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green@work : Magazine : Back Issues : Sept/Oct 2002 : Cover Story

Cover Story

Restoring Faith in the Markets

More Cover Story Articles

- Funds Overview
- Social Screens
- Shareholders Advocacy
- Restoring Faith in the Markets


In a letter this summer to the New York Stock Exchange, Domini Social Investments outlined additional changes it feels are needed to restore faith in the markets—changes that go beyond those the NYSE has already proposed to its listing standards. Domini divided its comments into two groups—first, those areas where it believes the NYSE should provide further definition; and second, a group of recommendations that address the broader issues that more deeply affect investor confidence. Following are excerpts from the letter’s recommendations. The complete text can be accessed at

Items Requiring Further Definition
* Code of Business Conduct and Ethics: A corporate code of conduct should go beyond the current proposal to include principles of environmental and social responsibility, as well as governance criteria. [It] should also specifically outline the process by which boards and executives will manage social and environmental risks. One way of providing indicators for such management initiatives is required disclosure. We recommend that the NYSE carefully evaluate the reporting requirements of the Global Reporting Initiative (GRI). GRI provides a uniform disclosure policy and extends the reach
of corporate social responsibility to economically, environmentally and socially sustainable business practices.

* Definition of independence: We encourage the NYSE to consider more specifically what constitutes a “material relationship” to the company, and provide more detailed guidance concerning the nature and duration of such relationships. We also believe that a CEO who also serves as chair of the board potentially compromises the independence of the board and, therefore, support the separation of these positions.
* Board orientations and staffing: As the NYSE proposal indicates, appropriate minimum training for board and committee members is essential to ensure that they are adequately prepared to provide proper oversight. The impact of social and environmental issues on company performance, liability and reputation should be included in board training that familiarizes members with material considerations and thorough risk management. The NYSE might also consider requiring corporations to report on what training, if any, its board members have received, from the corporation or outside sources.
* Audit and non-audit services: We urge the NYSE to
establish guidelines to better define what audit and non-audit services should comprise. Guidelines are needed that are quantitative, as well as qualitative. We urge the NYSE to propose a logical percentage threshold for audit versus non-audit fees.

Areas Not Covered by the NYSE Proposals

* Excessive executive compensation: [This] is arguably the most critical single barrier to re-establishing investor confidence in our markets. We strongly encourage the NYSE to convene a taskforce to study this issue in greater depth to determine the most effective ways to assure that executive compensation is placed within reasonable limits. We strongly support the banning of company loans to executives and encourage the NYSE to adopt this position in discussions with the SEC and Congress. We would also like to see the NYSE press the SEC to bring greater scrutiny and regulation to the issue of executive severance pay.
* Diversity: A corporation’s commitment to ethnic and gender diversity is critical to its long-term success in an increasingly diverse marketplace, as well as to the corporate world’s reputation. We urge the NYSE to recommend that corporations make greater efforts to include women and minorities on their boards of directors and to regularly report to shareholders on their progress in promoting women and minorities to positions of authority.
* Board elections: We recommend additional research into how boards can better represent shareholders, and how investors can be presented with more options for the slate of directors. We further strongly oppose classified or staggered boards. The annual election of all directors is a necessary part of maintaining accountability to shareholders.
* Improved social and environmental disclosure: If U.S. companies are to compete globally, they will eventually need to address transparently issues of corporate social responsibility to meet [a] growing demand from European regulators and investors. We strongly encourage the NYSE to consider requiring all listed companies to disclose basic information about their social and environmental performance. We recommend that the NYSE convene a taskforce to study how standards may be developed that will compel disclosure, in an aggregate manner, of material risks, liabilities and impairments in these areas.

Among the other issues deserving of careful examination by the NYSE are recommendations on how stock options are reported to stock owners (we recommend they be expensed), whether in-person annual meetings are an essential part of corporate democracy (we believe they are), and whether boards of directors should consider questions of social and environmental responsibility as matters requiring independent oversight (we believe they should).

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