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

Published, August 1995

       Is socially responsible investing (SRI) an effective tool for promoting corporate responsibility or, as some critics maintain, is it nothing more than “feel good” investing enabling practitioners to sleep well at night? Even worse, are those peaceful nights built on a baseless foundation because we’ve been duped by well-paid public relations professionals selling corporate images that have little to do with corporate realities? Could companies care less about who buys, sells or holds their corporate securities as long as someone does? Since these questions have been percolating in the SRI industry for years, we asked for reflections from a number of individuals representing city pension funds, religious organizations, financial planners, foreign investors and last but not least, some corporations themselves. Here is what we found.

       Imagine the following scenario. Concerned investors and large institutional customers team up to ask a big firm to spin off businesses generating over $400 million of revenues because of business, legal and ethical reasons...and the company complies! Impossible? Though the company won’t admit bowing to shareholder pressure, that’s exactly what happened last spring when Kimberly Clark decided to spin off its tobacco-related paper operations.

       “No company acknowledges that shareholders have an impact on decisions of this magnitude” says Rev. Michael Crosby, a member of the Interfaith Center On Corporate Responsibility (ICCR) and coordinator of the shareholder proposal asking for the spin-off. But with management speaking out against the resolution at its annual meeting just weeks before the announcement, and then in an about face using virtually the same language found in the proposal to describe how the tobacco business was “incompatible” with the rest of the firm, it’s not hard to read between the lines. Nearly one out of four stockowners either approved or abstained from voting on the ICCR resolution. Rev. Crosby attributes the success of the campaign to a multi-year dialogue with Kimberly Clark, that went beyond discussion about shareholder resolutions and divestment to explicit plans for consumer boycotts from large institutional customers such as health care systems.

       With the might of a large city pension fund in your corner, Ken Sylvester in the Comptroller’s Office of the City of New York knows that SRI can effect change. Sylvester was a key negotiator for CERES when Sun Company became the first Fortune 500 endorser of the CERES Principles. Promoted by a coalition of investors and environmentalists, the principles are a 10-point environmental code of behavior that emphasizes corporate accountability and reporting. “[CERES] resolutions,” Sylvester states, “have helped to increase investor awareness and concern about the impact of environmental liabilities on their investments, and corporations to consider the environmental impacts of their businesses and products, and their accountability to the communities in which they operate.” Sylvester also spoke of the ripple effect in noting that some companies, while refusing to become CERES signatories, have incorporated elements of the principles into their corporate codes and environmental reports. “They have moved away from the scenic, glossy publications to disclosure of credible, reliable data,” he observes.

       Public awareness on the successes and tribulations of SRI is catapulting forward to the point where most people have heard something about it and many are quite knowledgeable about topics of concern. Baltimore investment broker Richard Torgerson reports that individuals are holding SRI managers more accountable now than ever before. Computer on-line skeptics who call SRI a sham recently initiated extended dialogue on the Internet about how difficult it is to find “pure” companies. One need only dial up to participate in electronic discussions about Ben & Jerry’s controversial sourcing of nuts for Rainforest Crunch. Torgerson is getting similar feedback from his clients who are getting increasingly sophisticated at critiquing their portfolio holdings. He concludes that although “some high profile efforts in SRI are being dismissed as bogus, a lot more probing is going on about what corporate responsibility really means”.

       SRI overseas is a newer phenomenon than in the U.S. but it is growing rapidly. We spoke with Tessa Tennant, one of the most respected corporate environmental researchers in the UK, who works for British fund manager NPI. “Social screening does serve a purpose — but it is the beginning, not the end,” she says. “If you concentrate solely on screening, you create a mirage.” Tennant is disappointed that the focus of the media has been on attention grabbing stories about which fund screens out what companies, rather than a thoughtful exploration of the process of social screening and the integrity of each fund. She believes that social investors must address complex ethical issues and be willing to engage in active shareholder dialogue, otherwise “SRI will be a small player appropriate only for those with absolutist views”.

       Quite frankly, some companies do not seem to care about SRI and a few are outright hostile. Upon asking one CEO about his firm’s record on equal employment opportunity (EEO) we were told it was none of our business. “Investors have a choice,” he maintained. “They can invest in the company based on the information the company provides. If they don’t like it, they can choose not to invest”. The CEO did shed some light on what he referred to as “pathways of progress for people,” basically indicating that success in his firm was a matter of genetics: “It all depends on the parents you pick”.

       Happily, many companies do care. You may recall that last year we reprinted a letter from Echo Bay Mines which included the following statement about board diversity: “Now I won’t give you all the credit for adding a woman director to Echo Bay (our first), but your activism for a good cause was a significant stimulus to get us to move. Echo Bay will be a better company for it. Thank you for your involvement.”

       In another example, senior management from Clorox visited with us in Boston to discuss environmental concerns after we sold their stock. They felt it was important to maintain communication on the firm’s progress and hoped we would re-invest in the future. Sometimes it’s the behind-the-scenes comments that let us know we’re having an effect, such as when a human resources or environmental affairs manager thanks us “off the record” for making their job easier.

       Steve Young, Senior Vice President of Human Resources for the Albertson’s supermarket chain, believes that our active investment approach does make a difference. He attributes this in part to our long term investment in the firm, spanning over a decade, and to our recognition that in the world of corporate responsibility there is often no absolute right or wrong. Through ongoing constructive dialogue, Albertson’s management learned more about issues of particular concern to SRI investors and what other companies were doing to address them. These discussions proved useful when management set out to fine tune its own corporate values statement and in setting internal goals and objectives. Previously reluctant to “tell their story” to a broad audience, our encouragement helped lead the firm to publish its first lengthy public information report. Young is hopeful that the report, by demonstrating the company’s commitment to EEO, environmental issues and community involvement, will ultimately increase the success of Albertson’s programs. The document has already opened the lines of communication between the firm and its employees and shareholders.

Is SRI an effective tool?
       SRI can have a significant positive influence on corporate behavior, especially when the process includes constructive shareholder dialogue over a multi-year period. Even when desired changes are not readily forthcoming, oftentimes the groundwork is set by increasing the overall level of corporate and public awareness. Perhaps most importantly, SRI supports and strengthens the hard work of others — social activists, conscientious lawmakers, educators and many others who dedicate their lives to issues of social and economic justice.