CSM weighs in on the value of proxy voting

[Dinnen, Steve. "Proxy ballots: Your chance to make a difference,” The Christian Science Monitor, 28 April 2008.]

"Shareholder resolutions often spring up from individual investors. But their fate generally is in the hands of institutions, such as pension plans and mutual funds, which own or control large blocks of stock in a particular company. Mutual-fund companies don't typically communicate their voting plans with their shareholders, but ProxyDemocracy tracks how 80 of the largest funds vote their shares.

"A lot of little voices can add up to one big voice, says James McRitchie, who runs corpgov.net, a website that follows corporate governance issues. He urges shareholders to open the proxy statements that they receive from firms.

"While shareholders are noted for voting with their feet – cashing out a stock that they're unhappy with – Mr. McRitchie says that with some moxie, even little guys can sometimes make a difference.

"[H]e believes that in the post-Enron era, corporate America is listening more to individual shareholders. And investors are better at talking.

"'Internet tools like message boards, social networking, and video-exchange sites are making it easier to galvanize support around good ideas," he says. 'You can make a difference.'"

Quaker Quotes III

"Where cunning people pass counterfeits and impose on others that which is good for nothing, it is considered as wickedness; but for the sake of gain to sell that which we know does people harm, and which often works their ruin, manifests a hardened and corrupt heart, and is an evil which demands the care of all true lovers of virtue to suppress.

"I have felt great distress of mind since I came on this island, on account of the members of our Society being mixed with the world in various sorts of traffic, carried on in impure channels. In this declining state many look at the example of others and too much neglect the pure feeling of truth. Of late years a deep exercise hath attended my mind, that Friends may dig deep, may carefully cast forth the loose matter and get down to the rock, the sure foundation, and there hearken to that divine voice which gives a clear and certain sound."

- John Woolman. The Journal and Major Essays of John Woolman, ed. by Philips P. Moulton (Richmond, IN: Friends United Press, 2001).

What are the Quaker testimonies?

The Quaker testimonies are in many ways the result of a lengthy distillation process. While early Quakers did not hold to a list of specific "testimonies" as such, they did seek to enact their faith in their lives in particular ways that Friends continue to find wisdom and vitality in today.

In his book A Living Faith: An Historical and Comparative Study of Quaker Beliefs, Wilmer Cooper offers some some helpful discussion of the testimonies:

"A testimony is an outward expression of an inward leading of the Spirit or an outward sign of what Friends believe to be an inward revelation of truth.

"The testimonies provide the moral and ethical fruits of one’s inward life of the Spirit. To quote Worth Hartman, 'They arise more out of concern for purity, holiness, consistency with divine order than from a passion for social justice.'"

Cooper identifies four core testimonies central to Quaker belief: peace, integrity, simplicity and equality. Others have been suggested or adopted by various groups of Friends, but these are arguably the most universally acknowledged and accepted, and so I will focus on them for the purposes of applying Quaker principles to SRI. In future posts, I will delve into the meaning of each of the four more deeply.

What is SRI? - Part III: Shareholder advocacy

While this tool presents certain opportunities, its goals can to some extent run counter to those of screening. In the case of advocacy, you use your leverage as a shareholder to encourage or pressure corporations to move their policies and practices closer to your vision of an ethical business model.

This is accomplished through a variety of means. First, simply voting on shareholder resolutions is a basic form of activism. Most shareholders toss these in the trash when they come in the mail, leaving the questions raised to be resolved without their input. Second, as an investor you can encourage your mutual fund to consider issuing a resolution for a specific company on a specific investment, and see what the fund has done in the past and ask about their voting record. Third, at the institutional level you can join with others to file resolutions through organizations such as the Interfaith Center on Corporate Responsibility. Finally, as a shareholder you can draft and submit your own resolution on improving a company's business model. Engaging in dialogue on such a proposal with the corporation can be very helpful and a learning experience for both parties.

Advocacy can potentially be effective within companies that you already support and wish to see get even better, but others also use the tool to shift the practices of more troubling industries. This strategy, of course, involves owning a portion of those companies, and so there are definitely sticky ethical questions to consider.

What's in a name?

As mentioned in an earlier post, the term "socially responsible investing" has become standard in industry and culture, for better or worse. There are, however, those who either continue to hold to other language or push for something else altogether.

Personally, I find the SRI label both too specific and too vague. It is too specific in that it has come to mean certain things to certain people, creating a presupposition regarding what SRI means that may or may not mean what we as individuals or institutions take it to mean. On the other hand, it is too vague in that there can be a multiplicity of such interpretations. SRI begs the questions of what it means to be socially responsible and how it is that an individual or institution is so through its investments. The label carries no distinctive meaning, which is perhaps both its strength as well as its pitfall. A similar critique could be applied to The Christian Science Monitor's insistence on the label "Ethical Investing."

A more forceful claim is that of those who argue for Best Practice Environmental Social and Governance Reporting (ESG). This seems to be part of a trend to differentiate "objective" measures from the "values-based" analysis of SRI. While the development does appear to address the increasing diversity of interpretations regarding what social responsibility means, it could indicate a willingness to jettison the term along with any discussion of values and ethics in an effort to gain legitimacy and secure the scientific high ground. All three, though, involve value judgments and assume a moral high ground that declares other investments "socially irresponsible," "unethical," or "unsustainable."

My preference for the goals I am trying to outline might be something along the lines of "Investment Conforming to Quaker Principles." This narrows the task to that of addressing the goal of seeking financial stability through the unique religious and historical character of a particular faith tradition and secures an understanding rooted in this tradition rather than in potentially fleeting investment practices and phraseology.

Whether or not we use such a label, though, holding on to such a view may help us avoid buying too readily into certain investments or ideas simply because they label themselves as ethical, responsible, or sustainable.

What qualifies as socially responsible screening?

It is worth doing a bit of homework on what companies consider a "socially responsible" fund.

The Social Investment Forum is an excellent resource for finding SR funds, for instance, but it is important to recognize that they consider virtually any screening as qualifying a fund for listing in their database. This makes sense both from the standpoint of advancing the SRI cause ("Look how many funds are socially responsible!") and from the standpoint of where to draw the line - in other words, it is reasonable that they don't necessarily want to get into the business of deciding who is in and who is not.

But this can lead to some odd listings. Taking a look at SIF's mutual fund chart, for example, the Flex-Funds Socially Responsible Utilities Fund appears to have had some good returns in recent years. What exactly is a socially responsible utilities fund, you might ask? Well, that's where things get tricky.

A review of the Flex-Funds site indicates that the company recently changed the name of its Total Return Utilities Fund to the Socially Responsible Utilities Fund (FLRUX) simply for not investing in nuclear energy. No other screen is applied to the fund, and the company makes a point of noting that it "favors companies in utility-friendly states with fewer regulations to constrain earnings growth."

So, basically there is an incentive for SRI advocates to claim as many funds for the cause as possible, and an incentive for mutual fund companies to capture niche market investors by applying the socially responsible label. This is just one of the reasons that discernment is necessary when considering any investment.

Quaker quotes II

“[W]e Friends tend too often to hold highly spiritualized notions about ourselves. We must recognize that our spiritual lives develop in conversation with the socio-economic world in which we live.”

- Douglas Gwyn, “The Dynamics of Quaker Practice,” Unpublished essay, February 2008.

M&Ms and consumer preference

If you are willing, take a moment to think about how many kinds of M&Ms you've seen recently. Here's a little M&M history while you are doing that:

- M&M's were first sold in the United States in 1941.
- In 1954, Peanut Chocolate Candies were introduced.
- In 1988, Almond M&M's hit stores with limited release. Mars gave them full releases in 1992.
- In 1990, Peanut Butter M&M's were released.
- In 1996, Mars introduced a new M&M candy: the "M&M's Minis."
- In 1998, Crispy M&M's were released.
- In the summer of 2005, Mars added "Mega M&M's" to the lineup.
- In July 2006, the dark chocolate M&Ms reappeared.
- In 2006, the company also trialed white chocolate M&Ms.

This is quite a list, and it doesn't even take into account seasonal M&Ms, personalized M&Ms, and some of the limited editions I have been seeing lately like cherry and rasberry. Interestingly enough, this variety is a relatively new phenomenon. As you can see, it wasn’t until the 1990s and later that all of the others became widely available.

M&Ms are not alone in this regard. From detergents and banks to automobiles and airlines, today we are faced with an abundance of consumer options.

So what’s going on here? Well, one possible explanation is that we have in many respects turned a corner in the way producers view the market. Early on in the production of the Model T, Henry Ford was famously said to have commented that "People can have the Model T in any color - so long as it's black." Producers were attempting to mold public tastes to match the products they were releasing. If we think about this in economic terms, supply was in many ways driving demand.

Today, it seems as though the tables have turned - probably for a number of reasons producers are attempting to meet consumer demand with what they are producing.

This has some important implications - particularly for SRI. If it is the case that demand is driving supply, then we are arguably in an era of relative consumer sovereignty. What you do with that dollar in your pocket is significant. We can look into how this plays out in later posts.

The Quaker origins of SRI

As pointed out earlier, Socially Responsible Investing has grown into a multi-billion dollar phenomenon since its official beginnings only decades ago. These early starts were largely associated with divestment from companies involved with the Vietnam War and in South Africa during Apartheid.

But the roots of SRI go back much further - centuries, in fact - to actions the Religious Society of Friends took over the issue of slavery. While it is true that many Quakers were in fact slaveholders, the tide began to turn among this body of believers in the 1700s. More than one hundred years before the American Civil War, Quakers began to divest from the slave trade for reasons that had nothing to do with profits and losses.

Rather, sensing their ethical integrity at risk, these Quakers came to see putting an end to their financial involvement with slavery as the only practical course available. Given their efforts to avoid companies that profited from the slave trade, many within the socially responsible investing movement to this day credit Quakers with being some of the earliest practitioners of the attempt to apply ethical beliefs in the economic sphere.

This tradition is still alive and well as Friends are arguably one of the most socially active religious groups today, including in the field of SRI. A quick review of major Quaker organizations reveals that from the American Friends Service Committee to the Friends Committee on National Legislation to Friends Fiduciary Corporation, all have SRI policies guiding their investments.

CNN profiles faith-based mutual funds

The growth of SRI among religious groups is attracting the attention of market trend watchers in the mainstream press. CNN recently pointed out, for instance, that "There are about 50 Catholic, Protestant, and Islamic-based mutual funds with assets totaling around $17 billion. The category has grown dramatically, from only $500 million in assets 10 years ago, according to David Kathman, a Morningstar analyst specializing in socially responsible investing."

The feature then proceeds to profile five such funds - Amana (Islamic), Ave Maria (Catholic), MMA Praxis (Mennonite), New Covenant (Presbyterian), and Timothy (Evangelical Christian).

What is SRI? - Part II: Screening

As mentioned in the general definition of SRI posted earlier, SRI consists of several different components. The first of these is screening. Screening itself can be subdivided into both positive and negative approaches.

In the case of negative screening, an investor, mutual fund or institution reviews the placement of their assets and determines what investments are unacceptable. This can mean companies involved in the production of alcohol or tobacco, for example, or the arms industry or companies known for environmental or other abuses.

The second screen is positive – this means searching out those companies whose practices you approve of and rewarding those practices with your investment support.

Screening remains the dominant method within SRI and continues to grow in size and scope. The Social Investment Forum reported in March that:

"Assets in all types of socially and environmentally screened funds – including mutual funds and exchange-traded funds (ETFs) – rose to $201.8 billion in 260 funds in 2007, a 13 percent increase over the $179.0 billion in the 201 tracked in 2005."

Further, "At more than $1.9 trillion in assets, socially screened separate accounts managed for institutional investors and high net worth individual clients constituted the bulk of SRI assets tracked in 2007, up 28 percent from $1.5 trillion in 2005."

Quaker quotes I

From time to time, I will post a quote or two from Friends past and present that bear reflection as we seek to follow the Quaker witness in economic matters. Here is one to start things off from Britain Yearly Meeting's Quaker Faith and Practice:

"It was once possible to argue that economic affairs might, like total abstinence, slavery or spiritual healing, be a field of particular interest to groups of Friends. We can now see that the economic order is not a peripheral concern, but central to the whole relationship between faith and practice. This is not a claim that, say, the interest in peace and international relations ought now to take a secondary place in our thoughts and prayers. Still less is it a demand that the Society should cease to be first and foremost a religious body, or to say that it should in any way neglect its spiritual foundations in favour of more good citizenship. It is rather that economic affairs are now so central to our whole existence that no other aspect of personal relationships or individual life-styles can now be looked at without first understanding what it means in terms of our national wealth, incomes, and their distribution."

- David Eversley, 1976

The University of Florida and the question of endowments

The University of Florida has been making headlines lately as a result of a controversy over how the institution manages the funds in its endowment. Here's an excerpt from an article on the subject in UF's paper:

"Eleven members of a student-protest group urging UF to make its investments transparent dug into a vegetarian meal they said could be their last of the semester outside Tigert Hall on Wednesday.

"The students said they plan to strike, or starve, until UF President Bernie Machen agrees to meet with them over lunch to discuss socially responsible investment plans for UF's $1.2 billion endowment."

For those interested in SRI, such clashes certainly raise a number of issues. First is the amount of funds in college and university endowments. Endowments comprise a huge pool of resources, very few of which apply any sort of screen or take any SRI position.

Second is the issue of tactics. Hunger strikes have become popular with activist student groups in recent years, in part due to high profile successes at Harvard and Georgetown. Are such efforts consistent with Quaker principles?

Without knowing all of the details, it is of course difficult to comment on this case in particular. But it is possible to make a few observations on the subject in general. One is that certain Quakers have called into question what they feel are "coercive" actions as being in conflict with the peace testimony. Two examples of this are Francis Nicholson's Pendle Hill Pamphlet "Quaker Money" and Jack Powelson's book Seeking Truth Together. Another consideration is that there are organizations devoted specifically to the matter of socially responsible endowments that are willing to work with students and administrators in crafting an appropriate approach. The Sustainable Endowments Institute, headed by Mark Orlowski (who happens to be a Quaker), is a prime example.

That all being said, what exactly the peace testimony is and how it is to be held in tension with the testimonies of equality, integrity and simplicity, are both weighty questions. We will explore some of the complications of these in future posts, but it is worth noting that there may be no obvious answer to this or many of the other ethical questions that emerge once we begin heading down the path toward investments that align with our beliefs.

What is SRI? - Part I: General definition

Socially responsible investing (SRI) is unfortunately one of those terms that is so broad as to be in danger of becoming virtually meaningless. Essentially anyone who applies any measure of selectivity to their investment decisions can claim to be following SRI principles. Nonetheless, the term has become standard in industry and culture to the extent that trying for more specific labels may prove Quixotic. So, given the breadth of SRI (something that will be discussed in more detail in a later post), it makes sense to adopt a broad definition. Here is one that might fit the bill:

Socially responsible investing involves any attempt to make financial decisions based in some measure on some conception of ethics rather than solely upon economic considerations.

This obviously does not get into the "how" so much as it does the "what" of SRI. The three main components of SRI are 1) screening, 2) shareholder advocacy, and 3) community investment. I would also add microfinance or microloans as another emerging element of great importance. Each of these merits its own entry, though, so stay tuned!

Why SRI matters whether you invest or not

In upcoming posts I'll discuss the wide range of possibilities for involvement with socially responsible investing - whether you're a college student or wealthy retiree. But before getting to that I thought it might be important to consider the ways in which SRI is important even if you're not in a position to invest anything at all.

- First, if you are a college student or alumnus, a member of a congregation, or a member of an organization, then you likely have a connection to one or more institutions with assets that are or are not being managed in a way that meshes with their institutional goals and your ethical beliefs. Your association with these organizations reflects back upon you and therefore their financial decisions do, as well. Further, how their assets are managed may impact the opportunities available to you and others through the work in which these groups engage.

- Second, unless you have somehow managed to go completely "off the grid," you are impacted by the economy in which you participate and the economic decisions of those around you. Participation in and concern with SRI in one form or another allows you to voice your concerns regarding the way the economy functions and cannot help but increase your awareness about the way it does and the interconnectedness of your transactions and interactions in the marketplace.

These considerations touch on a host of issues that will have to be addressed in future posts, and defining SRI is just one of these. Regardless, though, the objections that "I just don't have anything to invest" or "Investing is wrong" simply do not serve as a valid ways to dismiss learning more about SRI and how your faith intersects with economics.

SRI funds fare better than most in first quarter

[MacDonald, G. Jeffrey. "Why ethical investors fared a little better this quarter,” The Christian Science Monitor, 7 April 2008.]

The Christian Science Monitor reports that while most funds took a dive, ethical approaches may have paid off for some:

"[S]ocially responsible (SR) funds, which bring moral values to bear on stock selection, on the whole suffered slightly less in the first quarter than their unscreened peers, according to data from fund tracker Morningstar. Domestic SR equity funds performed better than 56 percent of peer funds in their respective categories.

"'As a group, they did fairly well,' said David Kathman, a Morningstar mutual fund analyst with a subspecialty in SR funds.

"Mr. Kathman posits that large-cap SR funds may be benefiting from jittery investors' search for recession-proof stocks. Investors in the first quarter dumped cyclically sensitive stocks, such as steelmakers, defense contractors, and other heavy industries, which SR funds routinely avoid anyway. By being light on heavy industry, these SR funds may have lessened the consequences of investor flight to steadier sectors in a sluggish economy."

The Monitor is a particularly consistent observer of the SRI movement. In addition to regular story coverage, the paper also devotes an entire page to the subject that includes monthly video interviews.

Letting your money speak

In his book Let Your Life Speak, Parker Palmer discusses the importance of remaining true to inner leadings and convictions in discerning the path of one's career. As his guide for the book, he focuses on the old Quaker adage that he uses as his title.

Vocation, though, is only one component of how you witness to that which you believe, as I am sure Palmer would agree. That's where the title of this blog comes in. Regardless of how many assets you have, when you use those assets you are contributing to certain goals as opposed to others. While there are many sites that discuss the implications of our day-to-day buying decisions, though, few seem to adequately address the ethical implications of our investments from a consistent moral framework. My hope is that we can begin to do that important work here.

Before we get too far, though, it might be worth spending a bit more time with Palmer. One important Quaker principle is "that of God in every one." This ties in with his reflections on letting your life speak. Rather than coming up with an abstract moral code and applying it uniformly to your life and the lives of others, he comes to see that letting your life speak involves listening to what that life is saying and allowing your understanding to emerge in part from your experience. Here's a short excerpt from the book:

"My youthful understanding of 'Let your life speak' led me to conjure up the highest values I could imagine and then try to conform my life to them. There may be moments in life when we are so unformed that we need to use values like an exoskeleton to keep us from collapsing. But something is very wrong if such moments recur often in adulthood. Trying to live by an abstract norm, will invariably fail--and may even do great damage.

"Today, some thirty years later, 'Let life speak' means something else to me, a meaning faithful both to the ambiguity of those words and to the complexity of my own experience: 'Before you tell your life what you intend to do with it, listen for what it intends to do with you.'"

This is an important lesson to keep in mind as we begin this project. Ideally, there will be room to listen to the voices of economic theory and Quaker history and practice as well as the voice that emerges from within our own lives.

Below are some helpful links that may serve as good entryways into this journey:

What is SRI?
- Part I: General definition
- Part II: Screening
- Part III: Shareholder advocacy
- Part IV: Community development
- Part V: Microfinance

The Quaker origins of SRI

What are the Quaker testimonies?

Welcome!

Hello! This is the first of hopefully many posts to come on how people of all spiritual backgrounds might benefit from considering Quaker principles in weighing investment options. I will be reviewing the core Quaker testimonies of peace, equality, integrity and simplicity as well as discussing basic economic principles related to investing generally and socially responsible investing specifically. I'll also be looking at how the two might connect in worthwhile ways.

As my bio indicates, I am graduate of the Earlham School of Religion in Richmond, Indiana. I first became interested in socially responsible investing (SRI) through my service on an Earlham College committee charged with the task of updating the institution’s policy on this subject. Given the struggles we had defining both SRI and Quaker principles, it occurred to me then that an ongoing discussion of both and guidance on how to tie the two together would be of great value to Quakers.

Since that time, I have come to the conclusion that such an effort would also be of great value to all those seeking to apply ethical principles to their investments. In reviewing the literature on SRI, it is very difficult to find any materials that provide a framework for the moral considerations that must be weighed when undertaking this important task.

The Quaker testimonies of simplicity, peace, integrity, and equality provide such a framework, and it is one that addresses many of the concerns of the SRI movement as a whole. The historical practice of these testimonies among Quakers in their financial decisions provides a time-tested witness that is unique and offers practical guidance rooted in faith for those who may otherwise feel overwhelmed by the choices before them.

I hope you'll keep reading and invite your contributions to the discussion!

Below are some helpful links that may serve as good entryways into the site:

What is SRI?
- Part I: General definition
- Part II: Screening
- Part III: Shareholder advocacy
- Part IV: Community development
- Part V: Microfinance

The Quaker origins of SRI

What are the Quaker testimonies?