www.o-i.com/

by Natasha Lamb, MBA

Glass is a true cradle-to-cradle material. Unlike plastics, glass does not degrade in the remanufacturing process, enabling a continuous cycle of use and reuse.  Owens-Illinois, Inc. (OI—NYSE) is the largest global player in glass containers, with the technology to use 90% recycled glass in its manufacturing.  OI is also the largest user of recycled glass containers in the US, recycling approximately one million tons per year.  Although virgin glass forming is an energy-intensive process, with energy costs contributing 15-20% of total container cost, recycled inputs lower the cost substantially.  Further, the company has developed a process to reduce the amount of glass in a typical bottle by 10-20%, resulting in increased strength and lower material and transportation costs.

On the consumer safety front, glass containers are considered the safest packaging material; they do not leach toxins into food and liquids as do plastics that contain toxins such as bisphenol A.  OI’s business has fundamental strengths given the sustainability profile of its products, and although the company’s environmental, social, and governance (ESG) strategy is nascent, it is well positioned to become an ESG leader if it engages in sustainability reporting and target setting.

OI is also poised to benefit from a cyclical upturn in glass demand as the broader economy recovers.  Glass demand bottomed in the first half of 2008, as global volumes fell 12-15%, but is showing signs of improvement. In the second quarter of 2009, OI’s volumes increased 14% on a sequential basis, boosting operating profit.  OI is also actively working to improve margins through price increases and cost reductions.  The company’s current operating margin is now greater than its peers and the strongest it has been in the last 15 years.

by Natasha Lamb, MBA

Lighting consumes 22 percent of the electricity generated in the US and CREE, Inc. (NYSE—CREE), the leader in LED technology, is tackling this inefficiency head on. In fact, the Department of Energy estimates that LED adoption could lead to power savings equivalent to 27 one-gigawatt coal-fired power plants.

LEDs are a game changer and the only real innovation in lighting in over 100 years. Their environmental and cost saving profile includes inherent advantages over incandescent and compact fluorescent bulbs, including enhanced efficiency, lifespan, and more ecologically sound materials.  LEDs are 90 percent more efficient than incandescents, last 20 times longer, and do not contain mercury, a hazard present using and recycling CFLs. The short 1-2 year payback justifies higher their upfront cost.

With only 1 percent penetration in the $40 billion worldwide lighting industry, demand for LED technology is growing and Cree’s high quality LEDs are steadily gaining share.  In 2008, demand for LED lighting applications grew 39 percent, fueled by government support, the replacement market, and legislation banning incandescent bulbs.  The US Energy Independence and Security Act of 2007 has phased out incandescent bulbs in Federal buildings, while Australia has restricted imports of inefficient bulbs.  The Chinese government intends to install 4M LED streetlights in the next two years, for which Cree is a supplier.

LED backlight applications are also driving Cree’s growth.  LED notebooks and TVs are more energy efficient, thinner, and boast better performance.  LED TV penetration is expected to increase from three to 39 percent in the next five years.

Cree is expected to grow earnings 19 percent on a long-term annual basis, while earnings are forecasted to increase 80 percent in 2009 thanks to production efficiencies.  Cree’s strong cash position, at $4/share, and lack of debt will boost growth further as the company makes strategic acquisitions.

For investors who seek out sustainability, cycles of birth, death, and rebirth are everywhere.  The rapidly waning light as we approach the winter solstice calls to mind the Greek goddess Demeter and her daughter Persephone; Demeter’s sorrow at the loss of her daughter led to winter for the earth.  However deep and dark and endless the winter seems, eventually Persephone’s return from Hades each year brings spring and renewal.

We are accustomed to economic and market cycles, but the October 2007 – March 2009 stock market decline was the most wrenching in decades.  Many people began to anticipate a frightening future following in the wake of a total financial and economic collapse.  And yet, we are finally seeing signs of recovery – housing sales very slowly starting to recover and consumers venturing out of their houses into markets.  The stock market’s activity since March has preceded it, and we’re happy to see it.

At Trillium, we are seeing our own cycle of renewal and growth.  In October, we were extremely pleased to welcome our new CEO, Matthew Patsky, CFA.  While in one sense Matt is new to Trillium, in another sense his own career harvests the seeds that Joan Bavaria planted.  Matt was an early subscriber to Investing for a Better World, in its previous incarnation as Franklin’s Insight. Joan co-created and co-founded the Social Investment Forum and Ceres, two organizations that harrowed the ground and fertilized the soil for social and environmental investors.   I was an early employee of Trillium, and I remember our concern that Joan expended so much of her time and energy outside of the company – didn’t she know that we needed her at Trillium?  Yet Joan continued to give her time and her effort to the world at large – encouraging investors, encouraging research analysts, gently – and not so gently – prodding companies to create a better, cleaner, greener, and more just world.  Matt is one of the many people Joan encouraged along the way.  He comes to Trillium eager to extend and grow Trillium’s expertise in research, advocacy, and community investment.  He is a member of the Social Venture Network, and an active board member for Root Capital, which provides financing to sustainable businesses in the developing world.

So we at Trillium are now reaping Joan’s harvest.  Her generosity to others has built the overall field, and we benefit from her efforts so many years ago.  Matt brings a wealth of experience as an analyst, as a portfolio manager, and as a colleague.  We’ve added to our research staff, and are busy developing our advocacy plans for the spring proxy season.  At Trillium, we are all invigorated, enthusiastic, and very glad to have Matt leading us as we work together to build a better and more just world.  We hope that you will join us in this next cycle of renewal!

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I recently saw The Informant, starring Matt Damon as Mark Whitacre, the Archer Daniels Midland whistleblower who exposed his company’s blatant conspiracy to fix the price of lysine, an additive given to feedlot cattle and other livestock.  I remember reading the book of the same name by New York Times reporter Kurt Eichenwald, and how amazed I was at the details of this conspiracy. Whitacre and other ADM executives met with their peers at competing companies in hotel rooms across the world where they fixed lysine prices and apportioned the market shares each of the companies would get.

If that wasn’t enough, Whitacre, who had been diagnosed as bipolar, was stealing money from ADM — $9 million, in fact, stashed in a secret Swiss bank account.  His loopy behavior is caught so well in the movie that it provokes peals of laughter from the audience.

I have long been interested in writing a book on the portrayal of business in novels, plays, films and television. It has always struck me as ironic that in the country most celebrated for its business acumen, this esteem does not show up in literature or the dramatic arts.  On the contrary, business people have been generally derided or despised in popular media, long before the current scandals delivered a host of new examples of perfidy in the executive suites.

So The Informant joins the library of artworks and popular culture wherein the villain you love to hate is the businessman or business woman (see sidebar). It’s quite a legacy.

The events of the last two years will no doubt inspire new works that illuminate the seamy side of capitalism. Writers will have a rich lode of material to work with:  Bernie Madoff, Bernard Ebbers, Richard Scrushy, AIG, Fannie Mae, Freddy Mac, Countrywide, Merrill Lynch, General Motors, Chrysler, Siemens.

Siemens strikes me as an especially good candidate.  With 420,000 employees, the German company is the 13^th largest private employer in the world.  It has gone through a gut-wrenching shakeup that saw two CEOs ousted because of a bribery scandal.

When I first started to write about social responsibility in business forty years ago, bribery was a prominent issue.  American companies argued that they were disadvantaged in global markets because competitors engaged in bribery. In 1978 Congress prohibited U.S. companies from paying bribes, ostensibly putting the issue to rest.  Not so.

In 2005, prosecutors in Germany and the Securities and Exchange Commission began uncovering a well-organized, massive, and routine system of bribery deployed by Siemens. The different units in the company maintained kitties to dole out these bribes all over the world.  The telecommunications unit had an annual bribery budget of $40 to $50 million.  The bribes were usually 5 to 6 percent of a contract’s value but in especially corrupt countries it could go as high as 40 percent.  The budget for Greece alone was $10 to $15 million a year.

All told, Siemens spent $1.4 billion on bribes from 2001 to 2007.  Five million went to the son of the Bangladeshi prime minister to win a mobile phone contract.  In Argentina, Siemens put up $40 million in bribes to secure a contract to produce national identity cards.  In Israel, $20 million went to government officials for a contract to build power plants. And so on.

Siemens did not deny the charges.  In fact, it cooperated with the prosecutors.  In the end, it paid $1.6 billion in penalties, the largest fine ever levied on a corporation for bribery, and $1 billion to for internal investigations and reforms.  How could it add up to so much? Siemen’s law firm assigned 300 people to the case — lawyers, forensic analysts and staff members. The lawyers and an outside auditor racked up 1.5 million billable hours.

Lucky Siemens has deep pockets.  With $123 billion in revenues in 2008, it was the 30^th largest company in the world.

And what a good movie it would make…

There Will Be Blood, Michael Clayton, The Constant Gardener, Wall Street, Glengarry Glen Ross, Erin Brockovich, The Insider, All My Sons, Pretty Woman, The Hucksters, Mad Men, Black Gold, Babbitt, Sister Carrie, The Bonfire of the Vanities, Gain, Underworld, The Axe, American Pastoral, Moral Hazard, The Man in the Gray Flannel Suit, Microserfs, The Spiked Heel, A Civil Action, Citizen Kane, Silkwood, Boiler Room, The Hudsucker Proxy, Robocop, The Financier, The Octopus, Something Happened, The Jungle, Modern Times, The Power and the Glory, Sabrina, Rollover, Putney Swope, Rising Sun, Jurassic Park, Bodies Electric, Ragtime, JR, Cash McCall, Red Harvest, Other People’s Money, The Tin Men, My Cousin Vinny, Trading Places.

In March of this year, in the depths of the market sell-off, Treasury Secretary Timothy F. Geithner appeared before the House Financial Services Committee to discuss the need to fix the nation’s financial regulatory system. Geithner told the committee “Our system failed in fundamental ways,” and to “address this will require comprehensive reform. Not modest repairs at the margin, but new rules of the game.” This conclusion was echoed by Representative Barney Frank (D-MA), chairman of the committee. “The days of light-touch regulation are over,” he said.

The implications of the crisis went even further. As New York Times columnist Andrew Ross Sorkin wrote in his new book Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System — and Themselves, “The calamity would definitively shatter some of the most cherished principles of capitalism.”

Indeed there has been widespread agreement that the financial system is flawed in many important ways. The list of ills is long and varied – greed, overconfidence, stupidity, lack of accountability, excessive compensation, under-resourced regulators, uncoordinated regulation, conflicts of interest, and too many financial intermediaries.

It has been persuasively argued that reform efforts are necessary because under our current regulatory system and government guarantees, large financial companies are excessively insulated from the risk of failure. Many features of our system promote excessive risk-taking and while such risks may (or may not) meet the narrow interests of particular financial institutions or their managers, they may not meet the interests of society and the larger economy. This factor is of particular interest to investors who have an eye on long-term and sustainable performance. We need a system that aligns the interests of financial company executives with socially beneficial and sustainable long-term performance.

Whatever the cause(s), the impact of the near-collapse of the financial system has been felt far and wide, with the greatest burden falling on the poor and underprivileged. Unemployment hovers at ten percent. The “hidden” unemployment rate, which includes discouraged and underemployed workers, is estimated at 17%.  Many economists fear that without further action, the recovery will be a jobless one. Foreclosures continue to stalk communities as the dream of being more prosperous than the previous generation seems farther away.

The Obama administration’s  first tangible response to this crisis was its June 2009  plan, Financial Regulatory Reform: A New Foundation, which outlined five goals: (1) promote robust supervision and regulation of financial firms, (2) establish comprehensive supervision of financial markets, (3) protect consumers and investors from financial abuse, (4) provide the government with the tools it needs to manage financial crises, and (5) raise international regulatory standards and improve international cooperation.

These goals are similar, but also different in very important ways, to those of the Social Investment Forum which called for improved corporate governance, disclosure on environmental, social and governance factors, regulation and oversight of all investment products, ‘resourcing’ the regulators, creation of a systemic risk regulator, better consumer protection, and improving the rating agencies. (Cheryl Smith of Trillium Asset Management Corporation serves as the Social Investment Forum’s board chair.)

But for all intents and purposes, nothing has been done thus far. For all of the talk of crisis and opportunity – of a real need to change business as usual – there has been surprisingly little done since the eight days in September 2008 when Lehman went into bankruptcy and Merrill Lynch was absorbed into Bank of America. “I think the real danger here is almost nothing done to prevent another financial crisis from coming down the pike,” said Jeffrey Garten, former dean of the Yale University business school and a top international economic adviser to former President Bill Clinton. Former Clinton labor secretary Robert Reich observed “Congress is struggling to produce the tiniest shards of regulation that would at least give the appearance of doing something to rein in the Street,” for which he lays most of the blame on political donations. In fact, lobbying by the financial services industry even prompted President Obama and several administration officials to call on Wall Street to stop lobbying against the proposed regulations

Where do we go from here, as citizens, voters, and investors?

One avenue is through Americans For Financial Reform (AFR), a large umbrella organization of many familiar organizations from the SRI, unions and consumer advocacy communities. AFR is pressing the administration and congress to move quickly to “to repair our nation’s broken financial system, establish integrity in the financial markets, and facilitate productive economic activity that benefits all segments of our communities.” AFR provides position papers, action alerts, and legislative updates.

We can also support legislation such as the Shareholder Bill of Rights or the Consumer Financial Protection Agency Act. The Social Investment Forum has been coordinating lobbying in support of these bills and Trillium has been an active participant in those actions.

These efforts, aimed at generating a government response to the crisis, are the most popular and obvious way to address systemic financial reform. To focus exclusively on them, however, as some have, is to miss the role that other change agents like shareholders can play. Shareholders have a critical role to play in fostering socially desirable outcomes. While many apologists for corporate management have blamed shareholders for the crisis, their arguments fail to take into account the fact that many shareholders have not exercised direct influence over management and are in fact distanced from corporate executives  by layers of brokers, mutual fund managers and investment firms. As Judge Leo Strine, Jr. of the Delaware Chancery Court recently put it:

The difficulty is compounded when those who directly influence public corporations are not primarily end user investors focused on the long term and keenly worried about excessive risk — think workers who must invest in mutual funds for retirement — but far more likely to be financial intermediaries whose investment horizons are often less than a year.*

Shareholders need to surmount these barriers and exercise their unique rights to advocate for meaningful reform. In recent years we have seen growing support for shareholder proposals that call for advisory votes on executive pay packages, independent board chair, and political contribution disclosure. These votes, in some cases majority votes, indicate that many shareholders are ready to take a more active role in corporate governance – an important step towards meaningful corporate social responsibility.

At Trillium we are at the nexus of those interests and for years have taken this opportunity as a shareholder to hold financial companies accountable and to push them to conduct themselves in a socially beneficial manner. We have filed and co-filed shareholder proposals for the last seven years at companies like AIG,  JP Morgan, Bank of America, Wells Fargo, Citigroup, Countrywide, and Goldman Sachs on issues such as social impact reporting; predatory lending, and executive compensation. This year, we have submitted shareholder proposals to Goldman Sachs on executive compensation and State Street Bank on political contributions. These proposals make it clear that as far as we are concerned, the days of business as usual are over.

We are extremely concerned at the lack of meaningful financial reform in the last 18 months and firmly believe we must continue to apply pressure on the financial services industry to reform. As Chief of Staff Rahm Emmanuel is famous for saying, “never let a serious crisis go to waste.” We heartily agree and will remain strong advocates for socially responsible behavior at the financial services companies in our portfolios.

What a difference a change in Administration makes. Champagne corks popped in the offices of socially concerned shareholders all throughout the land in October, when, with a few strokes of the pen, the Security and Exchange Commission (SEC) restored a necessary dose of common sense to the shareholder resolution process that lacking in the Bush years.

To appreciate the change, a little background is necessary. When filers of shareholder resolutions send off a resolution to a company, said company will typically scrutinize it to see if it conforms to rules governing such proposals, rules that are enforced by the SEC. If it believes that it does not conform those rules, it can appeal to the SEC for permission to exclude the resolution from its proxy statement (the annual ballot sent to shareholders that allows them to vote on both shareholder and management resolutions). The SEC then weighs the company’s and the shareholders’ arguments and makes a decision in advance of the annual stockholder meeting.

You don’t need a law degree to see that everything depends on how the SEC interprets the rules. It may come as no surprise that under the previous administration, the agency took a sweeping view that the risks associated with such topics as climate change, subprime lending, toxic chemicals, rising healthcare costs and other pressing issues were not a suitable subject for shareholder proposals.

This so-called “risk evaluation exclusion” severely cramped the ability of shareholders to hold corporations fully accountable for the financial, environmental and social implications of their policies in these high profile issue areas. Socially concerned shareholders universally saw it as a major impediment to meaningful activism.

For example, two years ago the SEC gave Lehman Brothers and Washington Mutual permission to exclude proposals that asked for “a report discussing the company’s potential financial exposure as a result of the mortgage securities crisis,” because they did not raise a “significant public policy issue.” This was just months before Washington Mutual went into receivership and Lehman had to file for bankruptcy because of their mortgage related risk exposure.

A year later, the SEC gave the thumbs-down to proposals filed with several coal companies that requested reports on greenhouse gas emissions. All three proposals were excluded because they focused on the “day-to-day affairs” of the company. However, identical proposals went to a vote at a couple of other companies that declined to challenge them, where they received over 40% of the vote. Clearly in the opinion of the shareholders, the issue of greenhouse gas emissions was anything but a “day-to-day affair” for coal companies. It should also have been abundantly clear to the SEC that climate change was a significant policy issue, given the legislation before Congress and vigorous public debate on how best to reduce greenhouse gases.

The SEC explained that these proposals were inappropriate for shareholder consideration because they sought an “evaluation of risk.” This was the reasoning formalized in an SEC legal bulletin in 2005 that laid the foundation for what became an ever expanding barrier to effective shareholder engagement with management, directors and fellow shareholders.

Shareholder advocates like ourselves found that explanation untenable. Understanding risk is a critical component to any investment strategy. So prohibiting questions about risk, at best, seemed inconsistent with the SEC’s mandate to protect investors and at least lacking in common sense. The timing of these new policies also smelled of politics, emerging after the 2004 Presidential election and the further entrenchment of Bush era staff appointments.

Following years of organizing to push the SEC and Congress to address our concerns, Trillium took a leadership role to fix the situation. In November 2008, Trillium helped draft a letter from 60 prominent shareholders to then president-elect Obama calling for the retraction of the 2005 legal bulletin. With pressure growing on the SEC, in September 2009, the agency  held an invitational meeting at the Commission’s headquarters to discuss these issues. At the meeting, I argued vigorously for a rational approach that respected shareholder legitimate concerns about both the economic, social and environmental performance of companies and how these issues impact portfolio company performance.

Hence our profound relief and gratification when the SEC quickly responded and reversed the previous policy just in time for the 2010 shareholder season. This change is compelling confirmation that the SEC is taking positive steps to bring its actions in line with its mission to protect investors and serve the public good. Over the next year we will continue our advocacy at the SEC so that it facilitates meaningful shareholder engagement on the important social and environmental issues confronting companies.

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Your investment career started in 1984 at Lehman Brothers.  How did you find your way into SRI?

My first experience with socially responsible investing (SRI) came a bit early in life. Growing up I had a keen interest in the stock market and actually made my first investment in a mutual fund at age eleven.  With only $500 saved from shoveling driveways, mowing and raking lawns, I decided a balanced mutual fund was the best way to start investing. The fund I selected was Dreyfus Third Century Fund, which was one of the earliest SRI mutual funds.  It made intuitive sense to me even back then that investing should include looking at the sustainability of the business practices of the companies you are investing in.

After graduating from Rensselaer Polytechnic Institute, I was recruited to work as part of the technology equity research team at Lehman Brothers in 1984.  While working at Lehman, I began to explore incorporating environmental, social, and governance (ESG) factors into the research I was doing. In 1989, as I shifted into the consumer growth space, I began to incorporate these factors into my research.

What was attractive to you about Trillium?

Trillium is one of the iconic brands in the SRI world that I first interacted with as a client.  While looking at incorporating ESG factors in my research at Lehman, I met Joan Bavaria of Franklin Research, as it was known then, and was an early subscriber to their newsletter Insight.  Joan, along with a number of the early visionaries in the field, had encouraged my thoughts of building a franchise within the sell-side that incorporated these broader issues.

I had long admired the work of both Joan Bavaria and Trillium and was quite humbled to have received a call asking if I would consider the role of CEO of the company.

Trillium’s been a pioneer in SRI research and advocacy since 1982. The field has grown exponentially since then in assets under management, the range of investment products offered and in many other ways.  How do you see Trillium evolving in this more competitive environment?

I was pleased to find in my due diligence of Trillium that not only did the company have a brand with authenticity in the area of SRI research and advocacy, but a solid long-term 10 year track record of investment out performance. This is a competitive advantage that I do not believe is well known in the marketplace. Trillium has a long and well- established leadership role in shareholder advocacy. This commitment will remain as strong under my leadership and is a distinct differentiator versus our competition. The firm also was an early pioneer in the field of community investing. This is also a key competitive advantage.

What do you envision for the future of Trillium?

Trillium is one of the oldest and strongest franchises in the SRI industry.  We have been incorporating environmental, social and governance factors since 1982.  As the broader investment universe is beginning to look at these factors as a meaningful long-term contributor to alpha generation, I believe we are in a very enviable position.  We, in the SRI community, have long been waiting for institutional investors, particularly the endowment, foundation and retirement plan market, to recognize the benefit of incorporating non-financial metrics into the investment process. That day is finally arriving and Trillium stands to be a major beneficiary of this trend. I believe we will look back five years from now and still stand as the largest independent, employee owned firm in the SRI industry.

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Trillium Asset Management Corporation (“Trillium”) has been pressing restaurant chains to reduce the use of pesticides in their supply chains, continuing our research and advocacy on sustainable food and agriculture.¹

Reducing pesticides is a logical step toward protecting the health of farm workers and consumers and minimizing soil and water contamination. The introduction of GMO seed has actually resulted an increase in pesticide use. Yet the restaurant industry has by and large failed to exercise its influence for good in this area. We think it is important for restaurants to get active to reduce pesticide use for a couple of reasons.

First, new research is providing stronger evidence of the link between pesticides and serious conditions such as cancer and other chronic diseases. For example, scientists have known for some time that two pesticides commonly used on tomatoes and other vegetables, maneb and paraquat, trigger a neuro-degenerative process that leads to Parkinson’s disease in animals. In April of this year, two UCLA researchers produced the first study linking the two to high rates of Parkinson’s disease in humans as well. Residents of California’s largely agricultural Central Valley exposed to maneb and paraquat showed a 75 percent increased risk of developing Parkinson’s disease over a 25-year span. The risk of disease increased with earlier exposure in life.²

Second, as attested to in the growth of organic food purchases, consumers are paying more critical attention to the origins of their food. Although organics still represent a very small slice of overall food sales, their sales tripled from $393 million in 2002 to $1.7 billion in 2007. Consumers’ access to good information about pesticides is improving. The Pesticide Action Network (PAN) recently launched a “What’s On My Food” website and iPhone app. The app pairs US Department of Agriculture pesticide residue and toxicity data with common fruits and vegetables for easy lookup in the producer aisle.

In recent months we’ve approached Chipotle Mexican Grill about pesticides. Chipotle offers fast food diners burritos, tacos and salads made with fresh ingredients. Using the slogan “Food with Integrity,” the company sells hormone and antibiotic-free sour cream, chicken and pork. Customers who never before gave much thought to where restaurant meat came from can learn about Chipotle’s meat suppliers on its website.

In dialogue and letters to the company over the past year, we’ve been pushing Chipotle to take their good intentions farther, into produce as well as dairy and meat. We’ve asked the company to disclose what steps they are taking to promote sustainable produce farming. Chipotle told our shareholder group that it is gathering data on water and pesticide management from its avocado suppliers. The company’s web site discusses its sourcing of organic beans (35% of total bean purchases). However, the water and avocado efforts are not reported publicly.

In collaboration with members of the Investor Environmental Health Network, Trillium is filing a proposal asking Chipotle to publish a comprehensive report to shareholders discussing how the company is addressing pesticide use reduction in its supply chain.

Chipotle can bolster the credibility of “Food with Integrity” by prioritizing pesticide use reduction, beginning with high-residue crops such as green peppers tomatoes and lettuce.

Chipotle’s forays into sustainable purchasing lead us to believe the company can undertake this work more holistically and more transparently. Doing so will be certainly be a factor in the company’s successful entrée into the U.K. next year, where consumer awareness and expectations about supply chain issues is higher.

Click footnote number to return to text above:

1. See “Betting on the Farm” from the Spring 2009 issue of Investing For A Better World.

2. American Journal of Epidemiology, April 15, 2009.

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* Collaboration between client and Responsible Wealth, a project of United For A Fair Economy
** Successfully withdrawn this autumn.

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Overview
Opportunity Finance Network (OFN), formerly the National Community Development Loan Fund, is the leading network of private financial intermediaries identifying and investing in opportunities to benefit low income and low wealth people in the U.S.  OFN members include community loan funds, community development financial institutions (CDFIs), community banks and credit unions.

OFN’s vision is “a world where all people experience social, economic, and political justice and so have the opportunity to act in the best interests of their communities, themselves, and future generations. Our mission is to lead the opportunity finance system to scale through capital formation, policy, and capacity development.”

Programs
To transform community development finance into a high-volume financing system OFN finances CDFIs directly with an eye toward identifying and financing the systems that alter how the CDFI industry works. This enables scale and productivity involving hundreds of CDFIs. Within the OFN Financing Fund, the Manufactured Housing Communities (MHC) Fund is designed to preserve and expand the supply of affordable housing options available to low-income households. The MHC Fund makes financing available to CDFIs for manufactured housing communities that are converting from investor-ownership to resident-controlled ownership. As of September 30, 2009, OFN’s Financing Fund had $53.8 million in loans and investments outstanding and an additional $2.9 million in financing commitments. OFN’s investors, who have provided the resources for the Financing Fund, include banks, foundations, and religious institutions.

As part of its core business model, OFN acts as an information and networking conduit between community investment stakeholders in the U.S.  OFN hosts an annual community investment industry conference, which Trillium Asset Management Corporation (“Trillium”) regularly attends.  The 2009 conference’s core curriculum on stabilization and growth featured more than 30 sessions designed to help CDFIs and investors navigate in these “best of times, worst of times,” and emerge from today’s challenging market prepared to seize opportunities in “the new normal.”  OFN collects industry data and publishes a quarterly “Market Conditions Survey.”  The organization also hosts conference calls and regional meetings.

The CDFI Assessment and Ratings System (CARS™), the only rating system of its kind for CDFI investors, is a program started by OFN. CARS™ is a comprehensive, third party analysis of community development financial institutions that aids investors and donors in their investment decision making. Trillium was one of an inaugural group of sixteen CDFI investors, including banks, socially responsible investors, and foundations, to use CARS™ in our due diligence process. As of September 30, 2009, CARS™ had completed 65 ratings on 50 CDFIs (15 of those were re-ratings) with 11 additional reviews in-process. Twenty-one CDFIs are scheduled for review in 2010, with nine more pending and 44 more in the pipeline for 2010 or 2011.

OFN’s policy division is actively engaged in the core issues and programs that advance economic development resources for CDFIs at the federal level. Overall, OFN members received almost two-thirds of the total funds available to CDFIs in both the American Recovery and Reinvestment Act of 2009 and its supplemental funding rounds. OFN recently worked on appropriations legislation for FY2010 in which President Obama proposed to double last year’s appropriation for the CDFI Fund.

Impact
OFN has 173 members at work in low wealth urban, rural, and Native communities in all 50 states.  With more about $20 billion invested through FY 2008, these funds have financed approximately 43,000 businesses, 578,000 housing units, and 9,600 community facility projects — generating or maintaining over 191,000 jobs.

Trillium’s History with OFN
Trillium is proud of our long association with OFN, which traces back to the organization’s inception as the National Community Development Loan Fund.  Trillium clients were early investors in the Fund.  For more than two decades Trillium has partnered with OFN and many of its member organizations, investing our client’s assets for a high social and environmental impact with a modest financial return.

Nominations for the 2010 Bavaria Awards are being accepted via the Ceres website www.ceres.org/bavaria_awards. The deadline for submitting nominations is March 5, 2010.

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The Internet has become a defining infrastructure of our economy and society; Internet Service Providers like Verizon forge rules that shape, enable and limit Internet use.

Federal Communication Commission (FCC) Chairman Genachowski recently noted that a free and open Internet is an “unprecedented platform for speech, democratic engagement, and a culture that prizes creative new ways of approaching old problems.” A free and open Internet, he said, demands Americans’ attention because the Internet must play a critical role in solving the “great challenges [we face] as a nation right now, including health care, education, energy, and public safety.” He asserted: “We have an obligation to ensure that the Internet is an enduring engine for U.S. economic growth, and a foundation for democracy in the 21^st century.”

These issues have attracted considerable public interest since at least 2005 when the FCC first articulated open Internet principles and may present financial risk to the company.

The widespread interest in a free and open Internet (so-called “net neutrality”) is echoed by recent letters from hundreds of organizations including the American Library Association, Writers Guild of America, West, National Gay and Lesbian Task Force, and Consumer Federation of America. As a letter from minority advocates put it, applications of net neutrality principles “to wireline and wireless networks are essential for extending the proven benefits of the Internet to poor people and people of color.”

Hundreds of federal and state legislators have written to the FCC on these issues. Congress is now considering the Internet Freedom Preservation Act and the Internet Freedom Act. The FCC is also considering a proposed rule.

Verizon’s opposition to the FCC’s proposed rule-making was formulated and announced even before the proposed changes were made public in October 2009.  One day earlier, Verizon CEO Ivan Seidenberg told an industry convention it would be a “mistake, pure and simple” for the FCC to impose a “burdensome regime” of regulation on the Internet.  In contrast, the CEO of Qwest Communications, speaking one week after the FCC announcement, told Wall Street analysts that Qwest is not concerned with the issue and believes the rules which might be put in place will be adequate.

The Washington Post and OpenSecrets.org report that Verizon is among the most active lobbyists on these issues.

We believe independent members of the Board should give the Company’s position on this issue a second look to insure that the Company is adequately considering its social obligations as well as the risks and opportunities presented by this issue.

RESOLVED

Shareholders request a committee of independent directors publish a report, by August 2010 at reasonable cost and excluding confidential information, re-examining our Company’s policy position and discussing how the Company could address the challenges presented by the free and open Internet issue in the context of Verizon’s corporate social responsibility, its reputation, and the impact of the company’s policies on customers, communities, and society.

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The shareholders of State Street (“Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s:

1.    Policies and procedures for political contributions and expenditures (both direct and indirect) made with corporate funds.

2.    Monetary and non-monetary political contributions and expenditures not deductible under section 162 (e)(1)(B) of the Internal Revenue Code, including but not limited to contributions to or expenditures on behalf of political candidates, political parties, political committees and other political entities organized and operating under 26 USC Sec. 527 of the Internal Revenue Code and any portion of any dues or similar payments made to any tax exempt organization that is used for an expenditure or contribution if made directly by the corporation would not be deductible under section 162 (e)(1)(B) of the Internal Revenue Code. The report shall include the following:

a.     An accounting through an itemized report that includes the identity of the recipient as well as the amount paid to each recipient of the Company’s funds that are used for political contributions or expenditures as described above;

b.    Identification of the person or persons in the Company who participated in making the decisions to make the political contribution or expenditure; and

The report shall be presented to the board of directors’ audit committee or other relevant oversight committee and posted on the company’s website to reduce costs to shareholders.

SUPPORTING STATEMENT

Transparency and accountability in corporate spending on political activities is consistent with public policy, in the best interest of the company and its shareholders, and critical for compliance with recent federal ethics legislation. Political activities include direct and indirect political contributions to candidates, political parties or political organizations; independent expenditures; or electioneering communications on behalf of a federal, state or local candidate. Absent a system of accountability, company assets can be used for policy objectives that may be inimical to the long-term interests of and may pose risks to the company and its shareholders.

Relying on publicly available data does not provide a complete picture of the Company’s political expenditures. For example, payments to trade associations used for political activities are undisclosed and unknown. The proposal asks the Company to disclose all of its political contributions, including payments to trade associations and other tax exempt organizations.

The financial crisis highlights the need for this disclosure. Despite widespread calls for comprehensive regulatory reform to prevent another crisis, there has been surprisingly little action by Congress or the Administration. The role of the financial industry and trade associations in the failure to achieve meaningful reform was raised this fall when President Obama and administration officials called on the financial industry to stop lobbying against proposed financial reforms.

The Company’s Board and its shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Thus, we urge your support for this critical governance reform.

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Questar does not explicitly prohibit discrimination based on sexual orientation and gender identity (or gender expression) in its written employment policy;

Over 87% of the Fortune 500 companies have adopted written nondiscrimination policies prohibiting discrimination on the basis of sexual orientation, as have more than 97% of Fortune 100 companies, according to the Human Rights Campaign. Nearly 70% of the Fortune 100 and over 40% of the Fortune 500 now prohibit discrimination based on gender identity or expression;

We believe that corporations that prohibit discrimination on the basis of sexual orientation and gender identity or expression have a competitive advantage in recruiting and retaining employees from the widest talent pool;

According to a June 2008 survey by Harris Interactive and Witeck-Combs, 65% of gay and lesbian workers in the United States reported facing some form of job discrimination related to sexual orientation. An earlier survey found that almost one out of every 10 gay or lesbian adults also reported that they had been fired or dismissed unfairly from a previous job, or pressured to quit a job, because of their sexual orientation;

Twenty-one states, the District of Columbia, and more than 180 cities and counties, have laws prohibiting employment discrimination based on sexual orientation; 12 states, the District of Columbia, and more than 104  cities and counties have laws prohibiting employment discrimination based on sexual orientation and gender identity or expression;..

Minneapolis, San Francisco, Seattle and Los Angeles have adopted legislation restricting business with companies that do not guarantee equal treatment for gay and lesbian employees; the City of Minneapolis’s nondiscrimination laws reference both sexual orientation and gender identity;

Our company has operations in and makes sales to institutions in states and cities that prohibit discrimination on the basis of sexual orientation;

A growing number of companies in the energy sector, such as BP and Chevron, explicitly prohibit sexual orientation in their written policies;

National public opinion polls consistently find more than three quarters of the American people support equal rights in the workplace for gay men, lesbians and bisexuals. In a Gallup poll conducted in May 2007, 89% of respondents favored equal opportunity in employment for gays and lesbians.

RESOLVED

The Shareholders request that Questar amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and gender identity or expression and substantially implement the policy.

SUPPORTING STATEMENT

Employment discrimination on the basis of sexual orientation and gender identity diminishes employee morale and productivity.  Because state and local laws are inconsistent with respect to employment discrimination, our company would benefit from a consistent, corporate-wide policy to enhance efforts to prevent discrimination, resolve complaints internally, access employees from the broadest talent pool, and ensure a respectful and supportive atmosphere for all employees. Questar will enhance its competitive edge by joining the growing ranks of companies guaranteeing equal opportunity for all employees.

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Shareholders request the Board of Directors to report to shareholders, within six months, on how the corporation ensures that it responsibly discloses its environmental impacts in all of the communities where it operates. The report should be prepared at reasonable cost; omit proprietary information; and go above and beyond existing legal obligations and legal compliance systems. The report should contain the following:

1. how the corporation makes available reports regarding its emissions and environmental impacts on land, water, and soil—both within its permits and emergency emissions—to members of the communities where it operates;

2. how the corporation integrates community environmental accountability into its current code of conduct and business practices; and

3. the extent to which the corporation’s activities have negative health effects on individuals living in economically poor communities.

WHEREAS

PPG is a global supplier of coatings, chemicals, with over 140 facilities worldwide.

PPG is committed to “operating in a manner that is protective of people and the environment” and “is focused on stewardship and conservation, which not only helps protect the environment, but also gives PPG a competitive advantage in the marketplace.”  (2008 Corporate Sustainability Report).

Yet, a recent analysis by Riskmetrics ranks PPG “worst in sector for Toxics Release Inventory emissions normalized by US sales.”

A report by noted scientist Wilma Subra links PPG’s Lake Charles facility’s emissions to documented medical conditions afflicting residents of neighboring Mossville, LA. (Chemical and Industrial Sources of the Chemicals Associated with the Medical Symptoms and Health Conditions of Mossville Residents, 5/25/09.)  PPG is named as a source for over 60% of the chemicals identified and associated with medical ailments, the highest correlation rate of the five industrial plants analyzed in the study.

PPG was named as one of the top 100 U.S. corporate air polluters in 2005, according to researchers at the University of Massachusetts. (http://www.peri.umass.edu/ej/)

SUPPORTING STATEMENT

We believe that corporations have a moral responsibility to be accountable for their environmental impacts. No corporation can operate without the resources that local communities provide, but often these communities bear the brunt of corporate activities.

The proponents are also concerned about the effects of corporate activities on low-income areas and communities of color.  Many communities bordering industrial facilities, including those owned by PPG, are majority African American.  One study has found that industrial facilities operating in more heavily African-American counties “seem to pose greater risk of accident and injury than those in counties with fewer African-Americans.”  (“Environmental Justice: Frequency and Severity of U.S. Chemical Industry Accidents and the Socio-economic Status of Surrounding Communities,” Journal of Epidemiology and Community Health, (2004)).  We believe that all communities have a right to clean air, water, and soil.

Stakeholder engagement is featured prominently in PPG’s 2008 CR report, but no formal stakeholder engagement policy is in effect. The requested report would do much to assure shareholders and other stakeholders that the corporation takes seriously its ethical responsibilities to all of the communities that host its facilities.

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Shareholders of Plum Creek Timber Company request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis).  The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.

SUPPORTING STATEMENT

In our view, senior executive compensation at Plum Creek Timber has not always been structured in ways that best serve shareholders’ interests.  For example, while shareholders were experiencing negative total shareholder return for 2008, CEO Rick Holley received more than $8 million in reported compensation, including more than $6 million in option awards.

We believe existing SEC rules and stock exchange listing standards do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast, in the United Kingdom, public companies allow shareholders to cast a vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives shareholders a clear voice that could help shape senior executive compensation. A 2007 study of executive compensation in the U.K. before and after the adoption of the shareholder advisory vote there found that CEO cash and total compensation became more sensitive to negative operating performance after the vote’s adoption.  (Sudhakar Balachandran et al., “Solving the Executive Compensation Problem through Shareholder Votes?  Evidence from the U.K.” (Oct. 2007).)

Currently U.S. share exchange listing standards require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year.  Shareholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages.

Similarly, performance criteria submitted for shareholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives.  Withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.

Accordingly, we urge our board to allow shareholders to express their opinion about senior executive compensation by establishing an annual referendum process.  The results of such a vote could provide our company with useful information about shareholders’ views on the company’s senior executive compensation, as reported each year, and would facilitate constructive dialogue between shareholders and the board.

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Recent events have increased concerns about the extraordinarily high levels of executive compensation at many U.S. corporations.  Concerns about the structure of executive compensation packages have also intensified, with some suggesting that the compensation system incentivized excessive risk-taking.

In a Forbes article on Wall Street pay, the director of the Program on Corporate Governance at Harvard Law School noted that, “compensation policies will prove to be quite costly—excessively costly—to shareholders.”  Another study by Glass Lewis & Co. declared that compensation packages for the most highly paid U.S. executives “have been so over-the-top that they have skewed the standards for what’s reasonable.”  That study also found that CEO pay may be high even when performance is mediocre or dismal.

In 2008, Federal Appeals Court Judge Richard Posner stated that, “executive pay is out of control and the marketplace cannot be trusted to rein it in.”  Legislative attempts to address executive compensation include the Excessive Pay Shareholder Approval Act, which mandates that no employee’s compensation may exceed 100 times the average compensation paid to all employees of a given company unless at least 60% of shareholders vote to approve such compensation.

A 2008 piece in BusinessWeek revealed that, “Chief executive officers at companies in the Standard & Poor’s 500-stock index earned more than $4,000 an hour each [in 2007].”  It also noted that an S&P 500 CEO had to work, on average, approximately 3 hours in 2007 “to earn what a minimum wage worker earned for the full year.”

A September 2007 study of Fortune 500 firms showed that top executives’ pay averaged $10.8 million the previous year, or more than 364 times the pay of the average U.S. worker.  Another study by the Economic Policy Institute found that between 1989 and 2007, average CEO pay rose by 163% while the wages of the average worker in the United States rose by only 10%.

RESOLVED

Shareholders request the Board’s Compensation Committee initiate a review of our company’s executive compensation policies and make available, upon request, a summary report of that review by October 1, 2010 (omitting confidential information and processed at a reasonable cost).  We request that the report include:

1. A comparison of the total compensation package of senior executives and our employees’ median wage in the United States in July 2000, July 2004 & July 2009.

2. An analysis of changes in the relative size of the gap and an analysis and rationale justifying this trend.

3. An evaluation of whether our senior executive compensation packages (including, but not limited to, options, benefits, perks, loans and retirement agreements) are “excessive” and should be modified to be kept within reasonable boundaries.

4. An explanation of whether sizable layoffs or the level of pay of our lowest paid workers should result in an adjustment of senior executive pay to “more reasonable and justifiable levels” and whether JPMorgan Chase should monitor this comparison going forward.

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Intel has announced that it is discontinuing its physical stockholders meeting in 2010 and will hold the meeting online.

We strongly support the use of new technologies to make annual meetings accessible to stakeholders who cannot attend in person.  This will make “attendance” simpler for investors globally and is a creative tool for expanding outreach to owners.

But we do not believe that Internet-only meetings should be substituted for traditional in-person annual meetings.  Instead, they should be a complementary. We believe the tradition of in-person annual meetings plays an important role in holding management accountable to stockholders.

In contrast, online-only annual meetings could allow companies to control which questions and concerns are heard and manipulate the exchanges between shareowners and the company. Face-to-face annual meetings allow for an unfiltered dialogue between shareholders and management.

The Council of Institutional Investors, a coalition of America’s largest pension funds with portfolios valued over $3 trillion, has among its published corporate governance guidelines for effective governance of public companies, “Cyber meetings should only be a supplement to traditional in-person shareholder meetings, not a substitute.”

Additionally, we believe in-person annual meetings are necessary for several reasons:

• Annual meetings are one of the few opportunities for top management and the Board to interact directly, face-to-face, with a cross section of their shareholders.
• The digital divide persists in the United States and not all shareholders have access to computers.
• Annual meetings provide for direct questions to be posed to the Chair of the Audit, Compensation or Governance Committees of the Board.
• While some corporations argue that eliminating the face-to-face annual meeting is a way to reduce costs and improve efficiency, we believe the investment in creating a physical space for shareholder meeting is money well spent.
• We believe Intel’s decision is a controversial one for a company with a positive reputation on corporate governance.  This decision sets a precedent and creates a “slippery slope” that will encourage other companies that desire to insulate themselves from shareholders to follow suit.  Imagine a company that wanted to downplay investor frustration over compensation policies or practices, or poor business decisions leading to substandard financial performance, or questionable governance or environmental records: “virtual” online meetings would be a perfect way to insulate themselves from shareholder interaction or to “spin” any opposition as insignificant.
• In addition, if there was a major crisis with a company or a merger being proposed, the last thing investors would want is a company’s refusal to hold an actual stockholder meeting.

RESOLVED

Shareholders request that Intel adopt a corporate governance policy affirming the continuation of in-person annual meetings in addition to internet access to the meeting, adjust its corporate practices accordingly, and publicize this policy to investors.

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Equal employment opportunity (EEO) is a fair employment practice and an investment issue. We believe that companies with a good EEO record have a competitive advantage in recruiting and retaining employees. Moreover, we believe Home Depot customers are increasingly diverse; therefore a similarly diverse work force is more likely to anticipate and respond effectively to consumer demand. EEO reporting has economic relevance.

Home Depot shareholder votes in favor of a diversity report surpassed 22%, 25%, and 25% in 2009, 2008 and 2007, respectively – sending a consistent signal to management that shareowners desire increased accountability.

The Company annually files an EEO-1 report with the Equal Employment Opportunity Commission. Hence, this information could be made available to shareholders at a minimal additional cost.

Allegations of discrimination in the workplace burden shareholders with costly litigation that can damage a company’s reputation.

Home Depot has paid out more than $100 million to settle discrimination lawsuits in the last 13 years.  The most significant EEO settlement of $87 million was in 1997. In 2004, Home Depot agreed to pay $5.5 million to settle charges of class-wide gender, race and national origin discrimination at more than 30 Colorado stores. In 2006, Home Depot paid $125,000 to settle a racial discrimination suit.

RESOLVED

The shareholders request that Home Depot prepare a diversity report, at reasonable cost and omitting confidential information, available to investors by September 2010, including the following:

1. A chart identifying employees according to their gender and race in each of the nine major EEOC-defined job categories for the last three years, listing numbers or percentages in each category;

2. A summary description of any affirmative action policies and programs to improve performance, including job categories where women and minorities are underutilized; and

3. A description of any policies and programs oriented specifically toward increasing the number of managers who are qualified females or minorities.

SUPPORTING STATEMENT

In 2006, the U.S. Equal Employment Opportunity Commission reported racial minorities comprised 32% of private industry but just 17% of executives and managers.  Likewise, women represented 48% of the workforce, but just 36% of executives and managers. Employment and advancement barriers persist.

Several major U.S. corporations provide diversity reports with detailed EEO information including Wal-Mart, IBM, Intel, Merck, Costco and Coca-Cola.

In 2001, Home Depot began providing EEO information to investors upon request.  Since then Home Depot reversed its policy on disclosure of this information.

We agree with a recommendation of the 1995 bipartisan Glass Ceiling Commission that “public disclosure of diversity data—specifically data on the most senior positions—is an effective incentive to develop and maintain innovative, effective programs to break the glass ceiling barriers.”

The Social Investment Forum and RiskMetrics concluded in a 2008 study of corporate disclosure of EEO data that corporate transparency on EEO progress is necessary to assess the risks and opportunities of an investment.

Home Depot has demonstrated leadership on many corporate social responsibility issues.  We ask the company to again demonstrate leadership in diversity by committing to EEO disclosure.

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The Investor Statement calls on companies to address the role conflict minerals play by implementing a system for determining the origins of materials, creating a non-conflict material policy and working with their suppliers to ensure adherence to it.

The DRC, which has been plagued by a civil war since 1998, continues to lose 45,000 people each month to violence and disease, even though the war officially ended in 2003. In total, more than 5.4 million people have lost their lives and millions more have been displaced.  Secretary of State Hillary Clinton has called the widespread sexual violence against women in the eastern Congo “a crime against humanity.”

The militias that are responsible for the conflict use the abundance of coltan, gold, tin and tungsten deposits (which make the DRC one of the most mineral rich countries in the world) to finance their operations.  These militias, who control most of the mines in the eastern DRC, demand bribes, unofficial taxes and other payments for the minerals. The minerals are smuggled into neighboring countries including Rwanda and Burundi, smelted and eventually used in making laptops, cell phones, medical devices, airplane engines, and other consumer goods.

Some companies are already addressing this issue, most notably Hewlett Packard, which has implemented a metals traceability project. In addition, the EICC (Electronic Industry Citizenship Coalition) and GeSI (Global E-Sustainability Initiative) have recently commissioned the nonprofit organization RESOLVE to map the supply chain of various metals including tin and tantalum, which is made from processing coltan.

For more information:

“Investor Statement Regarding Conflict Minerals from the Democratic Republic of the Congo,” January 11, 2010.

“Boundaries of Responsibility,” Investing For a Better World, October 2008.

“Investors Urge Companies to Keep Minerals from War-Torn Congo Out of Supply Chains,” Social Investment Forum press release, January 14, 2010.

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