Good Cop, Bad Cop and Shareholder Engagement
Did you know that “good cop/bad cop” situations can be found in the social investing world? “Good cops” are those that listen, cultivate understanding, and develop relationships in order to resolve a situation. “Bad cops” work to resolve the same situation through confrontation and pressure. They aren’t bad in the conventional use of the word; they just aren’t necessarily nice. They draw harder lines. Good cops and bad cops can both get the job done. And when working toward the same goal, they make a powerful impact.
In social investing, both approaches are useful in pursing the goals of shareholder engagement. The good cop meets corporate officers at the table where policy decisions are made. The bad cop may instead call for divestment or separation from offending corporations. Both are educating, leading, and moving us toward an economy that is sustainable and just.
Recently I looked on the website of As You Sow, an activist non-profit that engages multiple corporations every year on a wide variety of social issues. Back in 2012, they created a list called the Filthy 15, targeting publicly traded companies that are responsible for huge amounts of carbon emission because of their reliance on burning coal. As You Sow was fulfilling its bad-cop role by calling out these 15 companies for high emissions so shareholders would know who they were. I happened to notice that one of the companies on the list was MidAmerican Energy, a midwestern utility company owned by Berkshire Hathaway. A few days later, I was looking at the portfolio investments of Praxis Impact Bond Fund, one of the fixed-income mutual funds held in Natural Investments model portfolios, and I noticed that they held a substantial position in a bond of MidAmerican. That piqued my interest. Why would one of the Filthy 15 be held in a Praxis mutual fund? So I looked into MidAmerican Energy. Much to my surprise, I found that it was one of the largest utility developers of wind energy in the U.S. In 2004, 70% of MidAmerican’s electricity was generated by coal and 0% by renewable sources. By 2015, wind energy led the way: MidAmerica’s energy mix was now 41% wind and 37% coal. They expect 85% of their power to be wind generated by about 2020, with a vision of 100% soon after. Now I could see why Praxis would invest in MidAmerican.
Next I called Praxis and talked to Mark Regier, director of corporate engagement and Vice-President of Stewardship Investing. In our discussion, Regier called MidAmerican Energy a wonderful example of what a transition to a low-carbon economy looks like.
I also discovered that Praxis holds, in a couple of other mutual funds, Duke Energy and Southern Company, also members of As You Sow’s Filthy 15. They hold positions in these companies because, in conjunction with many other shareholders, Praxis is engaging them in ongoing dialogue about climate risks and increased renewable energy development.
As You Sow takes the bad cop role, calling the companies out for carbon emissions. Praxis takes the good cop role, working with them to change internal policies and priorities.
Natural Investments has been a strong supporter of investors having fossil fuel free choices. One of the resources we use and recommend is a fossil-fuel free fund website sponsored and run by As You Sow. We also continue to hold Praxis funds in our portfolios. We see value in both roles. Both are contributing toward the same goal—moving our economy in the direction we need to go, sometimes with more relational responses and sometimes through confrontation.
Our industry as a whole seems to agree with us. In 2006 Mark Regier of Praxis received the SRI industry’s prestigious SRI Service Award for his work in shareholder engagement. The following year, members of the industry gave the same award to Conrad McKerron, senior vice president of As You Sow, for his complementary yet distinct work in the same realm—one a good cop, one a bad cop.
As You Sow focuses more on public engagement and education about the big picture of our evolving economy and its social and environmental impacts. Praxis focuses on the intermediate steps that specific companies are going to have to take to do better at being part of the solution. Financial activism includes both divestment and through thoughtful, engaged investment. As investors, you can choose to let your money speak for you as part of one of these approaches, or in support of both.