CORPORATE GREED? READER, LOOK IN THE MIRROR!
“We have met the enemy and he is us!” [Pogo cartoonist Walt Kelly, 1970]
Most mornings I start off my day freshening up in front of the bathroom mirror while listening to my favorite public radio news broadcast. A recent lead news item was the then ongoing United Auto Workers strike against the three large US manufacturers. In response to the newscaster’s questions, UAW president Shawn Fain declared union members’ determination to settle for nothing less than significantly higher wages and better benefits.
For too long, he declared, workers’ wage increases have stagnated, while corporate managers’ compensation and benefits have risen dramatically. Today, he claimed, senior executives receive annual compensation over 100 times the average factory worker’s salary. “This [strike] is about one thing. It’s about corporate greed,” Fain intoned. He concluded his interview with the warning that UAW members will walk the lines until they have contracts that include their fair share of corporate earnings.
The morning news segment ended, as it often does, with a report on stock market performance from the last trading day, a performance which, as a saver investing for eventual retirement, I always hope will reflect rising stock prices.
Who Am I?
Later, as I was reflecting on that morning’s news, I realized that the UAW’s leader had focused exclusively on corporate CEO salaries in his radio interview. He never mentioned the actual owners of the three US auto companies: the individual and institutional stockholders who participate in the rising profits that come from keeping corporate operating costs, including workers’ wages, low.
That includes me!
I’m among those auto company owners through the shares I purchase directly or the mutual funds positions I hold in my investment accounts. The very inconvenient truth is that the guy I was looking at in the mirror in the morning may unwittingly be as greedy as any of those lavishly compensated CEOs whom Mr. Fain was targeting on the newscast.
Now, like many of you, dear readers, I certainly try to save and invest wisely as I believe it is a promising pathway to financial security and a comfortable retirement. I’ve also sought to make sure my investments are in firms with competitive growth strategies that are resilient to economic shocks.
Aside from growth in earnings and capitalization, until recently I’ve given little thought to other corporate performance criteria, in particular:
Environmentally responsible management of a firm’s production processes including efficient energy use to byproduct and waste disposal;
Social commitment to progress toward a diversified and inclusive workforce and receptiveness to worker collective bargaining on salaries, pay equity and other benefits; and
Governance in transparency about the firm’s political campaign contributions and political lobbying expenses.
These criteria have come to be known as the ESG metrics of corporate social responsibility. And I can certainly subscribe to all of them.
Aligning Our Investments with Our Values
To be honest I confess to not looking to see how well my investments align with those criteria. I’ve never really confronted myself with the questions: Am I just in it for the money, for maximizing my investment returns without caring how the companies which I own conduct their operations? If I do care, do I proactively vote our proxy ballots to support shareholder resolutions aimed at encouraging companies I own to improve their ESG performance? Or do I ignore these voting opportunities and pitch those ballots in the recycling bin after briefly perusing them and their accompanying annual reports? Do I make any attempt at all to align my investments with my values?
For a long time, I believed that my individual investor voice was too insignificant to make a difference, even if I wanted to protest corporate misbehavior. Best to leave all that up to government regulators anyhow, right? Along with many friends I’ve held the view that it’s just too complicated to research and weed out the “bad” firms from our retirement investment accounts. Moreover, we’ve agreed that it was unrealistic to ask our investment managers to screen out, according to each of our individual preferences, the naughty – poor ESG-performing – firms from the dozens of companies that make up each of our savings and retirement accounts. A few decades ago, my friends and I would have been correct in our perceptions about our limited influence over corporate decision making.
But not today.
Brokerage firms now offer investment opportunities in mutual funds that are tailored to meet the demands of those who seek to invest responsibly as well as profitably. For social investors, my Presbyterian Church, for example, sponsors a series of “ New Covenant Funds” (NCBGX) that exclude stocks of firms engaged in gambling, tobacco products, private prisons, and on a short list of major fossil fuel firms and weapons manufacturers. Both our Presbyterian multi-million-dollar pastors’ pension fund and its humanitarian-outreach foundation invest their assets accordingly.
Other faiths also sponsor investment funds that reflect their belief systems. For a Catholic investor the “Ave Maria Funds” (AVEGX) are like the Presbyterian New Covenant funds, except they also exclude investments in pharmaceutical firms that produce or distribute birth control products. Some investors might prefer the Quaker’s “Calvert Funds” (CBAIX) which also exclude manufacturing firms that produce weapons of any kind. A believer in Islam? Then the “Imam Funds” (IMANX) are the preferred choice. Those funds exclude holdings in banks and other financial institutions, in compliance with Islamic sharia usury laws that prohibit interest income from lending.
Want an even wider choice of ESG investment options? Go to the local library and look at Barron’s financial news magazine. Periodically, Barron’s prepares a ranking of the top financially performing “sustainable” – a word the corporate world finds more palatable than “social” – mutual funds!
Granted, these social/sustainable investment funds often have higher management fees than traditional - particularly index - funds. Still, many of these ESG funds exhibit asset valuation growth and dividend or interest income performance that competes well with traditional funds in their industry or sector class.
Going Mainstream
Big brokerage houses have begun to join the trend in social investing. Vanguard and Fidelity each offer investors a range of low-fee versions of social index funds. TIAA, the investment fund manager for educators and non-profit employees, offers “Social Choice Funds” that employ ESG criteria. A growing share of public pension plans and institutional – e.g., university and non-profit – endowments are restructuring their portfolios to include growing shares of ESG investments.
Social or sustainable investing is becoming mainstream. The US Sustainable Investment Forum (www.ussif.org), is a research and advocacy group that tracks ESG investing. USSIF reports that in 2022 the value of ESG-related investments was about $8.4 trillion, or 13 percent of the estimated $64.6 trillion of all US domestic investments under management.
Is it making a difference? Apparently, because firms are increasingly responding to investor ESG advocacy pressures as well as to traditional equity market forces. Fossil fuel companies are expanding their operations to include generation of energy from renewable sources. And new alternative energy firms are now emerging monthly. Perhaps the most impressive example of investor social activism is the BDS – boycott, divestiture and sanctions – movement that contributed to the dismantling of apartheid in South Africa in the 1980s.
This guy in my mirror in the morning has joined the ESG advocacy party, by selecting sustainable and well-performing mutual funds, as well as instructing his investment manager to avoid firms that do not conduct their operations in ways that respect their employees, customers, surrounding communities and the environment.
I should note that, like many of the more environmentally conscious investors - including faith communities, academic and public sector pension funds - I also hold stocks in fossil fuel companies and other firms whose practices make them far from saints. Why do I hold onto those stocks? Because as an owner I can be, along with these larger institutional investors, part of a collective voice influencing who sits on corporate boards, who’s hired to run such firms, and what ESG practices they can be encouraged to adopt. To have that voice, however, I need to be a stockholder, an owner.
When raised collectively, our individual and institutional investors’ voices are indeed heard in corporate boardrooms. Just look at the growing number of stockholder concerns that appear on annual meeting agendas. Add to that the number of investor concerns that are resolved behind the scenes by corporate leaders seeking to avoid the public embarrassment of being called out at annual meeting time or in the media.
Time To Act
Today, how we save and invest can make a difference in how corporations behave. It’s time to act for those of us who’ve been hesitant. We can start by looking to see if our workplace retirement plans offer a social fund investment option. If so, we can assess how well those social funds perform in comparison to benchmark indices, and if fairly well, then move our employee investment account allocations – and matching employer contributions - into one of those funds. If no social fund option is currently available through our employer, we request its future inclusion.
We can also reach out to organizations with which we’re affiliated, like our universities with large endowments and our employee pension plans, to inquire about the extent to which they put their funds in socially responsible investments. If not very much, as monied alumni or members we can encourage them to become more ESG aware and engaged.
It’s the job union leaders like Shawn Fain to badger CEOs about change and blame them for refusing to bargain with employee unions or for evading public regulations regarding safeguarding the environment and workers’ safety. Corporate leaders act the way they do because it’s their fiduciary responsibility to maximize short-term profits for us, their companies’ owner-stockholders. Theirs is a bottom-line profit-maximization focus. It’s up to us company owners to encourage them to set high overall ESG management standards. We can do that by proxy voting, or more dramatically, by divesting our shareholdings.
A cautionary note, however. Many companies have developed outwardly promising ESG statements. But they have also been charged with “greenwashing” what they do and with doing so largely for public relations purposes. As investors we can advocate for more transparent and unambiguous indicators of ESG performance.
Political Activism Through the Corporate “Back Door”
There’s now a unique opportunity for us investors to act as well in the political arena. In 2010 the Supreme Court determined, in Citizens United vs Federal Elections Commission, that the 2002 Bipartisan Campaign Reform Act's prohibition of political expenditures by corporations violated the First Amendment's protection of free speech. The decision opened the door for the companies we own to contribute to campaigns of politicians disposed to introduce legislation favorable to their interests. It has been hard for resource-constrained civic organizations to counter corporate coffers in advocating for laws and regulations that would advance socially responsible corporate behavior.
Such civic efforts are no longer so futile or alone, if we as owners of badly behaving corporations, “work from within” to seek an accounting for corporate political expenditures and to pressure to staunch the flow of those funds to political campaigns. It’s starting to happen with individual and institutional investor resolutions at annual board meetings and in behind-the-scenes negotiations aimed at curbing corporate political behavior. Still, it takes effort and diligence by ESG-minded shareholders working together to get corporate officers to find win-win outcomes for both socially and financially responsible performance.
The good news is that we now have more information and better tools to achieve those dual outcomes. One way is supporting the work of consumer and investor watchdog organizations that that have the time and skills we lack to track corporate ESG performance on our behalf. Need the names of those watchdog groups? Many are among the members listed on the USSIF website. Interestingly, increasing numbers of young investors are taking ESG investing seriously; a larger share than from the US investor population as a whole. That’s encouraging. We older generation investors can follow the lead of younger investors and support their efforts.
But it’s on us to act.
I’m trying. When I look in the mirror, I want to see a guy making an effort to contain his inclinations of corporate greed, a guy whose savings are invested in socially responsible firms or in firms that I can help nudge to adopt and apply higher standards of performance in how they conduct business.
How about you, dear reader? Who do you see when you look in the mirror?