The first ESG universal proxy contest

Here’s the intro from a note by Michael Levin of “The Activist Investor”:

For over a year, we and others speculated ESG proponents would pounce on universal proxy card (UPC) as a way to escalate efforts to exert influence over companies. Since UPC became mandatory in September 2022, we have seen exactly zero proxy contests from the usual ESG shareholders.

Until last week. The Strategic Organizing Center (SOC) notified Starbucks (SBUX) of its intent to nominate three director candidates to stand for election at the 2024 AGM. In addition to the first ESG-based proxy contest under UPC, it could become quite a show overall. We think the more likely outcome is a quiet settlement between SOC and SBUX sometime in the next few months.

Who is SOC?

A long-time coalition of three unions: SEIU, CWA, and UFW. Based on the available information, SEIU will drive this, as it led most of the union organizing efforts at SBUX in the past few years. The initial SEC filing lists only SEIU leadership, too.

SOC is related to but not the same as SOC Investment Group. SOC Investment Group represents pension funds affiliated with the SOC unions. It researches subjects of interest to the unions and pension funds, and advocates for them with companies. It submits the occasional shareholder proposal, too.

SBUX previously announced the AGM for March 13, 2024. SOC filed its notice around November 21, just before the nomination window closed on November 24. SOC owns the SBUX shares that allows them to nominate directors, 161.627478 of them to be precise, or about $16,000 worth.

Why SBUX?

Even with the obvious long-time conflict between SEIU and SBUX, there are some curious elements to this specific situation that make it especially interesting.

As far as we know, SOC has not run a proxy contest before. And, last week it not only made its first SBUX SEC filing, it made its first SEC filing ever at any company. It evidently has no experience with shareholder proposals, much less proxy contests. SOC Investment Group has not filed anything at SBUX, either. So, SOC decided to escalate its organizing strategy to the SBUX BoD without any of the usual intermediate steps. We rather suspect SOC surprised SBUX with this, and possibly didn’t even attempt to negotiate a BoD seat before sending its notice.

In the past several years, SBUX saw but a single labor-related shareholder proposal. Trillium Asset Management, a skilled ESG proponent, and three others jointly filed one at this year’s AGM. It demanded SBUX assess compliance with its stated goal of allowing its workers to organize. The proposal won 52% of the votes at the AGM, after ISS and Glass Lewis supported it. SBUX indicated it would release the assessment by October 1, 2023, then postponed it to Q4 of FY 2024.

The result for the Trillium proposal contrasts with largely positive shareholder sentiment for the past few years. Since 2014, SBUX saw at most a couple of precatory shareholder proposals per year. None won a majority of votes – one achieved 44%, while most languished in the single digits. This year, shareholders voted on five proposals, including Trillium’s. One on CEO succession saw 21% support, while the other three received less than 5%.

Shareholders also support the BoD. At the 2023 AGM, the director with the least support received 84% of votes cast. Two directors received 99%.