Rise of Portfolio Power

COMPANY annual meetings used to be quiet affairs, marred only occasionally by a question from some oddball stockholder about executive salaries or next quarter's profits. This year, however, the annual meeting has emerged as a hot new battleground in the struggle over the social responsibility of business. Organized corporate critics in growing numbers are pressing proxy votes and raising questions from the floor on issues like minority hiring, pollution, defense production and company operations in South Africa. While the challengers have so far lost all their skirmishes, they may be winning a wider war to influence company policy.

Landslides. Some 30 firms--including AT&T, IBM, Gulf Oil, General Motors, Ford and Chrysler--have faced proxy challenges from environmentalists, civil rights activists, consumer advocates and church groups. Other corporations, like McDonnell Douglas and Continental Oil, have had to cope with demonstrations against company policies or last-minute proposals from dissidents with token stockholdings. True, the shareholding public seems largely indifferent to pleas from activists. In three annual onslaughts against General Motors, the Project on Corporate Responsibility has never polled more than 2.3% on any of its proposals --despite the support of more than 20 churches, 15 universities, five labor unions, three mutual funds and assorted banks, pension funds and trusts.

At least 500 shareholder proposals have been submitted to managements so far this year, but hardly any have polled the 3% of proxy votes necessary to merit revival at next year's meeting. A proposal that Warner-Lambert study the effect of its advertising on drug abuse won 3.2% of the votes. A motion to include women, employees, consumers and blacks on boards of directors earned 3.9% at AT&T and 4.2% at Chrysler. Also at Chrysler, a resolution for disclosure of information on safety, pollution and minority hiring polled 4.5%. At other annual meetings, managements disposed of such affronts with ease, like Gulf Oil's 98%-to-2% trouncing of a demand for full disclosure of its activities in racially oppressive Portuguese Angola. But later, company officials nevertheless pledged to invest only in countries where Gulf can be an equal-opportunity employer.

A number of universities and foundations that voted in favor of management indicated that they may not be so accommodating next time. The Carnegie Corporation, with assets of $305 million, voted against the reformers' proposals at Eli Lilly, Merck, Ford and G.M. But Alan Pifer, the foundation's president, wrote to chairmen of the firms emphasizing the "substantial importance" of the issues. Trustees of the United Methodist Church's Glide Foundation ($6 million) wrote to each of the companies in the Glide portfolio that they would support management's slate of directors only if it included women and "minority-group" representatives. Said Roger Kennedy, financial vice president of the Ford Foundation, which voted for management in several major contests: "How we voted is much less important than what we communicated to management."

More and more foundations, universities and even mutual funds are carefully examining the social consequences of their investment policies. Yale University is setting up a commission to advise trustees on how to vote Yale's $500 million worth of stock. Harvard has named an adviser to President Derek Bok to examine the social implications of the school's portfolio. Other colleges--including Princeton, Stanford, Antioch and Bryn Mawr --have set up committees to decide if, how and what social criteria should be applied to the buying of securities.

Branching Out. Among mutual funds, the Wellington and Putnam groups have formed committees to review socially motivated proxy proposals. Former SEC Chairman Hamer Budge, now president of an Investors Diversified Services fund, has promised that it will not knowingly invest in companies that ignore antipollution measures. The Dreyfus Corp. recently started the $24 million Third Century Fund, which will invest only in firms that its directors consider socially responsible. The firms will be rated on a weighted scale in terms of environmental protection, occupational health and safety, consumer protection and equal-employment opportunity. Corporate critics are stepping up their filing of lawsuits and appearances before Government regulatory agencies. For example, the Oregon Environmental Council sued to block a nuclear power plant near Portland and gained a partial victory last month when the Portland General Electric Co. agreed to limit the plant's radiation discharges.

Though company managements have won most of the battles so far, they will probably be increasingly hard-pressed to keep ahead of adversaries. The Securities and Exchange Commission is considering rule changes that may make it easier for stockholders to submit proxy proposals on issues of public concern. There are nearly a score of national protest groups, and new ones are being formed all the time. The Project on Corporate Responsibility this year branched out to tackle Ford, Chrysler and six drug companies, and its ambition has grown beyond the one-shot-expose approach. "We're interested in more representative boards of directors, better corporate information, and new systems of accountability whereby employees, consumers and other constituents of corporations can elect directors accountable to them," says Philip Moore, the Project's director. "We're not just talking about the abuse of corporate power, but the control of that power."

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