principles was adopted by the CERES Board of Directors on April 28, 1992.


By adopting these Principles, we publicly affirm our belief that corporations have a responsibility for the environment, and must conduct all aspects of their business as responsible stewards of the environment by operating in a manner that protects the Earth. We believe that corporations must not compromise the ability of future generations to sustain themselves.

We will update our practices continually in light of advances in technology and new understanding in health and environmental science. In collaboration with CERES, we will promote a dynamic process to ensure that the Principles are interpreted in a way that accommodates changing technologies and environmental realities. We intend to make consistent, measurable progress in implementing these Principles and to apply them in all aspects of our operations throughout the world.

1. Protection of the Biosphere: We will reduce and make continual progress toward

eliminating the release of any substance that may cause environmental damage to the air,

water, or the earth or its inhabitants. We will safeguard all habitants affected by our

operations and will protect open spaces and wilderness, while preserving biodiversity.

2. Sustainable Use of Natural Resources: We will make sustainable use of renewable natural

resources such as water, soils, and forests. We will conserve nonrenewable natural resources

through efficient use and careful planning.

3. Reduction and Disposal of Wastes: We will reduce, and where possible eliminate, waste

through source reduction and recycling. All waste will be handled and disposed of through

safe and responsible methods.

4. Energy Conservation: We will conserve energy and improve the energy efficiency of our

internal operations and of the goods and services we sell. We will make every effort to use

environmentally safe and sustainable energy sources.

5. Risk Reduction: We will strive to minimize the environmental, health, and safety risks to our

employees and the communities in which we operate through safe technologies, facilities,

and operating procedures, and by being prepared for emergencies.

6. Safe Products and Services: We will reduce, and where possible eliminate, the use,

manufacture, or sale of products and services that cause environmental damage or health or

safety hazards. We will inform our customers of the environmental impacts of our products

or services and try to correct unsafe use.

7. Environmental Restoration: We will promptly and responsibly correct conditions we have

caused that endanger health, safety, or the environment. To the extent feasible, we will

redress injuries we have caused to persons or damage we have caused to the environment

and will restore the environment.

8. Informing the Public: We will inform in a timely manner everyone who may be affected by

conditions caused by our company that might endanger health, safety, or the environment.

We will regularly seek advice and counsel through dialogue with persons in communities

near our facilities. We will not take any action against employees for reporting dangerous

incidents or conditions to management or to appropriate authorities.

9. Management Commitment: We will implement these Principles and sustain a process that

ensures that the Board of Directors and Chief Executive

Officer are fully informed about pertinent environmental issues

and are fully responsible for environmental policy. In selecting our Board of Directors, we

will consider demonstrated environmental commitment as a factor.

10. Audit and Reports: We will conduct an annual self-evaluation of our progress in

implementing these Principles. We will support the timely creation of generally accepted

environmental audit procedures. We will annually complete the CERES Report, which will be

made available to the public.


These Principles establish an environmental ethic with criteria by which investors and others can assess the environmental performance of companies. Companies that sign these Principles pledge to go voluntarily beyond the requirements of the law. These Principles are not intended to create new legal liabilities, expand existing rights or obligations, waive legal defenses, or otherwise affect the legal position of any signatory company, and are not intended to be used against a signatory in any legal proceeding for any purpose.

Douglas G. Cogan is Manager of Global Issues for the Environmental Information Service of the Investor Responsibility Research Center. IRRC is a Washington, D.C.-based nonpartisan research organization that analyzes shareholder and corporate governance issues on behalf of 400 subscribing institutions. The IRRC's Environmental Information Service tracks corporate environmental performance and management policies.
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Title Annotation:Meeting the Environmental Challenge
Author:Cogan, Douglas G.
Publication:Directors & Boards
Date:Jun 22, 1992
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