Coca-Cola and PepsiCo proxy conflict with activist investor over sugar hints at future skirmishes

Harrington Investments is locked in a battle with PepsiCo and Coca-Cola that will require the soda giants to be extra clear in regards to the affect their sugary drinks have on public well being. Now, it simply must hope that sufficient of its fellow shareholders agree.

The small California funding agency is asking shareholders to vote on a measure requiring PepsiCo and Coca-Cola to supply the data by means of an impartial report, with a deal with drinks marketed to youngsters and younger shoppers. 

“We have now to place continued stress and chip away at them and present that we’re not going away. This problem is not going away,” mentioned Brianna Harrington, a analysis analyst and shareholder advocacy coordinator at Harrington Investments. “It is solely going to turn into an increasing number of related. It is solely going to turn into extra critical.” 

The continued struggle with PepsiCo and Coca-Cola might supply a glimpse into future skirmishes down the street the place shareholders search extra affect in company America on points overlaying every thing from politics and variety to well being and the atmosphere. 

Previously, investor success has been largely relegated to subjects reminiscent of board make-up or govt compensation. However there are indicators environmental and social points are garnering extra consideration throughout the annual proxy season — and gaining momentum that would sooner or later result in extra of them profitable a majority of shareholder assist.  

Courtesy of Topo Chico

 

Harrington Investments, which focuses on socially accountable investing and shareholder rights, first launched the sugar and public well being proposal in Coca-Cola’s annual proxy in 2019. Emboldened by what it seen as its success there, it launched an analogous decision a 12 months later at PepsiCo and McDonald’s. In 2020, 7% of Coca-Cola’s shareholders voted in favor of the measure, up from 4.9% in 2019. The decision at PepsiCo obtained the backing of 11% of shareholders in 2020. 

“Growing the voting threshold — that’s vital simply to indicate that there’s rising assist for this problem and shareholders have gotten more and more extra involved in regards to the problem, particularly with the pandemic,” she mentioned. 

Howard Berkenblit, a company and securities lawyer who oversees the capital-markets group at Sullivan & Worcester, mentioned it isn’t unusual for lots of some of these shareholder proposals to get low assist.

“That is why corporations need to enhance the thresholds [for a resolution] as a result of it turns into … an annoyance and a problem for the corporate that it has to place this of their proxy assertion yearly and to must tally up the votes and clarify themselves,” he mentioned.

Soda and different sugary drinks and snacks are underneath fireplace as elevated consumption of the sweetener has turn into related to the next threat of circumstances reminiscent of weight problems, coronary heart illness, diabetes and most cancers. These and different illnesses even have been tied to a better probability of growing critical issues from COVID-19.

Harrington Investments has a small place in every beverage maker, proudly owning 50 shares of PepsiCo and 100 shares of Coca-Cola, in keeping with every firm’s proxy. The inventory was valued at $7,200 and $5,350, respectively, based mostly on Friday’s worth on the shut of buying and selling. The agency acknowledges it is going through an uphill climb convincing in any other case reluctant corporations to maneuver ahead.

“The businesses is probably not prepared to take motion, however we expect it is essential for shareholders to have the chance to vote on this,” she mentioned. “Shareholder stress is vital.”

Her agency talked with the authorized council from PepsiCo in January, however the New York-based firm wasn’t “very desperate to undertake this,” Harrington mentioned. “They only needed to debate, basically, the nice issues that they had finished and reiterate that it’s pointless for them to do such a report.” The advisory agency hasn’t had any dialogue with Coca-Cola on the decision this 12 months.

‘A problem for the corporate’

PepsiCo and Coca-Cola each really helpful shareholders vote in opposition to Harrington’s decision of their proxy. House owners of Coca-Cola’s inventory are anticipated to vote on the measure throughout its digital shareholders assembly on April 20, whereas PepsiCo’s shall be up for a vote throughout its assembly on Could 5.

Spokespersons with PepsiCo and Coca-Cola each declined to remark past the positions outlined by the businesses of their current shareholder proxies.

In its submitting, PepsiCo’s board of administrators mentioned it stays “dedicated to responsibly advertising our meals and drinks, significantly to youngsters.”

Barry Brecheisen by way of Getty Photos

 

PepsiCo added it “has set a strong and significant purpose” for at the very least two-thirds of its international beverage portfolio to have 100 or fewer energy coming from added sugar per 12-ounce serving by 2025. The snack and beverage maker mentioned it’s working towards this purpose by reformulating its drinks to cut back added sugar, providing low and no sugar merchandise in addition to smaller portion sizes, and introducing new choices that lack or have much less of the sweetener.

“By way of our added sugar discount effort, we consider we aren’t solely addressing the considerations raised on this proposal but in addition are creating new alternatives for aggressive benefit and future market development,” PepsiCo mentioned.

Coca-Cola’s board of administrators mentioned in its proxy {that a} report on sugar and public well being already exists and an extra doc “wouldn’t present added worth or info for our stakeholders.” The board added the proposal suggests Coca-Cola isn’t taking steps to assist individuals reasonable sugar consumption, a press release the corporate disagreed with.

The maker of Eating regimen Coke, Sprite and Fanta famous it has accelerated the growth of its beverage portfolio away from sugar into merchandise like tea, dairy, water and low. The Atlanta firm additionally has taken steps to cut back added sugar in its current merchandise. Coca-Cola reduce the quantity of the sweetener in almost 1,000 drinks, together with 600 collectively in 2018 and 2019, the corporate mentioned. In 2019 alone, it claimed to have eliminated 350,000 tons of sugar on an annualized foundation.


“The businesses is probably not prepared to take motion, however we expect it is essential for shareholders to have the chance to vote on this. Shareholder stress is vital.”

Brianna Harrington

Analysis analyst and shareholder advocacy coordinator, Harrington Investments


It isn’t arduous to see why corporations typically object to shareholder proposals. Along with the undesirable publicity, they are often expensive and time-consuming for corporations to assessment as they require involvement by senior executives, the board of administrators and legal professionals.

Rick Hansen, beforehand the company secretary and assistant basic counsel at Normal Motors, mentioned in a letter to the Securities and Alternate Fee final 12 months that the auto big spends about 75 hours on every shareholder proposal it receives. Whereas GM mentioned it does not try to assign a greenback worth to every one, it agreed with commenters to the SEC up to now who estimated a value of between $87,000 to $150,000.

Shareholder assist on the upswing

There may be rising proof that momentum for so-called ESG resolutions — environmental, social and governance — are gaining assist amongst shareholders who count on the businesses they put money into to take a stand on the identical points which are essential to them as traders and shoppers. 

The variety of shareholder proposals that went to a vote rose from 426 in 2019 to 434 in 2020 — the primary enhance in 5 years, in keeping with knowledge supplied by Glass Lewis, a proxy advisory agency. The corporate famous whereas common investor assist for shareholder resolutions declined to 31.7% in 2020 from 32.9% a 12 months earlier, there was “a big year-over-year enhance” within the proportion of majority-supported environmental and social shareholder proposals. 

“It seems that the bottom is shifting with respect to how traders are viewing shareholder proposals, and ESG-related points, extra broadly,” Glass Lewis wrote in a report reviewing the 2020 proxy season. “These proposals will proceed to play an more and more essential function in traders’ engagement with corporations on essential environmental, social, and governance points.”

Meg Jones-Monteiro, program director of well being fairness on the Interfaith Middle on Company Accountability, mentioned shoppers’ curiosity in being wholesome and watching what they eat and drink has put stress on corporations to reply by means of their product combine — a shift that’s being carefully watched by traders who might lose cash if their shares decline as gross sales fall or development slows. This has naturally opened the door to corporations to be extra partaking on environmental and social points, she mentioned.

“The hope is that if [consumer and investor pressure] converge, you then’re capable of push corporations in the correct route,” mentioned Jones-Monteiro, whose coalition represents greater than 300 international institutional traders. “The businesses are additionally conscious of this. They’re recognizing that there’s shopper demand, in order that they must make a few of these adjustments.”

Dimitrios Kambouris by way of Getty Photos

 

Shareholders might quickly discover it more durable to submit resolutions for a vote at annual conferences. The U.S. Securities and Alternate Fee narrowly handed a rule final September that will require shareholders to carry $25,000 of inventory for at the very least one 12 months, up from $2,000 presently, so as to submit such proposals. For longer-term traders, that degree will fall to $15,000 after at the very least two years and $2,000 after three years. The rule is anticipated to enter impact subsequent proxy season. 

The SEC is also growing the brink every proposal should accumulate to ensure that it to be resubmitted for a vote to five% the primary 12 months, 15% the second and 25% the third. At the moment, the extent for resubmission is 3%, 6% and 10%.

Berkenblit mentioned whereas momentum is constructing, particularly for environmental and social points in annual proxies, proposals reminiscent of these coping with “sugary drinks … are nonetheless decrease on the radar of activist traders; they are not half of a bigger motion.”

He was uncertain Harrington would garner a “vital quantity” of votes except it spends extra money or mounts an aggressive marketing campaign. The extra doubtless situation, Berkenblit predicted, was the resolutions would accumulate the backing of 10% to fifteen% of shareholders.

Corporations in lots of instances are reluctant to permit shareholder proposals, particularly relating to a difficulty or an trade they consider they perceive higher than an outdoor shareholder, Berkenblit mentioned. 

Corporations need to handle their very own affairs, and if you happen to don’t love the way in which they’re doing issues, vote in opposition to the board or vote together with your ft and promote the inventory,” he mentioned, noting a stance taken by many corporations.

When a shareholder requests including a decision to an annual assembly, corporations have a number of choices. They will embody it within the proxy — the trail of least resistance — or attain a compromise with the shareholder to get the proposal withdrawn. In instances the place these do not happen, corporations can apply for an exclusion from the SEC, or search for procedural hurdles to cease it, reminiscent of if the individual hasn’t held the shares for lengthy sufficient or did not get the proposal in on time to be included.

Whereas many proposals by no means get accepted, even ones that do not succeed can function a place to begin to construct momentum for future motion, both by means of different resolutions or motion by the corporate itself. Harrington mentioned her agency is hopeful it can obtain sufficient assist to remain on Coca-Cola and PepsiCo’s proxies for one more 12 months, however that it might “strive a unique strategy” it has but to outline it if falls quick.

“It might be a victory for us to proceed to press the difficulty,” she mentioned, noting the sugar and public well being decision is much more related than when Harrington Investments first proposed it in 2019. “Except they obtain this type of stress, they are not going to in all probability need to make a considerable change or simply do something that we’re asking them within the decision.”

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