Critics often say that socially conscious investors are anti-business; that we want to dismantle capitalism. On the contrary, we love business! Investors ourselves, we need profitable businesses to grow our portfolios -- to pay for college and secure our retirement, among other financial goals. We simply recognize the strong economic forces that support a more sensitive approach to business. Capitalism in its truest form may well be the socially responsible kind.
Steve
Caring Capitalism
Capitalism has proved an incredible boon to society. Thanks to capitalism's emphasis on competition, we've reaped the benefits of increased productivity and the continuous pursuit of innovation and research. But capitalism can have its dark side -- in the short-sightedness that sometimes allows unscrupulous companies pollute the air we breath and the water we drink or exploit workers and communities with no thought for the future.
Fortunately, in recent years, the market (fueled by capitalists) has begun to notice and reward the more responsible corporate citizens. Even an investor who would never consider himself "socially conscious" is likely to avoid investing in a company that uses slave labor to produce products for export, no matter how profitable it might be at the time. And most investors today will steer clear of a company that dumps toxic waste into the nearest river -- neatly avoiding the stock devaluation likely to come when that company becomes embroiled in a government lawsuit.
While a well-managed company does not guarantee good stock performance, we know that management's behavior can have a powerful influence on the company's long-term growth potential. In the U.S. and Western Europe, typically some 80% of the market value of company stock is based on intangibles such as reputation, good will, and expectations of cash flows beyond the next three years. Increasingly, individual and institutional investors are finding that the qualitative analysis applied by social researchers can help identify the best-run companies with the best longer-term investment potential.
That's why good corporate citizenship -- often termed "corporate social responsibility" or "CSR" -- has become a smart business priority for many companies. A focus on short-term cost cutting and profit maximization often results in management neglecting longer-term opportunities and challenges, including societal pressures, the trust of customers, and building competent and loyal staff. There is an impressive and growing body of evidence that supports the notion that the more responsibly a company is managed, the more profitable it is over the long term.
"Corporate social responsibility is not a fad. In fact, there are structural reasons why this is happening and happening so widely," said Angel Cabrera, president of Thunderbird at the Garvin School of International Management, at a March 2005 briefing at the State Department's Foreign Press Center in Washington, D.C.
Most companies are finding that good corporate citizenship can bring long-term financial rewards, as long as certain conditions are met, Cabrera said. The first condition is that social and environmental projects must relate to a firm's core business. It is a matter of "actually using what the company is good at" and translating that expertise into good works. Examples include software companies donating products to schools in developing countries and transportation firms providing the logistics for food deliveries to needy areas.
Second, social projects must promote the company’s competitiveness over time by creating a better business environment. "The next billion personal computers are not going to be sold in the U.S. and Western Europe," Cabrera said. Those companies that actively promote development in poor communities and help create large new middle classes will be “the first ones who are going to profit.”
Third, good corporate citizenship must permeate the entire business structure so that all employees -- not just top managers -- have a stake in the outcome. Among other benefits, companies often use their good reputations as a way to attract top graduates of business schools.
Companies today are more sensitive to their public images and more vulnerable than ever before to pressure from investors and the public at large. Meanwhile, investors and consumers have begun to exercise their power to shape the world they live in through their purchasing decisions. The result? The growing prominence of global brands and the use of the internet to spread information and allow consumers and activists to organize is catalyzing the shift away from
caveat emptor (“buyer beware”) toward a more caring form of capitalism.
I first heard the term “caring capitalism” uttered by Ben Cohen, founder of Ben & Jerry’s, about 15 years ago. This idea has stuck with me as the most succinct vision statement that I have ever heard for the world that those of us engaged in responsible investing want to create.
Investors are beginning to understand the confluence of environmental, social, and economic factors that affect the global market. They have begun to demand environmental and social responsibility from companies, and companies are now seeking to meet those demands. How’s that for a free market?
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Steven J. Schueth is president and chief marketing officer of First Affirmative Financial Network, LLC. An independent investment advisory firm registered with the SEC, First Affirmative specializes in serving socially conscious individual and institutional investors nationwide. A former director and spokesperson for the Social Investment Forum, Schueth lives in Boulder, Colo.
