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1-$%8.-7+-+
The animal rights activists are also activist shareholders in
Groupon, Lululemon, Whole Foods and other companies
that might surprise you.

BY KEITH GRIFFITH AND EMILY ROLEN

Aug 4, 2016 8:23 AM EDT

PETA activists protest in Berlin.

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The animal welfare group PETA, or People for the Ethical Treatment of
Animals, is skilled at grabbing headlines with provocative street
protests and hidden camera exposés.

Some of the group's biggest victories against large corporations,

however, have come through a subtler approach: buying stock and
pressuring management to make changes by filing shareholder
resolutions.

"Our shareholder program is one of our most meaningful ways to

engage companies that are not making progress on animal welfare
issues," said Anne Kellogg, PETA's manager of corporate affairs. "No
company or shareholder wants to be associated with companies that
are cruel to animals."

PETA is not alone in this form of shareholder activism, a realm typically

associated with the likes of Carl Icahn and Bill Ackman. Shareholder
resolutions related to environmental, social, and governance issues
made up two-fifths of all resolutions in 2013, a 60% increase from a
decade prior. Although they almost never pass, average support for
such proposals doubled in the same period, to 21% of votes.

The flurry of social-issue shareholder proposals has led some,

including the U.S. Chamber of Commerce, to call for tighter restrictions
on the shareholder resolution process. Typically, groups like PETA have
to own just $2,000 worth of a company's stock for one year to get
proposals on the proxy ballot.

"There are many socially valuable causes, but the SEC and corporate
law are not the places for dealing with social causes," former Securities
and Exchange Commissioner Troy Paredes said at a conference in

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November. To the extent it's easier to advance social causes through

shareholder campaigns, Paredes asked, "is that looking out for investor
interests?"

The answer may not be so simple, though.

PETA began using activist shareholder tactics in 1987, buying stock in

several companies that tested cosmetics and household products on
animals and filing a resolution urging Procter & Gamble (PG - Get
Report) to stop the practice. Though the resolution failed, P&G did
eventually phase out animal testing not required by law. (Chinese
regulators still conduct live animal testing on many products sold there,
a point of contention between PETA and several companies.)

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All told, PETA owns stock in 56 companies for activist purposes,

according to spokesman Ben Williamson. But typically, the group tries
to work with companies behind the scenes before making waves at a
shareholder meeting.

One of PETA's biggest victories has also been one of its worst
investments, from a financial perspective. Long opposed to live-animal
performances, PETA bought stock in SeaWorld (SEAS - Get Report) in
its first week of public trading in 2013. Though the stock is down over
50% since the IPO, SeaWorld agreed in March to stop breeding
animals in captivity, a proposal PETA had previously submitted and
subsequently withdrew.

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Of course, PETA is not a traditional investor, and doesn't mind if share

prices drop. That's what worries some opponents of shareholder
activism on social policy issues, who say that forcing management and
boards to respond to such proposals is a waste of resources, and a
distraction from boosting earnings.

A recent study on the question found that merely submitting a proposal

on social issues tends to spur management action, even though such
proposals almost never get majority support. The study, co-authored
by Harvard Business School Associate Professor George Serafeim,
found that shareholder proposals on environmental, social, or
governance (ESG) issues are associated with a subsequent decline in
firm value, but only if the proposal is on an immaterial issue.

On the other hand, social-issues proposals on material topics -- which

ask a company to make some fundamental change to its business
model, process, or products -- are associated with a subsequent
increase in relative firm value, the study found. Counter-intuitively, it
could be that the more significant a social-issue proposal is to a
company's core business, the more it benefits regular shareholders.

"ESG issues are not only about 'values' but also in a very real way
about 'value,'" Serafeim told The Street.

Why might this be? PETA's history of activism offers some clues. In the
late 1980s, opposition to live-animal testing was something of a fringe
issue. Now it is de rigueur. Perhaps social activists are often a leading
indicator of future norms, in which case companies would be wise to
pay attention to their concerns.

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Unfortunately, Serafeim found that just two-fifths of social-

issues proposals are on material concerns -- the kind that tend to
increase value. That share hasn't increased in two decades, he finds.
"Perhaps that will change in the future as the responsible investing
scene is becoming more competitive," he said.

PETA focuses on four core issues: the treatment of animals in the food
industry, clothing manufacture, laboratory testing, and entertainment.
Here are some of the stocks the group owns as an activist shareholder:

Air Services Transport Group (ATSG - Get Report)

Issue: Transporting primates to laboratories
Outcome: The company recently agreed to PETA's demands.

Groupon (GRPN - Get Report)

Issue: Promotions for tickets to circuses, marine parks, and other live-
animal entertainments
Outcome: PETA's shareholder resolution failed at the June shareholder
meeting.

Hermes International (HESAY)

Issue: Exotic animal skins used for bags
Outcome: PETA reached the one-year threshold as a shareholder last
month, and should be eligible to submit a shareholder resolution next
spring.

Laboratory Corp. of America (LH - Get Report)

Issue: Animal experimentation
Outcome: In May, shareholders rejected a resolution asking the
company to report on its efforts to "prevent, detect, and control Zika
virus infection of nonhuman primates" at its facilities.

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Lululemon Athletica (LULU - Get Report)

Issue: Use of down feathers in clothing
Outcome: In June of last year, shareholders rejected a proposal to
eliminate down from product lines.

Prada (PRDSY)
Issue: Exotic animal skins, including ostriches, used for bags
Outcome: PETA purchased stock in April, and should be eligible to
submit a shareholder resolution next year.

Restoration Hardware (RH - Get Report)

Issue: Use of down and goose feathers in pillows and cushions
Outcome: The company has introduced a line of down-alternative
bedding; PETA continues to advocate for it to eliminate all down.

Revlon (REV - Get Report)

Issue: Animal testing of company products by regulators in China
Outcome: Shareholders rejected a 2014 resolution for the company to
report annually on any animal testing of its projects, but Revlon did exit
its China business that year.

SeaWorld Entertainment (SEAS - Get Report)

Issue: Live animal entertainment
Outcome: In March, PETA withdrew a shareholder resolution calling for
the company to end breeding in captivity, after SeaWorld announced it
would halt the practice.

Whole Foods Market (WFM)

Issue: Advertising meat as humanely farmed
Outcome: PETA should be eligible to submit a resolution at the
shareholder meeting next spring.

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