A Strategic Response to Investor Activism

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Social activists have long attempted to redefine corporations’ objectives to include “social responsibility.” Yet most economists would argue that a corporate executive’s primary social responsibility is to make a profit for the corporation’s owners, not to appease social activists’ demands. In Milton Friedman’s words, any manager who would put the activists’ interests ahead of the shareholders’ would be practicing “pure and unadulterated socialism.”1 William Meckling and Michael Jensen wrote, “The term ‘social responsibility’ has the advantage, from the standpoint of its proponents, that it disguises what they really have in mind: namely, that managers should deliberately take actions which adversely affect investors in order to bestow benefits on other individuals.”2 Such blunt comments leave no room for doubt about who the legitimate stakeholder is in directing corporate policy — the corporate investor. But what are executives to do when the social activist and the corporate investor are, in fact, the same?

This quandary has confronted many corporate executives in their annual shareholder meetings. For example, from 1990 to 1992, Amoco faced repeated shareholder resolutions to sign the Valdez Principles, ten environmental principles developed by the Coalition for Environmentally Responsible Economies (CERES). This particular case is intriguing because of Amoco’s strategic response to defend itself from an “undesirable and unwarranted intrusion into corporate affairs.” Equally intriguing is why Amoco, and not one of the many other oil companies that faced identical resolutions, responded as it did. An analysis of the social and political dynamics both before and after Amoco’s actions lends critical insight into the nature of investor activism, helping to explain the corporation’s behavior in this specific context and the dynamics of shareholder resolutions in general.

Roots of the Amoco Case

Since 1970, activists have filed socially oriented shareholder resolutions. In its first implementation, the Project on Corporate Responsibility (PCR) successfully convinced the Securities & Exchange Commission (SEC) that it should force General Motors to include two socially oriented shareholder resolutions in the proxy statement mailed to the corporation’s 1.3 million owners. The first resolution requested that management expand the board of directors to twenty-six to accommodate three additional members who would represent some missing constituencies. To fill the new slots, the PCR nominated a consumer advocate, a black Democratic National Committeeman from the District of Columbia, and a Nobel prize-winning biologist and environmentalist.



1. M. Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, 13 September 1970, pp. 32–33, 122, 124, 126.

2. W. Meckling and M. Jensen, “Reflections on the Corporation As a Social Invention,” in P. Cooley, ed., Advances in Business Financial Management: A Collection of Readings (Chicago: Dryden Press, 1990), pp. 17–33.

3. D. Vogel, Lobbying the Corporation (New York: Basic Books, 1978).

4. Ibid.

5. Ibid., p. 14.

6. ICCR is a coalition of nearly 250 Protestant, Roman Catholic, and Jewish religious groups, agencies, pension funds, health care systems, and dioceses. The organization itself holds no shares. Each member institution makes its own investment and program decisions.

7. D. Sand, presentation at the MIT work group on business and the environment (Cambridge, Massachusetts, 16 May 1991).

8. Allied Signal, Dow, DuPont, Eastman Kodak, Ethyl, Imperial, and Union Carbide.

9. Amoco, ARCO, Chevron, Exxon, Mobil, Occidental, Philips, Sun Oil, and Texaco.

10. According to CERES, the investment groups they represent control more than $150 billion in invested assets.

11. The Evangelical Lutheran Church of America, the Sisters of Charity of Saint Elizabeth, the Oblate Conference, the United Methodist Church (World Division), the Mount Saint Vincent Mother House, the Pension Fund of the Christian Church, the Christian Brothers Investment Services, the Loretto Community, and the United Methodist Church (Women’s Division).

12. In fact, of the twenty-three corporate Valdez resolutions filed that year, ten were withdrawn due to such responses from the target companies.

13. All companies in the industry appear to have been very carefully watching the actions of others at this time. For example, on 28 February 1990, Unocal’s director of environmental affairs asked, in a fax, if the attached article was true. Amoco’s vice president for EH&S assured him that, despite what the article said, Amoco would not sign the Valdez Principles.

14. G. Carpency, “The Valdez Principles: A Corporate Counselor’s Perspective,” Wake Forest Law Review 26 (1991): 11–37.

15. That year, Texaco and Chevron were successful in gaining SEC approval to exclude the Valdez resolutions. Texaco argued that its Valdez resolution was “moot” because it had hired Arthur D. Little to conduct an outside audit of its environmental policies. Chevron argued that it was asking shareholders to endorse its own comparable corporate environmental policy (which eventually received 98.3 percent of the shares voting). Amoco became aware of these defense strategies, but too late for the 1991 SEC ruling. Internal memos took special note of these as possible strategies for the next year, if needed.

16. “Mission, vision, and values,” developed in 1990, were goals covering a wide range of leadership objectives across the company. One was a declaration of environment, health, and safety objectives stating that Amoco “will maintain a leadership position in the protection of the environment, the health and safety of our employees, contractors, the users of our products, and the communities in which we operate.”

17. This reference seems to suggest that P&G, a consumer products company, prefers to keep its processes out of the public eye, thereby controlling its reputation by disclosing information only on the products it develops and sells.

18. An EH&S executive noted that once British Petroleum informed all the necessary officials who were previously left out of the loop, BP was able to rejoin the initiative. In fact, after rejoining, BP began to work as a facilitator for introducing a PERI project in Europe.

19. The Keystone Center brings together people from the private sector, environmental and citizen organizations, academia, and government to address public policy issues. It is located in Keystone, Colorado.

20. In 1990, Amoco entered into a partnership with the Environmental Protection Agency and Resources for the Future to study pollution reduction possibilities at its Yorktown refinery. The project found that the company could achieve the same level of emission reductions as the Clean Air Act Amendments required, but at one-quarter the cost ($10 million versus $40 million), if Amoco were allowed to choose where to spend the money.

21. D. Sand, “A Partnership for Environmental Excellence,” The Environmental Forum, March–April 1990, pp. 33–45.

22. J. Zack, “Are the Valdez Principles Sinking Fast?,” Business and Society Review, Summer 1992, pp. 56–59.

23. Ibid., p. 58.

24. D. Cogan, “Shareholders Pass Environmental Issues,” Directors and Boards, Summer 1992, pp. 53–57.

25. The very nature of extracting, refining, marketing, and finally burning fossil fuels is unsustainable by definition.

26. M. Wald, “Sun Oil Takes Environmental Pledge,” New York Times, 11 February 1993, p. D5.

27. C. Oliver, “Strategic Responses to Institutional Processes,” Academy of Management Review 16 (1991): 145–179.

28. For an overview of public opinion trends on the environment, see R. Dunlap, “Trends in Public Opinion toward Environmental Issues: 1965–1990,” Society and Natural Resources 4 (1991): 285–312.

29. This can be seen in the bewildering array of newly emerging techniques and philosophies: pollution prevention, total quality environmental management, industrial ecology, life cycle analysis, sustainable development, and environmental justice, to name just a few.

30. General Motors (in February 1994), Polaroid (in August 1994), and Bethlehem Steel (in September 1995) joined Sun in endorsing the CERES Principles.

31. L. Cahill and S. Engelman, “Bolstering the Board’s Environmental Focus,” Directors and Boards, Fall 1993, pp. 23–25.

32. Deloitte Touche Tohmatsu, Coming Clean (London: Deloitte Touche Tohmatsu International, 1993).

33. A. Marcus, The Adversary Economy (Westport, Connecticut: Quorum Books, 1984), p. 204.

34. P. DiMaggio and W. Powell, “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields,” American Sociological Review 48 (1983): 147–160.

35. M. Dowie, Losing Ground: American Environmentalism at the Close of the Twentieth Century (Cambridge: MIT Press, 1995).


The content of this work is from the author’s doctoral dissertation, completed in February 1995 for the MIT Sloan School of Management and the MIT Department of Civil and Environmental Engineering.

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