I had breakfast this morning with Steven Lydenberg, my boss when I worked at KLD and now the Chief Investment Officer for Domini Social Investments.
It's hard to overstate Steve's importance to social investing. He was arguably the first person to make a full career of social research on corporations. Over the years he played leadership roles in social research at the Council on Economic Priorities, Trillium, KLD, and now Domini. If you pick a moment in Steve's career and look at what he was doing, you usually see that: 1) he was one of only a few people doing it; 2) it was something everyone in SRI was doing a few years later. When Steven started work on the Domini Social Index there were no broad-based equity benchmarks for social investors. Today there are at least a dozen.
Dylan Thomas once said of Thomas Hardy's poems that people should "read all of it, the whole damn lot," and I feel the same way about Steve's writing on social research. It's all good. Go onto Amazon and pick up a used copy of his Rating America's Corporate Conscience. Read his chapter in the 1992 Social Investment Almanac. Take a look at Investing for Good, which he co-authored with Amy Domini and Peter Kinder.
But first read his new book, Corporations and the Public Interest: Guiding the Invisible Hand.
"I think Hawley and Williams are really onto something with their Universal Owner concept," Steve says as we eat. "We have to think about the broader impacts of corporate behavior. Adam Smith said poor countries have very profitable companies. He meant there's not enough competition to drive innovation. He called them 'monopolies at the expense of their countrymen.'
"There's been a secular shift in our society to corporations since at least the 1980s. The pendulum has been swinging away from government, and now governments feel maybe it's swung too far. Tony Blair has a Minister of Social Responsibility. France requires social disclosures on corporate financial statements. Uruguay has passed a constitutional amendment that forbids privatization of water. Even the Wall Street Journal editorial page says 'markets need adult supervision.'
"And that creates a dilemma - how do you do that? How do you direct corporations to the public interest? We need new vocabulary to do that, new data. And I think SRI can bring great value to universal investors. We can bring fresh perspectives to risk, intangible assets, and wealth creation.
"Social investors have a lot to say about risk, especially long-term risk, because we're used to looking at things the mainstream is resistant to examining. Asbestos, tobacco, global warming: social investors were talking about these things long before the mainstream took notice. We need to take that forward, look at risks, and try to quantify the true costs to society of these activities.
"Investment in all stakeholders creates an intangible asset, but the mainstream doesn't know how to value it. Look at the study Epstein and Schnietz did of the market impact of the WTO protests. There's value to a good corporate reputation, even if the market doesn't always reflect it.
"And social initiatives can create value. Jed Emerson's blended value concept is a really useful way to think about it.
"I think those are the things that will bring social investment more into the mainstream. The pieces are on the table, but they still have to be sorted out and assembled. That's the work we have ahead of us."