SOCIAL TOPICS (Archive): HISTORY OF WALDEN ASSET MANAGEMENT/SRI

Published, November 1994

       Social investors have struggled in recent months to make sense of serious allegations made against The Body Shop, a leader in corporate responsibility. In September Business Ethics magazine published an article criticizing The Body Shop for serious lapses in product quality, less than “natural” ingredients, and a much-touted responsible trade program that actually channels only a small amount of revenue to Third World suppliers. The article polarized the social investment community.

       Although the Body Shop’s social performance continues to be actively debated, we believe several lessons can be drawn from this controversy.

       First, those who advocate business as an agent of social change should acknowledge that such change is difficult. Altering the dominant paradigms that guide commerce, whether as a corporate leader or a portfolio manager, is hard work fraught with contradictions and imperfect choices.

       Social investing involves asking questions that explore some of these contradictions. During the last few months we have seen examples of corporate stonewalling as well as remarkable openness. The Body Shop threatened to sue those who criticized it. In contrast, Reebok, a company with a high profile public image on human rights issues, responded to an article in the Asian Wall Street Journal alleging a contradiction between the company’s human rights principles and conditions in a Chinese factory by taking prompt corrective action. Similarly, Sun Co., the first Fortune 500 company to sign the CERES environmental principles, took immediate responsibility for recent accidental releases at a newly acquired oil refinery and is actively engaged in dialogue with community groups in Philadelphia about improving emergency preparedness.

       Second, the recent Body Shop controversy has taught social investors something of the moral hazards of falling in love. All investors become enamored of “their companies.” This can be especially true of social investors who are inclined to create both paragons and villains. This proclivity serves as a significant barrier to true social change.

       Companies with weak past records must be given space to change and praise for positive movement. Each summer we write a positive letter to managers at Philip Morris thanking them for their leadership in promoting workforce diversity. We are happy to praise their equal employment opportunity (EEO) programs despite their unfortunate line of business. Likewise we applaud recent progress at R.R. Donnelley which in the past has been sluggish on EEO issues and has resisted full disclosure of EEO information we deem important. Recently, the giant printer agreed to share information about its policies and programs. The company’s move to launch a mentoring program suggests that the topic of diversity has moved from a low corporate priority to a more meaningful position on the corporate agenda.

       Finally, social investors must resist demanding short-term social performance. Social investing should not result in pressures on companies to come up with quick fixes to complex problems to satisfy investors, or on investment managers to create new anecdotes each quarter about how they have made the world a better place in order to justify their worth to clients. Such short-term objectives trivialize the hard work of social change.