By Kelly Ryan, Incourage Community Foundation
As a community-led philanthropy and impact investor in Central Wisconsin, Incourage is committed to aligning all of our assets in ways that advance our core purpose of co-creating an inclusive, adaptive and sustainable community. To that end, and in partnership with Confluence members, we are advancing a new practice that we are calling Place-Based Shareholder Engagement.
Our experience shows that creating truly inclusive, adaptive and sustainable communities requires coordinated, long-term strategies. In urban, rural and tribal communities across the nation, it requires local investment; active participation of local business owners, workers and residents; active ownership of companies operating in local communities and employing local workers; and flexibility to respond to changing market conditions. Macroeconomic changes can be dramatic over time. They often present overwhelming risks locally, which as active owners we can begin to address.
Incourage has learned first-hand the importance of this multi-faceted approach. Located within the nation’s top paper and timber manufacturing state--traditionally recognized as America’s Dairyland, as well as the world’s largest cranberry-producing region--Incourage operates within a largely rural area.
Our local industries are increasingly challenged by global economic forces, ranging from restructuring of the paper industry with the rise of digital media and lower-cost timber imports, to the rise of corporate agribusiness and ongoing price volatility for the region’s broad range of agricultural products. An additional, pervasive theme is ownership by outside, narrow interests—often private equity funds willing to bleed local companies to drive short term profits while leaving communities in disarray. Between offshore and private equity interests, the question of who owns rural America has become a grave concern for communities accustomed to local control. To preserve local ownership and control, Incourage has established active ownership positions in all traded companies headquartered in—or with a substantial employer base in--our state via the Wisconsin Shared Stewardship Equites Fund, a customized passive index fund.
The paper industry is a window on our work in process. Nationwide, mill closings have displaced some 500,000 workers in recent decades—almost entirely in rural communities. Within a 100-mile radius of Green Bay, there are more paper mills than anywhere else in the U.S., with more than 106,000 people employed by Wisconsin’s pulp, paper and printing firms. Under ownership structures now largely private equity-led, a number of those firms have already experienced bankruptcy or other restructuring, leading to massive job losses, retiree benefit slashes and shirked local contractor payments--while owners took payoffs. After the CEO of our local paper company ignored our initial outreach, we visited the Annual Shareholder Meeting. We voiced concerns as both a shareholder and stakeholder, securing a CEO commitment for an in-person meeting. We’re working with paper industry allies on a meeting agenda that can surface win-win opportunities.
We know that the trends affecting our rural economy are experienced nationwide and in an ever increasing range of economic sectors. They call for new forms of engagement between shareholders and stakeholders, aimed at more sustainable prosperity for all. Working with Confluence partners, ICCR, Walden Asset Management, As You Sow, Aperio, Proxy Impact and others, Incourage has drafted Principles of Corporate Community Stewardship that can be used as a basis for shareholder engagement—particularly when the threat of local downsizing may loom:
Corporate Community Stewardship: A Framework for Corporations, Shareholders & Stakeholders
Corporations exist within communities, typically with capital invested by local investors who are both shareholders and stakeholders. As shareholders, we understand corporations’ need to expand market reach, create efficiencies and innovate. As community stakeholders, we understand that these actions—particularly when combined with share buy-backs and cost cutting demanded by profit-driven activist investors—too often result in downsizing of US operations, with debilitating costs to local workers and communities who typically contribute greatly to corporate profitability.
To address this imbalance, following are guidelines for responsible corporate practice in community developed by impact investors, with input from philanthropists, local governments, community organizations and corporations. These aim to set the stage for greater engagement between corporations, shareholders and stakeholders, greater corporate accountability across sectors and more equitable and sustainable prosperity for all.
Corporate Community Stewardship Guidelines
As shareholders, we expect corporations to benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. Specifically, we seek the corporations in which we invest to:Be transparent and timely in communications regarding their strategies, particularly any restructuring with potential to reduce local jobs, benefits and other contracting.
Commit members of senior management to engage in direct dialogue with worker representatives and local community leaders to develop plans for responsible practices that include long-term worker and community stability and resiliency.
Before excessive corporate profit taking, share buybacks or downsizing, guarantee full funding of wages and pensions for workers employed at local facilities; fund high quality worker re-training programs with links to job placement in the case of restructuring or layoffs; pay in full any outstanding obligations to local vendors; and eliminate clawbacks on existing contracts.
Make meaningful investments in locally led projects that aim to boost economic diversification and social resiliency in communities where the corporation operates, particularly where it may intend to downsize and/or sell operations.
Voluntarily disclose changes in ownership and control including filing 13(d) disclosures within four days, coordinated ownership interests and any corporate holdings or debt that are not aligned with the long-term success of local operations.
Demonstrate fidelity to the corporation’s stated values and commitments of accountability to stakeholders.
These principles leverage community expertise to bring shareholder and stakeholder interests together.
Communities bring commitment to developing the skills of local workers to lead the innovation corporations need for competitive advantage and sustainable profits. They can also mobilize R&D capacity in regional universities, as well as knowledge of natural resources, state policies and infrastructure. Communities require corporate partnership including transparency, fulfillment of commitments, opportunities for continuous skill development and support to ensure diversified, sustainable local economies and communities.
Today, some of the largest shareholders in our local paper company include investment companies that are on the vanguard of espousing Corporate Social Responsibility (CSR). Before further restructuring that leaves our community with more job losses and/or discarded mills that become brownfields, Incourage is calling on these owners to join us in dialogue about how assets can be productively retooled to advance our region and nation toward more inclusive and sustainable economies. Whether this takes the form of new modes of paper production that can replace plastic or a new generation of renewable energy that can help reduce Wisconsin’s continuing high dependence on coal, we stand ready to leverage our philanthropic, investing, government and other relationships to seek mutually beneficial solutions.
Incourage has experienced increasing interest from our colleagues in place-based shareholder engagement and is working with Confluence and others to develop the practice as a national movement. Together with our partners, and with financial support from Nathan Cummings Foundation, Incourage is developing a user’s guide for place-based shareholder engagement. Expected in summer 2019, it will review the nuts and bolts of shareholder engagement, while including cases studies and guidelines on developing place-based shareholder engagement strategies and partnerships. For further information or to stay informed about this work, please contact Kelly Ryan, kryan@incouragecf.org or Lisa Richter, lrichter@avivarcapital.com.