Expeditors International: Link Executive Compensation to Sustainability Performance
As a long-term holder of Expeditors International of Washington (ticker: EXPD), a shipping and logistics Company, Sonen engaged with management with the goal of improving the Company’s sustainability disclosures, which are presently minimal, as a first step toward setting goals for reduction. We suggested that linking sustainability performance to executive compensation would be an effective way to create accountability and ensure prioritization within the Company.
We had several dialogues with the Company over several months in late 2016, where we had the opportunity to outline our concerns with the lack of disclosure, as well as provide comprehensive resources about the benefits and process toward incorporating sustainability performance to compensation. We were flexible in our requests, hoping to simply see stated commitments around the disclosure of basic, material sustainability information on a set timeline.
Sonen led a resolution, co-filed by Clean Yield Asset Management and Zevin Asset Management, requesting that the Expeditors’ Board of Directors assess the feasibility of integrating sustainability metrics into the performance measures of senior executives under the Company’s compensation incentive plans.
Outcomes: Sonen’s proposal received 21% support from all shareholders, a respectable level of support in general for shareholder proposals – but particularly encouraging given that this was the first year that the resolution was filed with the Company.
While this is not binding, we feel that the engagement process has made clear to Company management – including both its CEO and Board of Directors – that this is a critical issue, material to future performance, where they need to show leadership. While the Company claims that sustainability is integrated into their operations, this resolution and the accompanying dialogue hopefully makes clear to them that proper disclosure and progress on sustainability needs to be a more urgent priority for the Company.
At the Company’s annual meeting, Expeditors’ CEO, Jeffrey Musser, responded directly to this proposal in his comments, stating that sustainability is a priority and that the Company continues to make progress. The Company’s counter argument as to why this resolution is unnecessary is that they believe sustainability is already incorporated into compensation as a function of bonuses, which are based on profits – which depend on efficient (and therefore less carbon intensive) operations. While we certainly believe in and support the Company’s focus on efficiency, this is not a substitute for robust and comprehensive disclosure of material sustainability data such as carbon intensity that result from the Company’s operations – whether or not they own their shipping assets. The CEO also stated the Company culture of being “quiet” about its progress on this front. Again, we made the case that this is not a values based request, but one of material and relevant information that needs to be thoughtfully incorporated into the decisions that all investors, beyond the ESG community, will make in the future and is therefore, we believe, in the best interest of all shareholders.
At this point, we feel that we have established a solid understanding with the Company of the type of progress that we would like to see – although they have acknowledged that they might not be able to disclose this on the timeline that we would expect. Management seems open to future collaboration on this topic, and Sonen plans to closely track progress and serve as a resource to the Company as they increase disclosures.