Northrop Grumman shareholders will vote next month on a proposal seeking information about the aerospace and defense company’s human rights impact.
The measure is brought by Sisters of St Dominic of Caldwell, New Jersey and the School Sisters of Notre Dame Cooperative Investment Fund. It will be offered for approval at the May 19 AGM and requests that the company publish a report ‘with the results of human rights impact assessments examining the actual and potential human rights impacts associated with high-risk products and services, including those in conflict-affected areas.’
The proponents write in a supporting statement that ‘[a]s the world’s fourth-largest defense company, Northrop Grumman’s most severe human rights impacts are likely to result from the use of its products and services, such as controversial arms trade, military training, nuclear weapons and border surveillance systems. Business relationships with the US government and foreign governments whose activities may be linked to human rights violations may expose Northrop Grumman to legal, financial and reputational risks.’
The proponents state that under the UN Guiding Principles on Business and Human Rights, companies have a responsibility to respect human rights as distinct from the duties of states, adding: ‘The high likelihood of severe impacts linked to business in conflict-affected and high-risk areas warrants heightened due diligence. A 2019 Amnesty International report found that the defense industry is failing to carry out effective human rights due diligence. This requires conducting human rights impact assessments to identify and evaluate the actual and potential adverse human rights impacts of the company’s business activities.’
The supporting statement says Northrop Grumman has billions of dollars in nuclear weapons contracts with the US and foreign governments, adding that with the Treaty on the Prohibition of Nuclear Weapons going into force this year, nuclear weapons sales expose the company to increasing regulatory and reputational risks. ‘While Northrop Grumman has a human rights policy, it does not disclose its salient human rights issues or the nature and extent of the participation of impacted rightsholders in its assessment process,’ the proponents say.
The same measure last year garnered 24.2 percent of votes. In 2019 a similar proposal – requesting that the board prepare a report on Northrop Grumman’s management systems and processes to implement its human rights policy – secured 31.1 percent of the vote. Both were brought by Sisters of St Dominic of Caldwell, New Jersey and the School Sisters of Notre Dame Cooperative Investment Fund.
The company unsuccessfully sought SEC no-action relief for excluding the proposal this year under Rule 14a-8(i)(10), arguing that it has ‘substantially implemented’ the request.
‘Most prominently, the company’s extensive human rights policy describes in some detail the company’s ‘salient human rights issues’ and the company’s approach to them, as well as the company’s assessment process,’ Northrop Grumman argues. ‘Indeed, the company’s consideration of actual and potential human rights impacts associated with the company’s products and services informed many of the extensive revisions the company adopted last year to its human rights policy.’
It states that by revising and publishing its policy and providing the further explanation in its 2020 proxy materials, the company is making the disclosure requested in the proposal.
Northrop Grumman also argues that the proposal may be excluded under Rule 14a-8(i)(3) because it is ‘impermissibly vague and indefinite.’ The SEC states on its website site that it is unable to concur with excluding the proposal on any of the grounds asserted.
In the company’s 2021 proxy statement, the board urges shareholders to vote against the proposal: ‘The company is, and has long been, deeply committed to human rights and to transparency, including in how the company implements its human rights policies and practices. The company is also committed to updating and refining its program, as we engage with our shareholders and receive their input, and as best practices evolve.’
It adds that the company last year created a human rights working group to help ensure its updated human rights policy is implemented effectively.
‘While the company is fully committed to advancing human rights, it is difficult to understand how the proposal would serve our shareholders’ interests, or how the company could effectively address what seems to be the proponents’ underlying concern – namely, how the US and other governments engage in armed conflict,’ the board argues.
A request for comment from Northrop Grumman was not returned immediately
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
