June 12, 2020
Engaging with companies on important ESG issues is never easy. It takes time, diligence, patience, and persistence. And sometimes a little help in ways you never expected.
Like a lot of big tech companies, Alphabet does a lot of things very well. The company has grown from being most people’s favourite search engine – Google – into a massive integrated corporation with businesses ranging from Internet and phone services, to health care and drug development, Artificial Intelligence (AI), hardware, security and surveillance, robotics, self-driving cars, finance and investments, hot air balloons and urban innovation.
Most of these businesses are driven by our data. And like many of the dominant technology firms, Alphabet’s business presents some serious social risks – specifically around protecting the digital rights of users, ensuring online privacy, and understanding the implications around the intersection of human rights and AI.
Given Google’s outsized systemic influence on society, these issues led us to initiate a corporate engagement with Alphabet focused on three factors related to the company’s activities, products and services:
- Lack of robust top-level governance and oversight of around societal and adverse human rights risks, including privacy impacts
- Business model risks related to data use, content moderation, surveillance and digital human rights, such as privacy, freedom of expression and unintended consequences of AI
- Lack of stakeholder engagement, including with employees, customers and shareholders.
In 2019, we formed an international coalition of Alphabet investors – London-based Federated Hermes (a sub-advisor of the NEI Global Equity RS Fund), Robeco (Rotterdam) and The Sustainability Group of Loring Wolcott & Coolidge (Boston) – to bring our concerns to Alphabet’s Board of Directors. We wrote a robust letter outlining these concerns and requested to meet with the company. And we asked other investors with similar concerns if they wanted to collaborate on this engagement, receiving overwhelming support: over 80 institutional investors representing close to US$10 trillion of assets under management signed on.
Unfortunately, Alphabet ignored our concerns. As a result, we decided to escalate the engagement and filed a shareholder proposal to be voted on at the company’s Annual General Meeting in June 2020, specifically asking the company to adopt human rights oversight at the Board level.
We knew, as this was a first-time engagement on this issue and because majority control of the company’s shares was with executive management, traction might be limited to start. But the point was to raise awareness of this issue within Alphabet’s Board and incent to company to have a dialogue.
Then things changed in ways no one could have predicted.
First, the COVID-19 crisis was the catalyst for a sudden and significant jump in Internet usage. That shone the spotlight brighter than ever on the business models and business risks associated with technology companies.
Then came the widespread protests around anti-Black racism ignited by the death of George Floyd at the hands of the Minneapolis police. Just as suddenly that issue took centre stage for everyone – including companies and investors.
It was against this backdrop that Alphabet recommended investors vote against the proposal we co-filed, stating: “the current structure of our Board of Directors and its committees already covers these issues”.
This statement has a very different meaning today that it did a few months ago. What is says today is that the status quo is fine. However, against the backdrop of the human rights and race protests we’re witnessing – protests that inspired the Minneapolis City Council to commit to disband its police force – people are demanding and expecting change. And that demand crosses all elements of society, including companies that don’t respect the rights of their customers, employees and communities.
That was the collective mentality at play when investors voted at the AGM on our resolution to establish a human rights oversight capability on Alphabet’s Board on June 3, 2020.
So what happened?
The first clue that something might have shifted occurred when Alphabet’s Board Chair John L. Hennessy directly addressed the importance of human rights in his opening remarks at the AGM – a significant step away from the ‘don’t worry’ tone of the company’s vote recommendation. And though ultimately, as expected, the resolution was voted down, support for the proposal translated to roughly 45% of all independent votes cast. That means almost half of independent investors got behind a measure that was, for many, not even on the radar a year ago.
The lessons – and we’ve seen them repeated over and over in our engagement experiences – are twofold: first, it’s not always about getting majority votes. We use shareholder proposals as a tool to build awareness of ESG risks and encourage companies to talk about solutions. And second, in today’s world you cannot predict how things will unfold. What looks like an uphill battle can suddenly turn in your favour.
Our hope is that Alphabet is now ready to think and act very differently on human rights risks within its business. We’ll keep you posted.