Activist shareholders are pressing companies to improve working conditions in retail and other industries, as investors and lawmakers alike seek more insight into corporations' treatment of what many consider their most valuable asset: employees.
Investors this year have worked to get companies to address workplace safety and health concerns, improve workers’ benefits and disclose their reliance on independent contractors and other part-time employees.
That push comes as the Securities and Exchange Commission considers rule-making on human capital management disclosure. The agency in 2020 started to ask companies to list such resources on their Form 10-K disclosures, although companies could cherry-pick metrics and exclude others, such as workplace safety measures and financial benefits.
SEC Chair Gary Gensler and commissioners Allison Herren Lee and Caroline A. Crenshaw all support improving human capital management disclosure. The agency has a potential rule on its agenda, but it is one of more than 50 items on deck.
Activist shareholders and Democrats say a disclosure rule would give investors much-needed material information on companies and hold corporations more accountable on managing employees. In recent months, some companies have raised wages and added benefits to attract employees amid a stronger economy and low unemployment rates. Others, including Amazon.com Inc. and Starbucks Corp., are aggressively fighting employees' attempts to unionize.
“We definitely support increased disclosure on relevant human capital management metrics to help us understand the composition of the workforce, costs associated with workforce turnover and information like that to help investors really understand,” said Mary Beth Gallagher, director of engagement at Domini Impact Investments LLC, a women-led impact investing adviser.
“Increased disclosure expectations to have companies consistently and thoroughly report information on the workforce would be really valuable,” she said in an interview.
Domini is leading a proposal with three co-filers at Amazon for an independent audit of how productivity quotas and surveillance practices affect high injury and turnover rates among its warehouse workers. The resolution underscores growing concerns about what goes on inside the online retailer’s warehouses, especially after a December tornado hit Amazon’s Edwardsville, Ill., warehouse and six people died.
“There is a lot of scrutiny across the country and across the world about the kind of workplace Amazon is, and how it can create a better environment for its workers that's safe and healthy,” Gallagher said. “As shareholders, we believe that an independent audit — done by a third party, consulting with all relevant stakeholders — is necessary to understand how these practices, specifically the productivity quotas and surveillance, are contributing to increased injury rates.”
Amazon petitioned the SEC’s Division of Corporation Finance to block the proposal. In a Jan. 24 letter, the firm said that the shareholder proposal relates to the company’s ordinary business practice and does not focus on a significant public policy issue.
As SEC precedent has established, “referencing aspects of a topic that might include significant social policy issues, but which do not define the scope of actions addressed in a proposal and do not limit the principal focus of a proposal, does not transform an otherwise ordinary business proposal into one that transcends ordinary business,” the company said in its request.
Amazon did not respond to a request for comment.
“The pure quantity of inquiry and scrutiny the company is facing, in our view, elevates this issue from something that is related to the day-to-day mundane operations of a company to a key theme in the public discourse and public policy landscape,” Gallagher said.
Beyond Amazon, ESG investors are pushing dozens of retail companies and restaurant chains to create a permanent paid sick leave benefit for all employees.
The Interfaith Center on Corporate Responsibility last month announced it was leading a coordinated effort with 150 institutional investors to file shareholder proposals at CVS Health Corp., the Kroger Co., Target Corp. and The TJX Companies Inc. to adopt a paid sick leave policy for both part-time and full-time workers. The organization also sent the four chains and 37 other companies, such as The Cheesecake Factory Inc. and Petco Health and Wellness Company Inc., a letter calling on the companies to proactively create a paid sick leave policy for its employees.
“More than 26 million people working in the private sector have no access to earned sick time, or ‘paid sick leave’ (PSL), for short-term health needs and preventive care,” according to the resolution’s text. “Working people in the United States face an impossible choice when they are sick: stay home and risk their economic stability or go to work and risk their health and the public’s health.”
While companies have expanded benefits, including COVID-19 testing and other preventive health measures during the pandemic, ICCR and other investors representing $3.6 trillion in assets are concerned that these initiatives are only temporary.
“As the COVID-19 pandemic has shown, PSL is a crucial contributor to public health, allowing workers who have been exposed to any illness to quarantine,” according to the resolution text.
Both CVS and Target have since filed requests with the SEC to allow them to prevent the proposals from being among the voting items in their upcoming annual meetings.
Lawmakers are joining investors’ push for better reporting on human capital ahead of the SEC’s potential rule-making. Last week, Democratic Sens. Mark Warner of Virginia and Sherrod Brown of Ohio urged the SEC to require U.S. public companies to report the number of employees who are not full time, including independent contractors, to the agency as part of a human capital disclosure.
Brown, who chairs the Senate Banking Committee, and Warner, who introduced legislation in May that would require companies to report on certain workforce management metrics, said in a letter to Gensler that corporations should note if they use subcontracting workers such as security personnel, janitorial and custodial staff, food service workers and housekeepers as part of their “material workforce.”
That data, along with metrics on health and safety, training, turnover rates and pay, would help inform asset managers and shareholders on how companies they invest in treat their entire workforce, the senators said in the letter. Investors’ decision-making would be “wholly incomplete” without that material information on contractors and other workers.
“In recent decades, companies have replaced in-house operations with contracting, on-demand work, or other forms of independent and contracted work that lower short-term costs for the business but come at the expense of workers, who receive fewer benefits, lower wages, and have less upward mobility within the organization,” Warner and Brown said.
“This is one of the defining tensions that has emerged as companies have prioritized short-term profits at the expense of investments in their workforce and long-term productivity. As you know, these decisions have material effects on a business’ financial performance,” they added.