Harrington Investments, Inc. a Napa, California-based socially responsible investment advisory firm wanted to establish a committee of the Intel Board of Directors that would be responsible for sustainability. To achieve this, Harrington intended to propose a by-law amendment for adoption by the Intel shareholders at the annual meeting, as it had in 2008.
Intel, like all big public companies, doesn't relish taking resolutions to the shareholders unless they are proposed by management. On the other hand, Intel is often recognized as an ES&G leader and seems to be proud of it – the Intel web site has extensive sections on social responsibility and environment. For Intel management, it was a Hobson's choice – look like you are saying no to sustainability, or endorse a by-law amendment that sets up a new committee with broad responsibility to pursue sustainability – an amendment that the Service Employees International union is endorsing as a means to address the problems of working families.
Instead of choosing, Intel found another path. On March 18, the Intel Board approved an amendment to the charter of the existing Corporate Governance and Nominating Committee to include the following:
“The Corporate Governance and Nominating Committee:
.......
Reviews and reports to the Board on a periodic basis with regards to matters of corporate responsibility and sustainability performance, including potential long and short term trends and impacts to our business of environmental, social and governance issues, including the company's public reporting on these topics.
......”
My speculation is that Harrington did not find this completely satisfactory. There is no committee dedicated to sustainability, and even the Governance and Nominating Committee has only the duty to report to the Board, not to strive for any particular goal or standard of sustainability achievement. Harrington's press release on the amendment notes that:
“Intel also had their outside legal counsel Gibson, Dunn & Crutcher LLP write a legal opinion specifically stating that pursuant to Delaware law, corporate responsibility and sustainability reporting based upon the committee's charter, was part of the fiduciary duty of company directors”
Intel's decision to seek the legal opinion may have been the final concession needed – Harrington did agree to withdraw the shareholder resolution proposing the by-law amendment and new committee.
Now that you have the facts, at least those that are publicly available, who won? Harrington is proclaiming the amendment to the committee charter and the legal opinion as a victory in its press release. Intel, a company that is normally not shy about trumpeting its ES&G achievements, is saying nothing. Intel has already been compiling annual CSR reports, but the formal involvement of the governance committee and its reports to the full board might add to the scope and rigor of Intel's efforts. Without seeing the text of the legal opinion it's hard to be sure, but based on the Harrington press release, the opinion may be circular - if the committee charter says it is to report to the board on sustainability matters then it is the fiduciary duty of the committee to so report – not exactly revolutionary. If the opinion stated that sustainability was more important than profitability it would be a hot potato (remember this is a public, for-profit corporation and the shareholders did not even get a vote on the sustainability amendment) but to opine that the directors can generate and consider reports on sustainability issues, issues which can and do effect profits, especially on a long term view, just does not seem like a stretch. So, Harrington gets something to crow about and Intel may actually get even more serious about its sustainability reporting – everybody wins, right?
Maybe. Intel dodged an unpleasant moment of conflict at its shareholders meeting, one that would surely have generated some negative publicity. In fact, Intel avoided going to the shareholders on this altogether. The Board can amend committee charters, and if the new language creates some unexpected problem, then the Board can further amend to fix it. Intel management can also stop worrying about a more broadly chartered sustainability committee like the one Harrington originally proposed, one that might add an extra dimension to future environmental or labor issues. Intel made some new reporting commitments, but only in an area where management was already a willing reporter. Harrington is issuing the press releases, but Intel management is silently smiling.
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