• Arjuna Capital's Natasha Lamb, who fought for a Microsoft shareholder proposal demanding transparency on sexual harassment, was shocked when it was approved.
• Money managers are now reaching out to Lamb about Arjuna's proposals as they focus more on environmental, social and governance matters.
• Lamb is looking at pursuing similar measures at other technology companies in her firm's portfolio.

Natasha Lamb was shocked. It was November, and Microsoft shareholders had just agreed with her proposal to push the software maker into issuing a public report on the effectiveness of its sexual harassment policies.

Microsoft opposed the measure and urged investors to vote it down. But the company lost and, because of the decision, Microsoft said on Thursday that it will review its policies and issue a report in the spring. 

"It's so rare to get a majority vote," Lamb, a founding partner and portfolio manager at impact investment firm Arjuna Capital, said in an interview after Microsoft made its announcement last week. Arjuna owns a stake in Microsoft worth close to $20 million, according to a regulatory filing.

Lamb said she was pleased with Microsoft's commitment to hire a law firm to conduct an independent assessment and look into executive level cases, including one involving Bill Gates, Microsoft's co-founder and former CEO.

In the past, these sorts of shareholder proposals were as much for show as anything and almost never passed. But support for such initiatives is becoming more common, as investors focus on environmental, social and governance (ESG) matters and look for companies that are taking them seriously.

Issues such as harassment and social justice started gaining traction around the time of the #MeToo movement in 2017, and picked up momentum after the 2020 death of George Floyd while in police custody.

Asset managers like Arjuna are looking for more companies to talk publicly about their efforts to improve diversity and weed out bad actors, just as they've long focused on revenue growth and profit margins. They're even voting against board members who they see as standing in the way of progress.

In the 12 months that ended in June, 29 environmental and social shareholder proposals won majority support, up from 16 the prior year, according to an analysis from advisory firm FTI Consulting.

"They are getting higher levels of support, the 'E' and the 'S,'" said Darla Stuckey, CEO of the nonprofit Society for Corporate Governance and a former assistant secretary at American Express.

Big money managers are driving the pressure campaigns, a trend that started two to three years ago, according to Lamb.

"Historically, Vanguard, State Street, BlackRock, all those folks didn't vote on ESG issues," Lamb said. "They just voted with management. And that has changed. Those folks reach out to me now and want to ask questions and talk about the proposals."

That's helped Arjuna's growth.

"Client demand is changing and more people are reflecting on what needs to change in the world and how they want to put their money to work, and we're seeing inflows because of that," Lamb said.

Microsoft is one of the companies that's been in Arjuna's sights. Last year, reports surfaced that Gates had pursued a sexual relationship with an employee in 2000. The shareholder proposal also alluded to a 2012 class-action lawsuit against Microsoft in which 238 employees alleged sexual harassment.

Lamb had two proposals for investors to consider. In addition to a report on harassment, she wanted Microsoft to issue an analysis on race and gender pay gaps, a topic that's of particular importance to Arjuna. The firm had filed similar initiatives at more than a dozen other companies.

"On gender pay equity, she was the first one to do that," Stuckey said. "She got a lot of success. Companies listened to her."

A key supporter

For her presentation, Lamb dressed up in a glittery necklace, a white shirt and a black jacket a few weeks before the shareholder meeting, and commuted to Arjuna's office outside Boston. She recorded herself on her computer speaking in favor of the proposals.

Lamb's two video clips appeared in a Microsoft Teams broadcast of the meeting on the morning of Nov. 30. After that, Hossein Nowbar, Microsoft's corporate secretary, came on screen and reiterated that the board recommended investors vote down the proposals.

Lamb had a powerful ally on her side. The advisory firm Institutional Shareholder Services had issued a recommendation that investors back Arjuna's harassment proposal.

"Support for the proposal requesting a report assessing the effectiveness of the company's workplace sexual harassment policies is warranted, as the company faces related controversies," ISS said. "The report would help shareholders better assess how the company is addressing such risks."

Nowbar soon came back to give the preliminary results.

"The shareholder proposal on report on effectiveness of workplace sexual harassment policies was approved," he said.

Cheers broke out at the Arjuna office, where Lamb was watching the broadcast with a few colleagues. The other four proposals, including Arjuna's on pay equity, were rejected.

Brad Smith, Microsoft's president and vice chair, addressed the harassment vote after the results were announced.

"I think we recognize that in some ways the nature of the conversation is even changing, not just at Microsoft, but more broadly," Smith said. "We're seeing more shareholder groups come forward, they have a broader range of proposals. It's almost a sea change to some degree in the relationship between shareholders, and, I'll say, especially large companies."

Lamb was surprised by Smith's tone. After all, the company had tried to get her to withdraw the proposal and keep it off the proxy statement. But she wasn't deterred and said it was important to move forward after the reporting on Gates' affair.

"It was clear to us that we needed to bring this issue to the company and bring it to other investors, so that it wasn't tarnishing the brand," she said. "With Microsoft, it's really about attracting and retaining talent. It's such a competitive landscape. When you have these kinds of blemishes on your record and you're not addressing them proactively and transparently, it can be a barrier to attracting top talent."

Now Lamb is eyeing other tech investments at Arjuna, which overseas $400 million in assets.

"The fact that there's so few women and people of color throughout these organizations can lead to, I think, a toxic culture," she said. "Microsoft is not the only technology company that has struggled with sexual harassment."

WATCH: Apple faces U.S. probe into two harassment claims