On May 24, President Trump signed legislation to roll back critically important regulations on the financial industry. The consumer protection measures, which were put in place under the former Obama administration as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, have now joined the long list of public-interest regulations to be terminated by this administration.
When Obama signed Dodd-Frank into law in 2010, the mortgage meltdown that had begun in 2008 was in full swing, the government was bailing out the big banks that had caused the crisis with taxpayer dollars, and Americans were furious enough that legislators were able to push through the most significant changes to financial regulation since the reforms that followed the Great Depression. These include the Volcker rule, which keeps banks from taking speculative investments, and the creation of the Consumer Financial Protection Bureau—which is responsible for regulating consumer financial companies like banks, lenders, and credit unions. The act also created stipulations for banks to create plans to wind themselves down, instead of filing for bankruptcy, in the event of another economic collapse.
Shareholder supremacy has roots in a legal dispute between Ford and Dodge.
The term shareholder value is often used as a way to describe the theory that a company is successful if its shareholders are enriched. In and of itself, that theory seems perfectly sensible to most investors and not inherently controversial. Socially responsible investors, however, take issue with the way today’s corporate executives have distorted shareholder value into shareholder supremacy, which they use to justify the pursuit of short-term earnings at all costs—even if it means sacrificing long-term growth, environmental responsibility, and human rights.
When executive compensation is directly tied to shareholder value, the conflicts become obviously apparent, as was seen in the case of Enron’s spectacular collapse and the subsequent discovery that the company had engaged in years of fraud to boost shareholder value and short-term profits. “Very few people haven’t heard of Enron, but very few people understand what structurally permitted it to take place,” said Dennis Vegas, a former Enron employee who joined labor leaders and progressive activists in lobbying for greater control by workers over their own retirement investments, in a 2002 interview with Mother Jones the year after the company filed for bankruptcy. When asked whether he considered himself an activist, he said, “I don’t know if that label applies. If that’s being socially responsible, I’ll take that one.”
Corporate executives often justify ethically questionable decision-making with the adage that corporations are legally bound to maximize profits to shareholders. Yet the predominant legal precedent supporting the primacy of shareholder value is a single line in the dicta of a 100-year-old court ruling that pertained to a dispute in a privately held company, according to Lynn Stout, professor of corporate and business law at Cornell and author of The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public. The dispute arose when Henry Ford learned that Horace and John Dodge, who owned Ford Motor Co. stock, wanted to start a new company to rival Ford. Ford responded by drastically reducing dividends being paid out, instead lowering prices on vehicles and increasing employee wages. The Dodge brothers sued, asserting that the dividends should be paid out. The Michigan Supreme Court split the difference, ruling in favor of increased dividends, but they were not nearly as high as the Dodge brothers had hoped. Henry Ford was still able to pay his employees higher wages and decrease the price of vehicles.
The dicta of the court’s decision said, “A business corporation is organized and carried on primarily for the profit of the stockholders.” The judges who wrote the dicta could hardly have known that today’s publicly held, transnational corporations would lean so heavily on one word—“primarily”—to justify so much unethical conduct.These days, a common feature of a company’s incorporation document is the statement that a corporation’s purpose is to do “anything lawful.” The statement leaves the option open for a board to pursue what they see fit at the moment—thereby creating leeway for ethical relativism in perpetuity—instead of being held to stringent policy on what should or should not be allowed in an ever-changing world.
As socially responsible investment advisors, we see an alternative to the primacy of shareholder value: stakeholder value. We interpret this legal precedent to mean that corporations have the right to make a wide variety of choices, including those that negatively affect shareholder value—and that the qualifier of “primarily” leaves open many options. Stakeholdervalue takes a long-term, holistic view of a company’s success—one that considers stakeholders other than just investors: employees, customers, the state, and the broader community. According to our view, even nature should be considered a stakeholder, since biodiversity, clean water, and healthy soils are all required for business to continue, let alone thrive.
Today we are seeing many positive examples of stakeholder values at work, whether they are B-Corporations (including Natural Investments), or traditionally structured corporations choosing to take a stand. There are companies offering living wages to all employees and demanding that its suppliers end human exploitation in their supply chains. Others are building LEED certified structures, recycling their waste in innovative ways, providing employees with childcare, and working on solutions to other pressing issues. One example that recently crossed my desk is Panasonic, a company that is transitioning to renewable energy through a four-part strategy: Saving (efficiency), Creating (solar and fuel cells), Managing (grid maximization), and Storing (Tesla is using Panasonic batteries in their latest, and most affordable so far, vehicle). Although Panasonic is not a B-Corporation, its pursuit of renewable energy exemplifies the idea of a “company as a public entity.”
As fossil fuels become more resource intensive to extract—and less desirable given their carbon toll—renewable technologies such as those being implemented by Panasonic will, in the long run, provide plenty of shareholder and stakeholder value. To access these long-term and sustainable returns, however, the company must invest resources that could be used to maximize short-term shareholder returns into research and development.
By thinking more broadly, emphasizing long-term benefits for stakeholders instead of short-term profits for shareholders, we can encourage better corporate practices and help create a future where corporate values alignment isn’t just a pipe dream.
I bought a used bicycle in 2010, for $200. It certainly is not the fanciest, no carbon fiber or titanium, but it’s sturdy and has stood up well for the past seven years. I’ve spent some money on tune-ups, replacing tires, a new helmet, a rack, and gear bags as well. Altogether, I have spent just under $1,000 on it.
Many days I choose to commute to my office on this bike, an eight-mile round trip, which takes me about forty-five minutes total. Having done this for a number of years, that’s about 11,000 miles of travel on this bike on trips where I would otherwise have been driving.
Quakers are often given credit for being pioneers in the formative era of Socially Responsible Investment. As I was reading an array of early SRI publications, it was easy to see that Quaker traditions and practices have played an important role in this movement’s history. While you may not have the same faith as the thinkers and authors quoted here, the lessons and insights are applicable regardless of your spiritual background or belief.
When we remember that many of the concerns we are trying to address through our investments are global issues (climate change, deforestation, gender equity and LGBT rights, supply chain/human rights, etc.), it becomes even more important to broaden our understanding. While Quakers come from the Judeo-Christian tradition, universalism is a commonly held belief among Friends, as Quakers are often called. There is diversity among Quakers, and an openness and curiosity about others is central. As Tom Head wrote in Envisioning a Moral Economy, “To study well the other faith traditions through which all humankind knows and experiences the sacred is especially important in our era of globalization.” (Footnote 1)
Quakers are one of the three historic Peace Churches, believing there is “that of God” in all people. This has inspired a strong history, still continuing today, of social justice advocacy on pressing topics of the day, from slavery to women’s rights, prison reform, and armament issues. As early as 1688, Quaker meetings in the United States were corresponding and discussing the ethical issue of profiting from the slave trade, and in 1758 the Philadelphia yearly meeting unanimously issued a proclamation forbidding its members from participating in the slave trade.
Could you imagine a church/mosque/temple in 2017 forbidding its members to profit from the fossil fuel industry? Or forbidding its members from investing in and working with predatory or discriminatory financial institutions?
Technically speaking, pollinators are “the biotic agents that move pollen from the anthers to the stigma to accomplish fertilization.” Very literally, the birds and the bees of the flowering plant world!
Of course, this is a bit of an oversimplification. While pollinators do include both birds and bees, this group also includes wasps, ants, flies, butterflies, moths, and some reptiles and mammals. Even gardeners can be pollinators, hand pollinating plants to prevent contamination and maintain pure genetic strains.
Some plants have co-evolved with the local pollinators, and the loss of native pollinators could lead to extinction of these unique plant species, as the pollinators and plants have evolved to be specialized for each other.
It is estimated that over three quarters of all farmed crops require animal pollination, so along with pollinator decline and the loss of specialized plants, we also face the crucial issue of farmed foods not being pollinated. The economic impacts of pollinator decline are already being felt in many areas. Where native pollinator species have become scarce, farmers have to replace them with managed bee populations, which involves added cost and work.
So, its clear that we are facing some problems with pollinator decline, but why is this happening? And, what can be done to restore pollinators to a healthy level?
I would guess that many of us, even if we aren’t partial to imbibing ourselves, have noticed the skyrocketing number of craft breweries in the past decade. Gone are the days where the options at a restaurant or grocery store were limited to three major distributors, all with at least a few unpronounceable ingredients, and coming from “farms” and “breweries” that resemble factories more than anything else.
Craft breweries, as stated by the American Brewers Association, must be “small, independent and traditional.” This means, respectively, less than 6 million barrels produced per year, less than 25% owned by larger non-craft beer companies, and the majority of their output must use traditional beer brewing techniques (though innovative ingredients are welcome!).
The explosion of interest in craft breweries, besides being a treat for our taste buds, has also been an economic force, with many breweries focusing on using local ingredients, paying living wages or forming employee owned cooperatives, and going green by re-using waste products and using clean energy.
Some of the pioneer craft breweries have become mid-sized nationally-known brands, while continuing to hold close to their sustainable roots. While you may recognize these names