August 4, 2005 | Read Time: 9 minutes
Chart: Where Nathan Cummings Foundation’s endowment is invested
Table: Nathan Cummings Foundation’s endowment at a glance
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The Nathan Cummings Foundation gives $3.5-million a year to environmental causes, including support to charities that argue that the consolidation of the hog industry has led to greater pollution of water supplies. The New York organization invests a portion of its $445-million endowment in Smithfield Foods, where the same consolidation that worries environmentalists has led to robust earnings gains for the company over the past 30 years.
The fact that the foundation is profiting from the very trend that its grantees are fighting is a disconnect that very few foundations spend much time thinking about. For the most part, program officers make the grants, and money managers oversee the investments, and never the twain shall meet.
But the Cummings Foundation is among a growing number of grant makers that are paying more attention to corporate governance and responsibility at the companies in which they invest. Other foundations taking on a more active role with their investments include the Educational Foundation of America, the Ford Foundation, the Jessie Smith Noyes Foundation, and the Shefa Fund. Those foundations closely evaluate issues raised in proxy statements — proposals that companies send to stockholders to make certain business decisions — and vote their shares in line with the foundation’s programmatic goals.
Cummings also has been among the most aggressive foundations in filing shareholder resolutions that encourage companies to act in a socially responsible way, particularly on issues related to its grant making to health and environmental organizations.
“We distribute 5 percent of our assets per year,” says Lance E. Lindblom, the foundation’s president. “That means 95 percent of our assets aren’t being used. By voting our proxies and bringing our resolutions, we’re able to leverage that other 95 percent of our assets tremendously.”
At Smithfield, the Cummings Foundation and other shareholders, including Amalgamated Bank, which serves members of labor unions, wanted the company to begin reporting information about the environmental impact of hog farms that it does not own but hires to provide it with pork. The company owns fewer than a fifth of the farms involved in Smithfield’s production. The company maintained that since it didn’t own the contract operations it didn’t need to disclose data about them.
“A small farm is a small farm, and it’s not our place to impose our will on how they operate,” says Dennis H. Treacy, a Smithfield spokesman.
Last year 21 percent of shareholders voted in favor of a resolution drawn up by Cummings that would have required greater disclosure about the farms that supply Smithfield’s products.
Despite their opposing perspectives, the company and the foundation had monthly conference calls for a year as Nathan Cummings officials provided feedback on what should be included in Smithfield’s annual environmental-stewardship report.
Caroline Williams, who retired from her position as the foundation’s chief financial and investment officer in July but will continue to oversee shareholder activities, an area on which she has spent at least half her time in recent years, says Smithfield is making some progress even though it hasn’t provided the information on contract farms sought by the resolution. “It’s been a very productive dialogue,” Ms. Williams says. “We’ve re-filed the resolution, but we talk to them all the time.”
Cummings also has pushed for greater disclosure of financial contributions to politicians from pharmaceutical companies like Pfizer and Merck. The foundation makes grants to groups that seek to reduce barriers to obtaining health care, such as socioeconomic status and race, and many of its grants focus on how to make prescription drugs affordable. Some critics of the pharmaceutical industry accuse companies of trying to curry favor with politicians to keep prices high.
Ms. Williams says the foundation’s interest in the political contributions is both programmatic and economic, given its stake in these companies. “A business model built on political protection is not sustainable,” she says.
The Cummings foundation was created by Nathan Cummings, who during a long career in the food industry assembled a conglomerate that eventually became known as Sara Lee. When he died in 1985, he left most of his wealth to his foundation. His family then specified the foundation’s grant-making priorities, which include arts and culture, the environment, health, and Jewish life and values.
The foundation didn’t become aggressive about proxy voting until Mr. Lindblom, who oversaw grants to corporate-accountability groups at the Ford Foundation, was hired as president in 2001. He hired Ms. Williams, who had spent 20 years as an investment banker before switching gears to work at foundations.
During her first few weeks on the job, proxy statements from the foundation’s finance department began landing on her desk for her to sign, all “neatly filled out voting for the company’s position,” Ms. Williams says.
The foundation had a policy on proxy voting that dated to 1994, which included provisions stating that the foundation would vote against “golden parachutes” for departing executives, among other things, but the foundation rarely followed the policy, and with a handful of exceptions, voted alongside corporate management.
That is not uncommon among foundations. In a 2002 study by the Council on Foundations, only 43 percent of the 502 foundations reported that they voted their own proxies. Most of the remaining foundations left the voting up to their investment advisers, who tend to vote overwhelmingly for corporate management. Of those foundations that did do their own voting, only 9 percent — 25 foundations — said they had written guidelines for voting proxies.
In 2002 Cummings revised its policy to state that proxies would always be voted to benefit the foundation’s grant-making programs, and that the foundation would, as necessary, submit shareholder resolutions, consult with company management, and work with other institutional investors to seek change.
Smithfield was the first target of a shareholder resolution, but Cummings didn’t stop there. The foundation has filed 13 shareholder resolutions, more than half of them related to greenhouse-gas emissions. (Its environmental grants have long sought to reduce the threat of global warming.)
In early 2004 Cummings filed a resolution with Valero Energy Corporation, in San Antonio, asking the company to explain how it was dealing with concerns about global warming and greenhouse-gas emissions. Valero, the largest oil refiner in the United States, argued before the Securities and Exchange Commission that the resolution was based on “junk science.” But before the 2004 annual meeting, the company announced a plan to cut greenhouse-gas emissions by 5 percent by 2008.
Jay Browning, a vice president at Valero, says that the company was already working toward the emissions reductions, but that the Cummings discussions did prompt it to put a page on its Web site outlining the projects it is working on to reduce emissions.
Rabbi Mordechai Liebling, organizer of the Jewish Shareholder Engagement Network, a division of the Shefa Fund (but financed primarily by Cummings) that encourages greater shareholder activism among Jewish institutions, says Ms. Williams’s two decades of Wall Street experience give her an edge in negotiating with company executives.
“They’re expecting a tree-hugger in Birkenstocks half the time,” he says. “And then all of a sudden a very well-dressed businesswoman walks in and can demolish their business plan in five minutes.”
Cummings is also working with national and global organizations to encourage corporations to look past short-term profits and evaluate how climate change might impact their businesses over the long term. Mr. Lindblom recently attended a summit on climate risk organized by the United Nations Environment Program, where institutional investors controlling some $3.2-trillion called on market regulators to begin requiring greater disclosures from companies about how global warming could affect their businesses.
“There’s a tremendous effort among institutional investors to grapple with these issues because of the financial impact, and because we believe we’re not fulfilling our fiduciary duty if we don’t address them,” Mr. Lindblom says.
Even so, American foundations, with their more than $400-billion in wealth, are not leading the charge. The organizations that signed a document at the United Nations meeting agreeing to press for change, for example, were mostly state governments and pension funds for labor organizations. The only foundation that signed the document was Nathan Cummings.
One reason that foundations are unlikely to closely evaluate proxies is that they lack the staff or capacity to determine how they should vote. But more information is becoming available all the time. The As You Sow Foundation, in San Francisco, which promotes progressive social and environmental policies at companies, released a proxy preview this spring/ that listed the hot topics being tackled in 2005 proxies, and named specific companies at which proposals had been filed.
Even Cummings is currently taking an active role only with a small portion of its endowment: the 21 percent invested in domestic equities. The foundation cannot exert much influence over its hedge-fund investments (14 percent), since many hedge funds rarely disclose information about their current holdings.
Progress also has also been slow with the foundation’s international investments (more than 30 percent of the endowment). Those investments are in commingled funds, and Ms. Williams has had some trouble obtaining information on how the proxies are voted. She is now making it clear to international managers that they are required by law to provide the foundation with that information.
“We haven’t drilled down to the same level yet with our international managers,” Ms. Williams says. “But it is something that we plan to do.
Some socially responsible investors screen out companies that engage in activities that, for example, hurt the environment. But Cummings puts no restrictions on its managers, aside from telling them to stay out of tobacco stocks.
That policy allows the foundation to argue persuasively that it is firmly focused on expanding its endowment — and that a good long-term return is possible only if companies grapple today with the thorny issues, such as climate change or the high cost of medicine, that will probably be worse tomorrow.
“Civil society will define what’s acceptable and what’s not,” Ms. Williams says. “And what civil society defines will impact shareholder value.”
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WHERE NATHAN CUMMINGS FOUNDATION’S ENDOWMENT IS INVESTED
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NATHAN CUMMINGS FOUNDATION’S ENDOWMENT AT A GLANCE
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Section: Endowments
Volume 17, Issue 20, Page B14
