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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
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The Challenge To Power: Money, Investing and Democracy
John Harrington
The primary focus of The Challenge To Power book is on money and socially responsible investing
(SRI), and SRI's ability to create a dynamic, new, decentralized, non-corporate democratic economy
that will not only maximize portfolio financial return and community wealth, but also create a
renewed social and environmental vision of the future. SRI is also necessary to save our democracy.
The struggle for the control of our own capital is no longer an esoteric academic
exercise. The survival of our planet may depend upon it. Giant corporations from Wal-Mart to
Microsoft are defining our world. Soon, our only economic choices will be whether to buy Pepsi or
Coke, shop at Wal-Mart or Home Depot, or bank at Citigroup or Bank of America.
The excesses of
corporate management's greed in the '80s gave way to even more outrageous excesses in the '90s. The
music played, stock values increased, and no one believed that the party would ever end.
Of course, there was never any celebration for half of the world's population -- the 2.8
billion people who live on less than the equivalent of $2 per day, the more than one billion people
who do not have access to safe water, the 840 million people who go hungry, or the one-third of all
children under the age of five who suffer from malnutrition.
The economic disparities are
glaring and getting worse each year. The richest fifth of the world's population has access to 86%
of the world's gross domestic product (GDP), while the bottom fifth has access to 1%. The assets of
the world's three richest men, currently Bill Gates, Warren Buffet and Karl Albrecht, exceed the
combined GDP of the world's 48 poorest countries.
We need to ask some very serious questions:
Are politicians and government bureaucrats being bought off to support the "corporatization" of our
global economy? Is the privatization of the public sector healthy for democracy and competitive
capitalism? Is there a viable countervailing power to corporate dominance of our air, water, and
food, much less the U.S. political and economic system? Is local, state, and nationally elected
politicians representing their taxpaying constituents or their corporate donors? Has corporate
management become so powerful and democracy so weak and diluted that shareholder advocacy,
intelligent consumerism and SRI are the only remaining leverages available to the public to affect
positive social, environmental and political change? Have politicians, government and democracy
already become irrelevant?
Excessive management compensation, lucrative severance plans,
and outlandish corporate parties thrown at shareholders' expense are skyrocketing. The majority of
financial benefits from the growth of corporate wealth accrue to an extremely small group of people
worldwide: corporate officers and corporate board members, not shareholders. These are the elite of
the elite, individuals who have managed to be at the right place at the right time. They have been
educated at the right schools, have the right friends, and have had the political skills or sheer
luck to have successfully obtained and/or retained positions within corporations to gain access to
incredible wealth and power-for which the rest of the world's citizens suffer immensely. Not only
does the majority of the world's population suffer economically due to this distorted global
economic malice, but our environment, food and water supply, and in fact, most of the day-to day,
life-and-death decisions are in the hands of these non-elected, non-caring corporate elite.
Capitalism in the traditional sense no longer exists, if it ever did, except for small
businesses that actually compete in a relatively free local marketplace, but are ultimately
manipulated by large corporations that dominate their trade associations. These same giants of
American enterprise control supply as well as demand (through ownership of the major media outlets
and mass advertising). There are probably only about 200,000 people across the globe that control
our natural resources, wealth, and truly act as self-appointed kings (or Niccolo Machiavelli's
"princes"), preaching the myth of free enterprise, while exercising authoritarian economic control,
bottom feeding at the public trough, and privatizing everything that moves.
So how is the
SRI community responding to this dismal state of affairs? The Challenge To Power reviews its
struggle for vision, and evaluate of some of the movement's founders' conflicts, successes, and
failures. This review will identify SRI professional and trade organizations that have advanced the
movement and illuminated early struggles within some of the first SRI firms, as well as the
problems encountered when socially committed firms such as Ben and Jerry's "go public."
In reviewing the SRI community's struggle, The Challenge To Power outlines a few major debacles
and policy and management errors, as well as success stories that have helped advance SRI. There
are also numerous enthusiastic, knowledgeable, and experienced folks who are currently exploring
new directions and structures that address problems of legacy, when founders of SRI businesses move
on or retire and need to insure that their social and environmental mission is adopted by a new
group of owners. We'll see how this fits into other goals of SRI, especially as it relates to
expanding democratic ownership to stakeholders and funding new, innovative green technology and
other socially responsible private business opportunities.
As some nonprofit foundations
and public interest organizations become more active at the shareholder level, voting stock,
dialoguing with corporate management, joining shareholder coalitions, and endorsing environmental
and human rights codes of conduct, will such action encourage their larger cousins to adopt social
investment policies consistent with social or environmental program objectives? Will some
organizations follow the Sierra Club's lead and create mutual funds reinforcing the organization's
primary mission such as protecting the environment by investing in environmental businesses and
screening polluters? Are we on the verge of a major shift where foundations become more activist
with their ownership of capital? Will they join an increasing number of public pension funds,
social justice foundations, colleges and endowments, family trusts, and private investors in
challenging corporate management?
The Challenge To Power not only explores mission-related
investing, but also look at a recent phenomena, within the last 10 years, where social venture
funds and associations -- such as the Social Venture Network (SVN), Investors Circle, the
Environmental Capital Network (ECN), and the Community Development Venture Capital Alliance
(CDVCA), as well as an array of "angel" investors -- have complemented and supplemented their
investments with SRI private equity financing. Many of these organizations have joined growing
community-based efforts to decentralize investment and consumer decision-making to democratize
control of regional and local economies.
If we are interested in influencing corporate
behavior, we must take a hard look at the current rage - corporate codes of conduct. What are these
codes and what are sustainability and corporate social responsibility (CSR)? Is CSR an oxymoron?
And, if we accept corporate voluntary codes, are they just public relations, or are companies
actually changing their conduct for the good of global society? How do concerned investors monitor
these voluntary codes to ensure that corporate management will respect and implement them? Will
there be an enforcement mechanism to ensure compliance, and will sanctions be imposed against bad
actors?
The Challenge To Power explores shareholder advocacy, including the efficacy of
engaging in dialogue with management, filing and co-filing shareholder resolutions, and determining
the results if a majority of shareholders adopt a resolution opposed by corporate management. Based
upon the recent deluge of corporate fraud, accounting irregularities and CEO excesses, will Wall
Street reform? Have we witnessed a shareholder revolution that will lead to a new form of
responsible capitalism, creating the basis of enlightened corporate leadership?
We in the
SRI community need to look beyond our marketing and advertising to face the question head on: Is
SRI really a force for progressive change? In an honest and open fashion, we need to appraise how
successful we can be with passive social screening and shareholder advocacy. What are the pitfalls
of relying only on social screening? Is there a difference between the social criteria and the
actual implementation of a social investment strategy? Are we simply legitimizing authoritarian
capitalism? Does corporate governance reform simply institutionalize an undemocratic corporate
structure and management control? Also, if a company's management is treating its domestic
employees well, should SRI turn a blind eye to that company's human rights violations in China?
Should we invest in a company that advances the employment and compensation of women and minorities
while killing its customers with lung cancer? When SRI mutual funds invest in "best of class" oil
or chemical companies, does this add credibility to our profession or homogenize it into oblivion?
The Challenge reviews stakeholder and shareholder strategies and specific tactics that are
being coordinated within the SRI community to gain leverage in the corporate board room, as well as
the goals of SRI investors, and evaluate NGO's and community investment strategies for
democratizing the economy.
Socially responsible investors need new strategies to challenge
corporate power, including revisiting the corporate campaign originally designed and successfully
implemented in the '80s by Ray Rogers and others against the former textile giant, JP Stevens. It
is important, in this regard, to follow the money and ask questions: Will the financial firms on
Wall Street introduce shareholder resolutions, and vote against the management of corporations in
which they underwrite and make a market for their stock? Will SRI practitioners, making money off
Wall Street investment products, challenge the invisible hand that feeds them? Will mutual funds
vote against corporate management while soliciting it for 401(k) and 403(b) business? It is one
thing to screen a company from investment because it doesn't meet social or environmental criteria;
it is another to work actively with other stakeholders to challenge corporate management's power,
as well as Wall Street's largest financial services powerhouses.
How are corporations sharing
our personal, financial, and medical information, and is technology being utilized by governments
to spy on its citizens? Will this rush by corporations, especially technology and financial
services businesses, to outsource U.S. jobs and confidential personal financial data overseas lead
to greater productivity and savings for shareholders, or simply increase U.S. unemployment and
Americans' identify theft?
Do corporate governance shareholder strategies by pension funds
and other institutional investors advance progressive goals or simply distract investors from the
real issue of corporate control over our economy and political system? Is corporate management
really influenced at all by responsible shareholders' actions? Does more responsive and transparent
corporate management lead to a more socially responsible company? Is a major structural overhaul of
"capitalism" overdue? Will 2005 become George Orwell's 1984? Should corporate management be seen as
treasonous and unpatriotic for avoiding U.S. taxes, shipping jobs overseas, and doing business with
our country's enemies?
Finally, The Challenge To Power discusses a strategy that will
build a long-term coalition of organizations and individuals, including shareholders, to provide a
truly countervailing power against corporate management. From such a broad coalition of
stakeholders comes a longer-term solution for developing more sustainable financial growth and
security for investors, and more decentralized and democratic local, national, and global economic
decision-making, inevitably more responsive to people than to short-term corporate profits. For
socially responsible investing and democracy, it is time for a new beginning. We can truly change
the world -- but we're running out of time.
Article By John Harrington, author of
Challenge to Power (Chelsea Green Publishers, 2005). For more information go to-
http://www.challengetopower.com
He is also the author of Investing With Your Conscience, (John
Wiley & Sons, Inc., 1992)
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