In the Academy Award-winning film WALL STREET, Michael Douglas, as multi-gazillionaire trader Gordon Gekko, praises the "greed is good" philosophy of the 1980s. But times have changed since then, and so have many investors. To get some perspective on the philosophy of greed and its profits, THAT MONEY SHOW host Betsy Karetnick interviewed Amy Domini, one of the leading authorities on socially responsible investing (S.R.I.). Domini, a former stockbroker, is the creator and manager of the Domini 400 Social Index Fund. The index has a market cap of $1.2 billion and is comprised entirely of companies that conduct business with an eye to moral and social conscience.
When asked what motivates her, Domini said, "I have this tremendous need to help the world understand what's going on out there. In my opinion, we have a global economy and we have no global government. So what is functioning as a global government is finance. And that's very good for people in finance, but it has a very strong negative impact on the environment and human rights."
So what did Domini do? She listened to what her clients were telling her. Describing her experience she says, "I was in the financial services industry -- I was a stockbroker -- and I was hearing the same message from many clients. It was a message that said, 'I don't want to make money that way' or 'Don't talk to me about an armament manufacturer or a cigarette manufacturer.' At a certain point it began to take hold with me so much so that I was invited to look at a church portfolio and I said to them, 'Why do you have treasury bills? You're supporting the U.S. armament buildup with these treasury bills,' and they seemed very surprised and said, 'Look, we're really here to talk about the investments', and at that point I began to think, those are not different things."
In 1984 she published ETHICAL INVESTING, a book that was to become something of a bible for those interested in socially responsible investing. In 1989 she and two partners founded a research firm from which they created the Domini 400 Social Index, a basket of four hundred stocks that were screened to meet a number of social and ethical guidelines. She then tried to sell the index to the mutual-fund industry. And that is where she met her first roadblock.
She says, "Nobody wanted the product. It astonished me, so I took an incredibly naive step and decided I'd have to launch my own mutual fund, and went through the process myself as a relatively unknown. I was subsidizing the creating of this business for years and years ... It took me a year and a half to raise my first 3 million in assets."
Ten years later, the Domini 400 Social Index Fund now totals 1.2 billion dollars, with an annual performance that has matched the benchmark Standard and Poor's 500 Index.
Frank Coleman, of Christian Brothers Investments says, "I think to be able to take the Domini Fund from an idea, to put it in the ground and get it up and running, really takes somebody who is entrepreneurial in spirit. But I think most of all what they talk about is Amy's commitment to social change, her commitment to impacting the way corporations behave, the way that they conduct their business, and trying to push, if you will, the boundaries of their taking social concerns into consideration as they make financial decisions."
So, who determines which companies make the cut, and which aren't working hard enough to be socially responsible? Amy Domini explains, "At Domini Social Equity Fund, we follow the patterns set by older funds and socially responsible investing. We all eliminate alcohol, tobacco, gambling, nuclear power, and military weapons. We historically eliminated American corporations doing business in South Africa, but, with the free election in that nation, that screen was dropped. After that, we do an evaluation of companies and we look at their impact on the natural environment, communities, employees, and customers, and we try to pick the companies that are the better corporate citizens after looking at a multiple of issues. That leads you, in my opinion, to a slight growth bias. And I think most of the numbers would bear me out on this because you are eliminating older industries. You're eliminating the rust bucket American corporation, with the stronger labor problems, and stronger environmental litigation problems. It leaves you with newer industries and tomorrow's technologies.
"Another key aspect of socially responsible investing is the get-in-there-and-talk-with-management aspect. We file more shareholder resolutions then any other mutual fund." But is it paying off? Domini believes so, saying, "McDonalds was very willing to be the first major food company to have sustainable farming techniques brought into their chicken farming and hold their sources of chicken accountable to more humane farming techniques. For a while we were also shareholders of Wal-Mart. We had a very good, successful dialogue with them over creating some diversity standards, but later on the dialogue about sweatshops didn't go that well. We didn't feel that enough progress was being made and eventually did divest the company from the portfolio."
Says Frank Coleman from Christian Brothers Investing, "I think that what Amy has really been successful at doing is trying to catalyze the industry into understanding that it really is about both the way you earn a competitive return while still being true to the values you believe in. That is something that really we as humans need to be attentive to."
Summing up, Domini says, "So if in fact we have a global government and it's called finance, then I want to be in there and reintroduce human needs and environmental needs into that finance structure. Bottom line: I'm not going to slow down very soon."