SRI Notes

The Next Book to Read

Stu Hart, a leading thinker on sustainability and business at Cornell's Johnson School of Business, has a new book coming out - Capitalism at the Crossroads.  A positive review is up at Socialfunds.com. 

Over the years Hart has gained recognition as a management theorist (McKinsey award for best Harvard Business Review article), a financial analyst (co-authored the 2001 Moskowitz Prize-winning study), and a popularizer (co-authored The Fortune at the Bottom of the Pyramid).

It's nice to see the Wharton School's publishing house making this one of their first projects, too.

Relief Organizations

The tsunamis have come and gone, but in the aftermath there is now a massive medical crisis around the Indian Ocean. Children, disproportionately affected by the initial disaster, will also be more vulnerable to the host of diseases that inevitably follow something like this.

Direct Relief is based in Santa Barbara, and provides primarily medicines and other supplies to disaster-stricken areas.

While the international relief effort is gearing up, Doctors Without Borders already has put teams on the ground and is flying in more doctors and other medical specialists  tomorrow.

More information on the situation and charities that are helping is here.

I strongly recommend you check out any organization you're planning to give to using Charity Navigator.

Also this blog, which is run out of Asia, is a good portal for up-to-date information about the crisis.

Corruption and Valuation

Transparency International got some media attention last week as the UN declared December 9 "Anti-Corruption Day".  The World Bank also supported this initiative. 

It turns out that Transparency's corruption measures also have investment significance.  Charles Lee and David Ng of Cornell University have done a strong study on the impact of corruption on corporate valuation.  They find that markets punish companies that operate in more corrupt countries by awarding them lower valuation ratios (Price/Book and Price/Earnings).

Socialfunds.com has a good summary of the study, which won last year's Moskowitz Prize.

Salon Article

Ellie Winninghoff, who is writing a book on SRI, has put up an excellent article on SRI at Salon.com (sorry, have to watch an ad to read it, but it's worth it). 

It's particularly great that she tracked down Jim Hawley, who co-authoredThe Rise of Fiduciary Capitalism.  The book explains that the balance of power has shifted among the owners of American corporations.  In the old days (the 1970's), most stock was owned by individuals in brokerage accounts.  Today, most stock is owned by large pension funds.  These intermediaries now hold de facto control over most of America's publicly traded companies.  The only problem is they don't know it, or act like they don't know it.

Robert Monks, who is also mentioned in the article, is the leading voice for corporate governance reform in the U.S.

Two from IBD

Investor's Business Daily has two articles of interest this morning, one on corporate social responsibility reports (free), the other on SRI mutual fund performance (trial subscription required).

Silicon Valley Giving

Some extraordinary fortunes were made in Silicon Valley in the 1990s.  Now, dissatisfied with existing charitable options, some of those same entrepreneurs are devoting their energy to finding better ways to do philanthropy.

Jeff Skoll, one of the founders of eBay, has a foundation that is making grants to train MBAs in sustainable business practices, and gives an award for social entrepreneurship.

Donna Dubinsky, who co-invented the Palm Pilot, has been a major supporter of Accion International, an innovative microlending organization. 

There is a also a terrific organization called CharityFocus.  Founded in 1999 by a group of Silicon Valley professionals, this organization provides web services and technical assistance to non-profits everywhere.  One odd thing about them, or about the era in which they were founded: CharityFocus actually took over a for-profit dot-com in 2002...

SRI Makes the Wikipedia

Wikipedia, the remarkable free online encyclopedia, now has an entry for socially responsible investing. But the brief article misconstrues SRI by characterizing it in political terms.

Yes there are investors who are politically motivated, but in my experience they are significantly outnumbered by those who are motivated by faith or conscience. Put another way, I've met many people who viewed themselves as environmental investors or Christian investors - but very few who considered themselves liberal investors or conservative investors. And the extraordinary diversity of social screens in use today defies a simple left vs. right categorization.

This Wikipedia article on moral purchasing gives a better sense of the richness and complexity of the topic.

Graef Crystal Back Online

In the early days of The Internet, Graef "Bud" Crystal had an excellent website covering executive compensation issues.  Then he joined Bloomberg as a columnist and the website disappeared.  But Bloomberg now makes his columns available online.

If you are interested in executive compensation, you could not ask for a better teacher than Crystal.  He does two things most journalists can't or won't do:  he does the math (correctly, I might add), and he names names.  He doesn't offer you the opinion that CEOs make too much - he tells you who he thinks makes too much, and why he thinks it.

I do have methodological quibbles with some of his work, usually over the time horizons and benchmarks he uses.  He likes to evaluate the performance of a company's stock vs. the S&P 500 over a one-year period.  I'd rather he used a sector index and  a longer time period (three years?).

Another quibble:  In today's column he argues that broad stock option ownership has not been associated with great returns the past three years.  Not surprising, since the tech sector was a disappointment during that period.  But what about the previous 20 years?  Without those broad stock option programs, Silicon Valley (and all the wealth it created) probably would not exist.  And the benefits to society - cheap computing, better cancer drugs, free blogging software - would probably still be waiting to be invented...

The Economist also had an excellent review of executive pay last year.

Welcome

I'm starting this blog as a way to keep notes and offer commentary on new developments in social investing.

My primary interest here is in sharing useful information with other practitioners, but individual investors may find some of the material here to be of value as well.

If you have a strong interest in the academic aspects of the field, a better starting place would be sristudies.org, where I maintain an annotated bibliography of the literature.

If you're looking for regular news coverage about social investing, I recommend you take a look at socialfunds.com. It is also worth looking at GreenMoney Journal - the current issue is a "best of" compendium of articles by leaders in the industry.

There are many books on social investing, but few good ones. It's probably better to tackle the social and the financial aspects separately:

On the investing side I'd recommend Malkiel's A Random Walk Down Wall Street or Higgins's outstanding Analysis for Financial Management.

On the social side, the best book I've read this year is by wine executive Paul Dolan. It is called True to Our Roots: Fermenting a Business Revolution, and describes how he transformed Fetzer Vineyards into a leader in sustainable agriculture while simultaneously strengthening its position in the intensely competitive global wine industry. Many people talk about social responsibility, but there are very few business leaders who have proven they can execute on both the financial and social dimensions. Dolan is one of them.