Conscious
Investing™:
Putting Your Money Where Your Beliefs Are
John Price, Ph.D. and Sandy
Price
For this article you’ll need to dust off your meter
to measure the strengths of your beliefs and opinions. As a starter, consider
the questions posed by Donald Bartlett and James Steele in the introduction to
their series "Corporate Welfare" in Time (November, 1998).
"How would you like to pay only a quarter of the real estate taxes you owe
on your home?" they asked. "And buy everything for the next 10 years
without spending a single penny in sales tax? Then have [your city] install
free water and sewer lines to your house, offer you a perpetual discount on
utility bills—and top it all off by landscaping your front yard at no
charge?"
Imagine
the scale on your ‘beliefs’ meter ranges from ‘wonderful, I fully agree’ to
‘indifference, it makes no difference to me’ to ‘outrage, this behavior should be stopped.’ Where did these first
questions register on your meter?
Okay,
now let’s change them around a bit. What is your response to these same
questions if these benefits were available to your neighbor
but not to you? Did you give the same response or a different one?
Now
we’ll go a step further. What if their availability was so widespread that you
were taxed the equivalent of two weeks’ pay every year to fund them? How did
you go this time?
Those
who read the articles by Bartlett and Steele know that taxpayers around
In
1994,
Increasingly
investors are respecting their own beliefs and values when making investment
decisions. No longer are quarterly earnings enough. For example, so many people
are investing in socially responsible mutual funds that the total investment is
now over one trillion dollars. Many others are following their own paths to
clarify their investment values and act on them. The process of bringing as
much honesty as possible into investment decisions we call Conscious InvestingTM.
Warren
Buffett, the chairman of Berkshire Hathaway, remarked
to the shareholders in 1997 that he was offered the chance to buy a company
that manufactures chewing tobacco. He and Charlie Munger,
his vice chairman, knew that it was going to do very well and subsequently it
has. They did not, however, go through with the purchase. As Buffett explained, "We sat in a hotel in
On
the other hand, Buffett does own the Buffalo News
which takes cigarette advertisements. Remarking on this, he said, "I just
know that the one bothers me and the other doesn’t bother me. I’m sure other
people would draw the line in a different way." Munger
added, "I think each company, each individual has to draw its own moral
lines," a comment which sets the theme for this article.
What
are the benefits of investing in a company? From the side of the company, a
common belief is that when you buy its shares through a public stock exchange,
you are providing capital for that business. This is not the case. They got the
capital from your new shares at the time of the IPO. You are, however, helping
to make life easier for the company and its management.
Each
purchase in the stock market creates upward pressure on the price of the stock.
In turn, higher prices for its stock benefit a company and its management in
three main ways.
From
the other side, the side of the investor, if you purchase stock you benefit
from the profits that the company makes, whether these profits come through the
sale of cigarettes or the provision of services to recycle waste products.
These benefits come to you through dividends or capital gains.
We
often read that the primary duty of a public company is to create profits for
its shareholders. For example, in his editorial for the series of articles on
corporate welfare, Norman Pearlstine, the editor-in-chief of Time, wrote
that he does not view the companies mentioned in the series on corporate
welfare "as villains." "Business enterprises like General Motors
and General Electric are designed to make money," he writes. "They
would be derelict if they didn’t seek to avoid taxes and gain special
subsidies. No, the villains are the federal, state and local governments that
reward some companies while denying similar largesse to other corporations and
individual taxpayers."
How
do Pearlstine’s comments register on your belief’s meter? How much bigger do
you think governments would have to be to regulate fairly corporate welfare and
close down loopholes?
Another
question arises when individual welfare is considered. What if we consider welfare
for the unemployed or single mothers. In your opinion,
would such people be "derelict if they didn’t seek to avoid taxes and gain
special subsidies."
Other
people think that the responsibilities of a company go beyond maximizing
profits for shareholders on a quarter by quarter basis. Stated goals include
the creation of share-owner value over the long term hand-in-hand with the
promotion of a stable, healthy society, social well-being and environmental
protection. Some CEOs argue that the companies with
the greatest long term value will turn out to be those with the strongest
commitment to the use of sustainable energy and conservation of resources.
Long
term value may also require not putting offside the suppliers and customers of
a company. Warren Buffett even brings into the
picture the people he associates with. "We would rather achieve a return
of X while associating with people whom we strongly like and admire than
realize 110% of X by exchanging these relationships for uninteresting or
unpleasant ones," he wrote in the 1987 annual report. But this sort of
action may actually bring an even higher return because it attracts the top
management and provides them with the security to perform at their best.
When
thinking about the social behavior of a company, the
first question is what does it produce. Tobacco,
alcohol, gambling equipment and services, genetically-engineered food,
armaments and nuclear energy are products that raise a red flag for many
people. The second question is how does the company go
about this production. Is it a major cause of pollution or does it try to use
renewable resources? Does it market products in a misleading or deceitful way
or is its marketing open and honest? Does it exploit its employees or does it
treat them in a dignified and cooperative manner? Does it entice people into
financial over-commitment or does it encourage financial responsibility?
The
next step is to use your beliefs meter and ask yourself how you feel about this
company’s products or activities. The final step is to decide whether you are
going to modify your investment activities. For some this means not investing
in a particular company. For other investors it means the opposite. They invest
in a company precisely so that they can go to its meetings and put forward
their opinions.
Peter
Kinder of Kinder, Lydenberg and Domini recommends
another alternative. If you decide to divest yourself of a stock because of its
products or activities, then write to the company and tell them why. "Even
better," he says, "do that and let your friends know and write a
letter to your local newspaper about your action." On the other side, if
you like what they are doing, tell them so.
It
may not seem like it, but things do change. Consider the fact that smoking is
banned on most airlines around the world and tobacco companies have been
ordered to make major financial settlements.
Whatever
you do, in the end its your decision about how
conscious you are about all aspects of your investments. But, as Shakespeare
wrote,
To
thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.