Shareholder Revolts Revive Responsibility

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After far too long, corporate managers and directors may be starting to catch on. Many investors, not to mention the general public, have lost any patience for corporate irresponsibility. Recent high-profile shareholder revolts could finally be spurring corporate bigwigs to change their ways.

Better safe than sorry
After 29 miners died in an April coal mine explosion, Massey Energy (NYSE: MEE  ) has taken several measures to address shareholder anger about safety lapses and irresponsibility. Going forward, Massey will set up a safety committee comprised of independent directors. It's also made other corporate governance changes, including requiring directors to stand for reelection every year starting in 2012.

Hewlett-Packard's (NYSE: HPQ  ) highly publicized ouster of CEO Mark Hurd for shameful behavior is an equally interesting development. Although some seem to believe Hurd's infraction was minor, executives who bend smaller rules now might bend other, bigger rules later. Shareholders simply can't afford that potential risk.

Responsible parties
In 1970, Milton Friedman famously said that the only social responsibility of business is to increase profits. However, solid corporate governance may lead companies toward stronger performance on the bottom line.

Forbes recently profiled "The 20 Most Responsible Companies," according to data from GovernanceMetrics. In a nutshell, these contenders are chosen according to exemplary corporate governance policies.

Let's study a handful of the companies highlighted on that list, and see why GovernanceMetrics placed them near the top of the heap of responsible businesses:

  • Powerful performance: American Electric Power (NYSE: AEP  ) documents its environmental and social performance. Its fast facts page includes great data, including disclosure on emissions.
  • Squeaky-clean corporate hygiene: Colgate-Palmolive (NYSE: CL  ) dreamed up a system to achieve solid governance and ethical business policies. Its website has a detailed chart showing key performance indicators on "people, planet, and performance."
  • A little less filthy lucre: ExxonMobil (NYSE: XOM  ) shareholders are given the coveted ability to call special meetings, and the company's pay incentives are linked to peer group performance.
  • Anti-sweatshop brigade: Gap (NYSE: GPS  ) reviews garment manufacturing and factory approval processes, with an eye toward better factory conditions for workers and advancement for female employees, among other goals.
  • Truly open networks: Sprint Nextel (NYSE: S  ) corporate policies push for diversity both within the company and among its suppliers. The telecom also has a chief diversity officer on board.
  • Copy that: Xerox (NYSE: XRX  ) exhibits a strong commitment to ethics, diversity, the environment, and safety. Its most recent Global Citizenship letter seems to take inspiration from the conscious capitalism philosophy, opening with "Dear stakeholders," and saying things like: "We don't have to choose between the environment and profit. We can do both."

Rev up the responsibility
These lists may be a great starting point for Fools' further research, but they can also illustrate just how subjective the notion of "responsibility" can be. ExxonMobil may make GovernanceMetrics' list, but that didn't prevent its shareholders from filing 11 proposals in its latest proxy statement, many of which dealt with environmental concerns.

Hopefully, more and more companies are building their businesses to avoid as many long-term problems as possible, instead of shirking responsibility now, and reacting to inevitable shareholder outrage later. Taking more responsibility and fewer risks can substantially help a company generate long-term shareholder value. Investors should search for stocks that are up to the challenge.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Sprint Nextel is a Motley Fool Inside Value choice. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 16, 2010, at 11:42 AM, lemoneater wrote:

    Will Massey Energy get the reputation for the safest coal mine to work for? I hope so. At least having independent directors on a safety commitee is a step in the right direction. I'm glad that shareholder outrage worked this change.

    Thank you for your articles on company ethics. Ethics should never be an afterthought. Have a great week!

  • Report this Comment On August 16, 2010, at 1:33 PM, plange01 wrote:

    hp shareholders need to fire their entire board!

  • Report this Comment On August 16, 2010, at 3:21 PM, TMFLomax wrote:

    Thank you for reading, lemoneater!

    plange01, I saw the new information in the news today on the HP/Hurd situation. HP shareholders should be plenty steamed.

  • Report this Comment On August 16, 2010, at 5:59 PM, plange01 wrote:

    now if i can get my million plus out of mee in one piece!!

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