June 25, 2019 at 5:00 am ET
At the Mastercard shareholder meeting today, shareholders who have not already voted electronically or through their financial advisor will have an opportunity to vote on five proposals. Three of the proposals are consistent across public companies: executive compensation, independent accounting firm and CEO pay ratio.
Of the two remaining proposals on the ballot, one addresses the gender pay gap, and another requests Mastercard to establish a human rights committee to monitor the domestic and international developments of human rights and its effect on Mastercard’s businesses. Three individuals and Lisa Lindsley on behalf of the group SumOfUs, which receives funding from individuals and groups like George Soros’ Open Society Foundations, support the proposal.
These shareholders believe Mastercard has a duty to follow their industry peers, and like PayPal shut off payment processing to groups they find unsavory: “The Proposal asks the Company to cease providing payment switching services to specific merchants.” What is more concerning is that the proposal would effectively bind Mastercard to a set of human rights “Guiding Principles” established by the United Nations for businesses to follow.
The principles say, “these Guiding Principles apply to all States and to all business enterprises, both transnational and others, regardless of their size, sector, location, ownership and structure.” While the Principles note there are no legal obligations to force a company to follow them, failure to incorporate the Principles into everyday business operations could bring future litigation.
Known as “soft laws,” the Guiding Principles in effect create additional corporate social responsibilities for Mastercard that could include policing their supply chains and the retailers or individual sellers using their products, and additionally monitoring and tracking customers’ purchases. The law firm White & Case notes that governments themselves are mandating greater disclosure, but further disclosure than what is mandated by law “can expose companies to adverse publicity, and potential litigation regarding the depth and quality of those disclosures.”
And this proxy season, Mastercard was not alone in receiving proposals similar to this effect. The Interfaith Center on Corporate Responsibility supported 31 shareholder proposals this year relating to the Guiding Principles. These proposals targeted companies across the industry, including tech, food, manufacturing, retail, banks and other financial institutions, energy and even a large contracting company.
SunTrust Banks also received the same proposal and was supported by ICCR, though it was ultimately withdrawn before receiving a vote before the shareholder meeting. What is notable is one of ICCR’s listed members is the AFSCME union, which has in the past filed similar proposals. Since 2014, the union has shifted its direction and submitted proposals that focus on federal relations, with ICCR following their lead on the issue.
In Mastercard’s case, the SEC denied their ability to exclude the proposal from their shareholder meeting and concluded “the Proposal transcends ordinary business matters.” However, the SEC’s Division of Corporate Finance has previously provided relief in the form of a no-action letter that allowed a tech company to omit a similar proposal recently, but did not provide the same latitude to Mastercard.
Mastercard shareholders should be wary of proposals like this and question whether the wishes of a select few are motivating enough to move the business in the direction of censorship and exclusion of customers from the payment platform. Mastercard’s fifth proposal demonstrates why there is concern among investors. Forcing companies to take stances on social and political issues that have nothing to do with the nature of the business ultimately detracts from shareholder value and creates a climate for future litigation.
Supporters of Proposal 5 will say that without adopting internal committees to implement the Guiding Principles, Mastercard risks reputational damage. In reality, it is Mastercard’s customers, employees, individual shareholders and those who passively own shares in their retirement accounts or pensions funds who are hurt by similar proposals that shift resources away from the core business to chase the social motivations of a small minority.
James Setterlund is the Executive Director of the Shareholder Advocacy Forum, a project of Americans for Tax Reform.
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