SEC Upholds Shareholder Vote on Shower Heads Over Climate Concerns

Hotel chain tries to dismiss a shareholder resolution to switch to low-flow shower heads. But the SEC says no, citing global warming concerns.

Share this article

Shareholders of one of the country’s biggest hotel chains have struck down a resolution that would force the company to consider replacing energy-guzzling shower heads with more efficient ones—yet its backers are claiming victory.

Although only nine percent of Choice Hotels shareholders voted in favor of the resolution, the proposal is one of a handful of global warming resolutions that companies tried to dismiss in this year’s proxy season—but that the U.S. Securities and Exchange Commission said must be put to a vote. The trend reflects continued concerns by the SEC about the business risks of climate change.

“They’re enforcing their rules in a way that allows a lot more climate-related resolutions to go through to a vote,” said Rob Berridge, program manager at Ceres, a coalition of sustainability focused investors with $11 trillion in assets.

Stephen Sacks, a retired mechanical engineer, filed the shower head proposal in October with Choice Hotels, which franchises 10 brands and has 500,000 rooms worldwide. The proposal would require the company to write a report on energy and cost savings from switching to low-flow shower heads that use 1.75 gallons of water per minute (a third less than the standard 2.5 gallons). 

“Greenhouse gases resulting from burning fossil fuels used to heat water are a
major contributor to global warming,” the resolution said. “Think how long a stove burner takes to heat a pot of water. Showers require much more hot water and consume a significant fraction of the energy used in hotels.”

According to the Environmental Protection Agency, if every American home switched to low-flow shower heads, the country could save $2.2 billion in water utility bills and $2.6 billion in energy costs.

Sacks said he became interested in climate change when he worked as head of the Technology Base/Ballistic Missile Defense Office at the Naval Research Laboratory in Washington D.C. While there he would sit in on talks by various divisions, including one division that involved atmospheric science. He became especially fascinated with low-flow shower heads, even testing different models at his house and studying shower heads used in hotels.

“Shower heads sound ridiculous and specific, but I think it’s a no-brainer,” Sacks said in an interview. “You can get an equally fine shower with a lower flow, and a lower flow means less energy. This is something I felt I could have an impact on.”

Choice Hotels initially decided not to bring Sacks’ shower head resolution to a vote. In a January letter notifying the SEC, the company said the proposal was “an attempt to micro-manage” its daily business operations—which is generally considered grounds to dismiss proposals under SEC regulations.

However, if there are “significant policy issues” at stake—like climate change—then that can trump everything else, according to a 2009 SEC legal bulletin. In the end, Tonya Aldave, an attorney-adviser for the SEC, sided with Sacks.

“In arriving at this position, we note that the proposal primarily focuses on the significant policy issue of global warming and does not seek to micro-manage the company to such a degree that exclusion of the proposal would be appropriate,” Aldave wrote in a February letter.

A spokeswoman for the SEC declined to comment or make Aldave available for an interview. A Choice Hotels representative did not return requests for comment.

Sacks presented his shower head proposal at an April 26 shareholder breakfast in Choice Hotel’s new headquarters in Rockville, Md. “They were very gracious,” he said of the hotel executives.

Nine percent of shareholders voted in favor of the measure, and Sacks said he’s pleased with the outcome. He believed the odds were against him because of how stock ownership is distributed among founding family members.

The other climate change resolutions upheld by SEC attorneys this year fared far better.

A resolution to get PNC Financial Services Group to assess the climate risks from its lending, investing and financing practices got nearly 23 percent of the vote. More than 35 percent of Spectra Energy shareholders voted to require the natural gas company to publish a report on how it measures, mitigates and discloses methane emissions.

A third proposal, one of the first-ever “carbon bubble” resolutions, will be voted on next week. The measure asks Alpha Natural Resources, a large Virginia coal company, to report to investors how much of its coal assets would be left “stranded” in the ground if the United States were to pass carbon regulations.

As You Sow, a shareholder advocacy group for environmental issues, filed a similar resolution with CONSOL Energy, though the Pittsburgh coal company didn’t challenge the proposal. It got nearly 20 percent of the vote at last week’s shareholder meeting.

In total, 92 resolutions relating to climate and environmental issues were filed in the 2013 proxy season, according to As You Sow and other sustainable investment groups.

The Choice Hotels proposal was the second shower head resolution for Sacks. In 2010, he filed a similar request to Marriott International that would have required the company to install low-flow shower heads in several test properties. Marriott told the SEC that it would exclude the proposal from a vote. That time, SEC attorneys sided with the hotel, agreeing that the resolution “seeks to micromanage the company.”

Marriott representatives also said the company had installed 400,000 low-flow shower heads and toilets. The switch “was so compelling on the payback,” said Pat Maher, a former Marriott engineer and a consultant to the American Hotel & Lodging Association’s green task force.

A common complaint of low-flow models is that they have weak water pressure and give poor showers. Maher said the hotel industry is pressuring manufacturers to make low-flow shower heads that feel more like higher-flow ones.

Sacks said he doesn’t have plans to file any more shareholder proposals—shower head-related or otherwise. 

“I think I’ve done all I can here” to push hotels to install low-flow shower heads, he said, though tackling climate change has gone from a passing interest to a passion. “I think global warming is so significant.”