Paid Family Leave Finds an Unlikely Ally: Investors

Shareholder resolutions could turn up the heat on American companies to offer more robust and equitable leave policies.

A fist thrust into the air on the left. A briefcase on the right.
Photo illustration by Slate. Photos by Thinkstock.

In 2017, Starbucks made headlines with its unequal paid family leave policy. Baristas got one set of benefits, and corporate staff got another. Within the benefits offered to baristas (those who “wear an apron”), moms who gave birth got six weeks of paid family leave. Dads or adoptive parents: zero.

Starbucks, long known for its culture of empowering “partners” (as their employees are all called), received a barrage of frustrated employee feedback. Stories about pregnant baristas who wouldn’t get time off or LGBT couples who were shocked that Starbucks would offer generous health insurance to pay for gender reassignment surgery but not give them a few paid weeks if they had a new baby led to sit-down, private meetings with the company’s global head of benefits. Yet the policy remained unchanged.

Then one day in October, a group of investors who collectively owned $2.4 million in Starbucks shares, filed the first-ever shareholder proposal on paid family leave. They were led by a small number of socially responsible investing firms based in Boston. The resolution stated that Starbucks had fallen behind leading companies such as Amazon, Nordstrom, and Ikea, “which have more equal approaches [on paid family leave],” and that investors would like clarity on how Starbucks addresses these challenges, “including the risk of employment discrimination based on gender, race, ethnicity, LGBTQ status, parental status, and/or work status.”

Then in January, Starbucks made an announcement: Moms and dads, birth parents and adoptive, who worked more than 20 hours a week in stores would now all receive six weeks of paid parental leave (a Starbucks spokesperson said adoptive parents were always meant to be included and the language of the plan has since been updated for clarity). The shareholder proposal was withdrawn. Starbucks had finally yielded.

It’s no longer an uncommon story to find an employee willing to advocate for paid family leave. In corporate offices eager to retain top talent, sometimes just one determined employee can make that policy difference; more companies are willing to let employees do the legwork and research to draft paid family leave policies. As advocacy groups such as PL+US work to empower employees to speak to HR offices or collaborate with one another to petition management for changes, there’s been a shift in the way paid leave policies are taking shape. Absent a federal policy, many advocates acknowledge that such employee activism may be the best route to bring paid family leave to more people.

But for some companies, the activist employees and outside advocates aren’t sufficient to affect change. And so enters the socially responsible investor.

“The investor voice is super powerful. These companies aren’t used to hearing from investors on workplace issues,” said Pat Tomaino, direc­tor of socially respon­si­ble investing at Zevin Asset Management in Boston, the city that spearheaded the first shareholder resolution targeting Starbucks. “The perception is starting to change. More and more larger investors are starting to realize that benefits and wage gaps affect a company’s long terms financial progress.”

The Starbucks shareholder resolution on paid family leave was the first of its kind, and it has proven so effective that socially responsible investing firms such as Zevin are gearing up to put more shareholder resolutions in place for companies that have unequal paid leave policies, citing the need for what they call “better human capital management,” i.e. better meeting the needs of workers, which they think will yield better long-term results for the companies. And Zevin has the close-knit group of socially responsible investment firms in Boston that regularly meet to learn about issues and connect on ideas to make it happen.

Zevin filed a shareholder resolution against CVS in November citing its unequal paid family leave policies. In February, CVS introduced its first paid parental leave policy, giving full time employees, including those who work in stores, four weeks of paid parental leave. (Previously, only birth mothers had been eligible for time off under short-term disability.) Now, Zevin is in the process of withdrawing the shareholder resolution. And though Zevin was not a signer on the similar shareholder resolutions for Yum Brands or Walmart, it advised on the matters. (The shareholder resolution against Walmart was subsequently withdrawn after the company announced a new paid family leave plan in January.)

Investment research firm MSCI’s internal research showed investors’ increasing interest in human capital and nicknamed 2018 “the year of the human.”

“There has been so much hype in the news that the robots are coming for our jobs. Maybe for some jobs, but the people who run the robots are going to become even more important. As the pace of change picks up, you need a workforce that is adaptable,” said Meggin Thwing Eastman, a senior analyst at MSCI. “The companies that are going to be best equipped as the skills shift over time are the ones that are developing their people.”

There are few concrete metrics that show a company’s commitment to its workforce: turnover, diversity, productivity per person. But paid family leave has edged up on the list, as continued research shows such management practices lead to a more productive workforce with lower turnover than companies that don’t provide such benefits.

Eric Garton, a partner at Bain & Company who leads the company’s global organizational practice, believes investors will continue to take a closer look at companies’ human capital management when making investment decisions: “Historically, a private equity firm would look at the senior leadership team. They weren’t looking at whether the organization was built around developing and retaining high-quality human capital.”

Now, with longer holding periods in private equity and more capital tied to individual companies, Garton says a shift is happening, and investors are looking at all employees. “It’s critical for the long-term viability and success of the company,” said Garton.

The idea of paid family leave as a socially responsible investment strategy started with Emily DeMasi, a portfolio manager at Zevin. “I had my second child three years ago,” she said. She “had all the support anyone could ever want,” with a stay-at-home husband and a job at a “flexible and supportive” socially progressive investment firm. But she still found it hard to come back to work after taking her maternity leave.

“I had to advocate for myself,” she said. “I was in the best possible scenario, and I thought, ‘What are women doing out there who aren’t in this scenario?’ This is ridiculous. What is going out there in the greater world?” She’d been focusing her investment research on the gender-pay gap within corporations. “We were thinking about moments in a woman’s career when that [gap] happens. When you have your first or subsequent child is a time when women often step away from the workforce. This is why the gender pay gap exists,” she said.

And as DeMasi and countless policy advocates realized, if a company wants to address the gender pay gap, paid family leave needed to be in the equation.

Through an internet search, DeMasi came across PL+US paid family leave index, which documents the varying paid leave policies for the country’s top employers. DeMasi connected with Annie Sartor from PL+US.

With a background in environmental advocacy, Sartor had seen the power that investors bring to existing public campaigns. She jumped at the opportunity to bring shareholder activism to workplace equality issues. Sartor came to Boston to meet the socially responsible investor network and give a presentation on why paid family leave policies are critical for the well-being of a workforce.

Zevin is one of a group of socially responsible investment firms in the Boston area that regularly meet on social issues and leverage the assets of the larger group to make a more effective push on socially responsible policy. Zevin invited other firms to its Beacon Hill office to hear Sartor’s presentation and come up with ideas on how to push paid family leave within their investment portfolios.

Over a brown-bag lunch, Maria Egan, a portfolio manager and shareholder engagement manager at Reynders McVeigh Capital Management, and about a dozen others were given a presentation on the PL+US paid leave index. Egan came away convinced that paid family leave could be a major investing issue and that the longer retention provided by paid family leave policies would ultimately increase a company’s bottom line. When Zevin pulled together the shareholder proposal for Starbucks, Reynders McVeigh was one of the five socially responsible investment firms to sign on and lend its shares of the company to the collective total.

“We’re looking for companies that do have a long-term approach, not just meeting Wall Street short term estimates. That work-life balance creates a long-term benefit for all shareholders and stakeholders,” said Egan.

Companies that are reluctant to listen to the needs of the employees may be more willing to act and respond to the needs of investors.

“There are still companies that we reached out with that we haven’t heard back from,” said DeMasi, referring to their original set of letters they sent in the fall. DeMasi says Zevin plans to send letters to the companies that hadn’t given satisfactory responses to their letters and are considering other shareholder resolutions, since they’ve seen the efforts that started in their Boston office have reverberating national effects.

“Actually measuring how well a company’s manages its talent is hard,” said Eastman. An investor can look at metrics such as revenue per salary dollar paid, turnover, makeup of the workforce and experience. “But we are also looking at things a company says they do, parental leave policies, or other types of benefits. It’s no guarantee that a company that has those things on paper is doing well on the ground, but for the time being, it’s the closest [measurement] we can get.”

Support for this article was provided by Rise Local, a project of the New America National Network.