I think what religious investors do is working, but in combination with other forces. You have activist groups that are pushing companies; you have your own employees pushing companies; you have social forces like the sustainability movement which is forcing companies to change. But religious and other socially motivated investors are an important part of that ecosystem.
The roots of what is now called socially responsible investing (SRI) are in the religious world. The original funds, called SRI funds, sprung up, I believe, during the Vietnam War era, where people did not want to have their money finance a war that they opposed, so religious investors have always been at the center of the social investing movement. Right now there is a large secular element as well, but taken together I think the social investors play a role as a kind of early warning system for companies. They will go to a company and say have you thought about board diversity? What are you doing about climate change? What's the content of your soda bottles in terms of recycled content? What are you doing about AIDS in Africa? They are raising a broad range of issues that, in some cases, companies haven't thought about, and often these issues which begin at the fringes will move to the mainstream.
I think smart companies know that listening is a good skill. Smart CEOs know to listen to people. So when you have your own investors, the owners of your company, show up and basically tell you for free what they think is wrong with your company, if you are a smart CEO -- I'm thinking of people like Michael Dell of Dell Computer, people in charge of Coke, and even the folks at Wal-Mart more recently -- you will invite those people in and hear what they have to say. Now if what they are asking you to do is not in your business interests, they are not going to do it. Coke is not going to single-handedly solve the AIDS problem in Africa, but if what you are being asked to do is reasonable, and if there's a business case to be made for it, then I think these investors have the opportunity at least to move companies in a direction that they want to move them in.
I came to believe there was a lot of alignment between what we might think of as sort of spiritual or faith principles and running a good business. The challenge is the alignment tends to be long-term, and too many businesses think short-term. Over time I think doing the right thing is always good business for a company. There is tremendous temptation to cut corners, to make the next quarter's profits, or to treat people shabbily because you want to cut costs in a hurry. Great companies think long-term. I talked to someone at McDonald's recently about sustainability. He told me that they only bought fish from oceans that are fished in ways that preserve the fish stocks for the long-term, and even though it costs them a little bit more. I said, "Why are you doing this? Why are you worried about fish?" He said that we want to sell fish 15 to 20 years from now.
The social investors went to Michael Dell 4 or 5 years ago and said, "What are you doing about computers after people don't want them anymore?" They are ending up in dumps, they have toxic materials, they are going to China and being disassembled under unhealthy conditions." He essentially said, "I never thought about that." But then began a process of addressing the issue, and now Dell is taking back all of its computers at no charge. So that whole process began with a visit by socially concerned investors. It's costing Dell some money to take back some computers. They feel they are getting it back in terms of customer loyalty and employee goodwill...Your employees want to know that you are doing the right thing.
Often the [shareholder] resolutions that are filed are a sign of ineffectiveness, because the investors only file a resolution if they have been unable to work out an agreement with the company. Typically these resolutions fail, and they don't have an immediate impact. What happens, though, is often resolutions are filed and then withdrawn as a company says, "Okay, I will work with you on the issue of diversity. I will work with you on the issue of healthcare for our employees." So the success comes out of the negotiating process itself [more] than the actual resolution and vote from the shareholders.
I think [religious investors] evolved to a point where you have to make an argument to a business on business terms. I think in the beginning there was moralizing and preaching and understandable passion over issues like apartheid and the Vietnam War. There is still passion, but now it is grounded in much more of an economic argument and more likely to be effective.
They've pushed on the issue of board diversity... It exposes senior executives to more different points of view, if they were simply sitting in a room with people just like them. To say to a CEO put more women, put more minorities on the board because it's the right thing to do is less effective than saying put more women and minorities on the board because you will learn things from them that will be good and helpful to you as you operate your business.
I think if you are Exxon you view [religious investors] as a pain because they keep coming back year after year and yelling at you about global warming, and if you are Exxon you've been resisting for the most part for the last 4 or 5 years. If you are a more progressive company like Starbucks or Dell or even GE, you say let me see what I can learn from these folks; they are the owners of the company, after all. Their influence is much more from their moral standing and the reasonableness of their argument than it is because they own a few hundred shares of the company.
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