Web Note:
Dear Readers,
When I think about this development I have hope that shareholders will begin to realize that there is great liability risk with a product or process as unknown as genetic engineering. This is such a young industry and I believe many health and environmental problems have not even surfaced or even have been conceived of yet. With more than 6% of the shareholders voting for further evaluation, Dupont will be looking at this again next year. Just one major liability event will have a huge impact on the industry. The board room is really where the future of biotech will be decided. Feel free to write to shareholders!
Peace, Thomas Wittman
NEW YORK (MarketWatch) -- Shareholder proposals asking companies to evaluate "Frankenfood" scenarios as a financial risk are having limited success - despite their new, financially savvy vocabulary. A proposal on DuPont Co.'s (DD) 2006 proxy, which 7.3% of shareholders voted for at the company's recent annual meeting, exemplifies a new breed of proposal from environmentally concerned shareholders. It asked DuPont's board to report by its 2007 meeting on internal controls related to potential adverse impacts from genetically modified organisms, or GMOs, sometimes referred to as "Frankenfoods." Specifically, the proposal asked DuPont to determine whether there are adequate systems to monitor its modified seed products once they're in the marketplace; to retain an independent environmental expert to review the effectiveness of its risk management processes; and to examine the possibility that genetically modified seed, through inadvertent cross-pollination, can affect all seed product.
The proposal raises the issue of what companies need to disclose about environmental risks and related internal controls. Proposals on such issues have proliferated this proxy season. Already, around 180 such proposals have been put forth, up from 169 in 2005, according to the Social Investment Forum. In past years, proposals on GMOs asked companies to label all products that might contain GMOs - a measure that companies said was unnecessary and unreasonable - or to stop producing them altogether.
"Many more of the environmental resolutions are couched not just in environmental good policy terms, but as what's good for shareholder value," said Tim Smith, president of the Social Investment Forum, the trade association for socially concerned investors. "These relate to directors' fiduciary duty."
Aside from DuPont, there are at least three other companies that have faced proposals to disclose more about their internal controls over GMOs. Dow Chemical Co. (DOW) shareholders rejected a similar proposal at the company's annual general meeting last week, and Archer Daniels Midland Co. (ADM) saw 7.7% of shareholders vote for such a proposal at its November meeting. After failing to reach the 6% approval threshold to be reinstated on this year's proxy, a resolution that has been on Monsanto Co.'s (MON) proxy for two years running won't reappear this year, though shareholder groups say they are still in dialogue with the company on the issue. DuPont didn't return calls for comment on whether it viewed the request to assess issues related to GMOs as part of its compliance with internal controls. In its recommendation that shareholders vote against the proposal, the company said it believes that the concerns raised in the proposal are already being satisfied, listing extensive premarket testing, subjection to Department of Agriculture and Environmental Protection Agency approval requirements, and work with the Food and Drug Administration. Auditing experts say the items brought up in DuPont's proposal wouldn't likely need to be disclosed under internal-controls rules of the Sarbanes-Oxley Act because they relate to operational controls rather than financial controls.
"To make sure the company doesn't get into trouble and lose money because it's doing bad things - that really doesn't relate to financial reporting controls except that they need to make sure that any liabilities that could occur are properly reflected in the financial statements," said Rick Steinberg, founder and principal of Steinberg Governance Advisors Inc., a governance consulting firm. Such issues would more likely need to be included in disclosure of significant risk factors in the company's 10-K filing with the Securities and Exchange Commission, he said.
Proposals Gain Ground Despite Thumbs Down From ISS
Christian Brothers Investment Services, or CBIS, which wrote the DuPont proposal, noted that the shares voted in favor of the resolution represented $1.5 billion in shareholder equity and said the vote result was a big step forward in what is usually a multiyear process of building support for such issues. By garnering more than 6% of the votes, the proposal is guaranteed to make it onto DuPont's proxy again in 2007. But the GMO proposals are still getting thumbs down from most shareholders, as well as Institutional Shareholder Services, the largest proxy adviser. Companies and ISS say there's no proven link between GMOs and financial risk. But the 2006 proposals argue that perceived risks have already translated into real risks. For instance, DuPont's proposal notes that insurers in Germany, the U.K. and elsewhere have refused to issue liability coverage for genetically engineered crops because of perceived risks. And concerns about the safety of GMOs have already led to the inability to partake in European markets, which steer clear of GMOs despite the recent World Trade Organization decision deeming that the 25-nation bloc has been violating trade rules by doing so.
Concerns about being shut out of foreign markets have already led to lawsuits from organic growers, restauranteurs and other parties that claim their products have been trespassed upon or contaminated with genetic seed. For instance, the Saskatchewan Organic Directorate, an organization that represents many of the Canadian province's certified organic grain farmers filed a lawsuit in 2004 against Monsanto and Aventis Pharma Ltd. (500674.BY) that seeks damages resulting from genetically engineered canola crops and an injunction to stop the launch of genetically engineered wheat into Saskatchewan.
DuPont is attracting extra attention because of its recent issues with perfluorooctanoic acid, or PFOA, which was recently deemed a likely carcinogen by a panel of EPA advisers. DuPont has agreed to pay $16.5 million to settle government allegations it hid the dangers of the synthetic chemical used in making nonstick Teflon coating and may yet face a class-action lawsuit. In a letter addressing a request that it study the possibility of a phase-out of PFOAs, DuPont said it is "not technologically feasible" to eliminate PFOAs in its manufacturing and "the alternative - halting production of those products in which it is employed - would have a serious negative impact on both societal benefits and shareholder value."
The 2006 proposals argue that by demonstrating internal control over GMOs, companies could avoid similar binds. "Our sole goal here is to avoid a repeat of the Teflon controversy, which was brought about when DuPont inaccurately asserted the safety of PFOA over many decades," Christian Brothers said in a statement. "At a minimum, DuPont has an obligation to start acknowledging to its shareholders that there are valid concerns here about potential risks associated with GMOs." -Contact: 201-938-5400
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Shareholders' proposals on GMO risks have limited success
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Shareholders' proposals on GMO risks have limited success
By Tiffany Kary
May 15, 2006
