It took a bit of hunting, but, finally, a decent obituary for Sir John Templeton, from The Economist.
Warren Buffett has the star power, but Templeton was arguably an equally skilled investor. Like Buffett, Templeton got his early training in securities analysis from Benjamin Graham.
When I was getting my MBA, my investments textbook listed four investors whose outstanding long-term track records were probably not due to chance: Warren Buffett, George Soros, Peter Lynch, and John Templeton.
Of that group, only Templeton had any use for social investors. He wrote in the late 80s that social investment funds "ought to be encouraged," and reportedly never owned a tobacco stock.
For those who believe one must behave dishonestly or unethically to achieve superior investment returns, the career Sir John Templeton stands as a provocative counter-example. For more information on Templeton in his prime, see John Train's excellent profile in The Money Masters.
I mentioned him last year, but I just wanted to put up a fresh endorsement for the work Jeffrey MacDonald is doing at the Christian Science Monitor. In the past two years the Monitor has probably interviewed more social investment practitioners, and written more articles on social investing, than any other publication. As number of practitioners explodes, with many of them trying new approaches, MacDonald's stories are a great way to keep up.
Most management articles on corporate social responsibility can be safely ignored. CSR tends to bring out the worst vices of some management consultants - their reliance on platitudes, sloppiness around definitional issues, and especially their reluctance to quantify.
But Porter's piece strikes me as worthwhile. On its own merits, it makes good points about which of the myriad social and environmental issues a firm should be most concerned with (those it understands well and has a stake in). And Porter points out that old-school stakeholder theory (take care of customers, employees, and shareholders and your job is done) doesn't fly anymore.
I suppose I'm also happy to see a prominent management consultant and academic say "when a well-run business applies its vast resources, expertise, and management talent to problems that it understands and in which it has a stake, it can have a greater impact on social good than any other institution or philanthropic organization."
This is a constructive rejoinder to the CEOs who say "it's not my job". As Steven Lydenberg has pointed out, the great corporate success of the past 20 years comes with greater corporate obligations. Porter argues effectively, I think, that corporations are well-equipped to meet them.
What's missing now, is trying. Most companies still act as corporate social responsibility is too hard or too expensive. They are convenient things to say, but come on. In his classic text on forecasting (available online here) J. Scott Armstrong of the Wharton School invokes Gerstenfeld's law of trying.
It was discovered one night by my friend, Art Gerstenfeld, upon returning home from work. Gerstenfeld's son met him at the door, and the following exchange took place between the two:
"Daddy, fix my bike for me."
"I don't know anything about bikes."
"Daddy, please fix my bike."
"I don't know how to fix your bike!"
"Daddy, please fix my bike!"
"I don't know how to fix your bike!"
"But, Daddy, you can try, can't you?"
"Yes, I suppose that I can try."
And then he fixed the bike.
With Porter on board, the time is right to spread the word on Gerstenfeld.
In the midst of this excellent article on the Chinese banking system, there is a pretty inspiring profile of Li Jinhua, China's Auditor-general. There is so much interesting material hinted at in this article (e.g., a brief mention of a jailhouse interview in Las Vegas with accused embezzlers from Kaiping) I hope the authors, William Mellor and Le-Min Lim are considering writing it up as a book.
A few times over the years, I've heard proponents of social investing invoke the teachings of Warren Buffett in support of their activities (the most comprehensive argument along these lines is Patrick McVeigh's chapter in the old The Social Investment Almanac).
It's an attractive idea. Buffett's a great investor, and he not only has strong views on ethics and integrity, he expresses them with flair (even in cartoon form). Then you notice him saying things like "we have never made a good deal with a bad person," and it's kind of natural to think he's on board with the social investment concept.
Natural, but wrong. Buffett has sometimes owned securities that social investors would find objectionable. Although I believe most of its holdings pass typical social screens, Berkshire has owned tobacco securities, and is now drawing fire for PetroChina. Reuters reports today that "Berkshire Hathaway Inc. is keeping its PetroChina Co. shares amid growing criticism from Harvard University and others about investing in companies that might be linked to genocide in Sudan." Berkshire's official comment is here.
I have read an unofficial shareholder meeting transcript (all disclaimers apply) in which Buffett's partner, Charles Munger, was asked about PetroChina. He reportedly said "it would be hard to invest in oil without finding companies that are doing something we wouldn't do... I'm glad I don't have to take responsibility. If we had those standards we couldn't invest in anything. Every big oil company is involved somewhere in a country which is doing something we wouldn't do."
I am two minds about this. On the one hand, I do think Buffett, Gates, and Munger are wrong if they think a stock certificate creates immunity from moral responsibility. A stock certificate can do miraculous things, but that is not one of them. In most ethical systems you have to consider the consequences of your actions, including financial ones. I think this is particularly true when we're talking about the richest people in the world. These people are not desperate for returns. It wouldn't kill them to pick a different name.
Or maybe it would. For all his folksy charm and rhetorical brilliance, Warren Buffett is a pretty specialized animal. He identifies superior investment opportunities, passionately, single-mindedly, and to the exclusion of many other things he could do with his time. Maybe asking Warren Buffett to do ethical investing is like asking Bobby Fischer to play ethical chess. Other people could, or could at least try - but perhaps, precisely because of who he is, he can't.
And that's an important point about social investing - how you do it depends on who you are. For Warren Buffett to be a social investor he doesn't have to do what I think is right, or what anyone else thinks is right. He has to do what he thinks is right. If more people just did that, I believe the world would be a better place. I have read everything Buffett has written, and found nothing there that contradicts this belief.
Postscript: I can't resist adding two words about Buffett's investment writings: read them! If you invest in equities for the long term, or plan to, you should go to the Berkshire Hathaway website and read every single Chairman's Letter. This will not make you as good an investor as Buffett, any more than reading Bobby Fischer's My 60 Memorable Games will make you a grandmaster. But in either case you will be way ahead of your neighbor.
KLD has, after 16 1/2 years, decided to end publication of its Statistical Review of the Domini 400 Social Index. A sensible move - the data's mostly available on the web now, and there are many social indexes at KLD and elsewhere for academics to work on. Still, this was an important publication for a long time.
KLD's CEO, Peter Kinder, has written a brief note on this. Congratulations to the folks at KLD who had the spirit and intellectual honesty to publish it for such a long time period, 'come what may'. I think they can be proud of the results.
Several colleagues have sent me a link to this chart from McKinsey. My first reaction, before I even read it, was: that's a heck of a chart.
But the message they are sending here is a useful one. Most social investors have had the experience of meeting an idealistic management team, only to find that the company didn't live up to the ideals. So I certainly agree with this: "a company should identify emerging trends and develop coherent organization-wide responses—an approach that requires it to integrate social issues into all dimensions of the business, not just the making of strategy."
It also reminds me of a point the late Robert Townsend used to make - some jobs are too important to be left to staff, particularly those relating to strategic direction or external communication. Townsend had no love for consultants, but I think he'd approve of how McKinsey puts the CEO at the center of the chart. It's certainly consistent with what I've seen over the years. Corporate social records tend to be pretty stable. You typically see rapid change only when a new CEO comes in and makes social responsibility a priority.
A commemorative edition of Townsend's entertaining and instructive Up the Organization is coming in May (details here). Time magazine's original (1970) review of the book is here.
If you don't like The Economist, wait a week.After the ill-tempered comments of the last post, the latest issue offers this excellent article on happiness and economics. This is a great piece, offering plenty of historical context, going back to Carlyle and Hume, and giving critical attention to many different points of view. I was especially happy to see acknowledgement of the contributions of Kahneman, who introduced the radical concept of asking people if they were happy. And I had not been familiar with the work of Layard (if his new book seems a bit daunting, this article looks like an easier way to get started).
On a somewhat related note, I have been meaning to point out a series of good postings by Macroblog on economists and their critics (here, here, and here). It is worth looking at these to get a sense of how it feels from the economists' side of of things.
The King of Bhutan, the BBC reports, has abdicated as part of the process of transitioning the country to a parliamentary democracy. I believe his contribution to the debate about social capital - his concept of Gross National Happiness - deserves far more attention than it has received (Time magazine article is here).
In the U.S. and Europe GDP reports and national income accounts are watched almost obsessively, with significant deviations from trend provoking almost instantaneous policy responses. The same is not always true for important indicators of happiness and well-being, however.
Bhutan's experiments with the implementation of this concept are widely regarded as successful, but I hasten to add that this success came in a society with one religion (Buddhism) and a leadership with absolute power (although this is now changing).
A set of discussion papers from a think tank in Bhutan is here. It is nice, but it is not nearly enough. Scholars in the social sciences need to do more, collaborating across traditional disciplinary boundaries, to develop a richer understanding of the strengths and weaknesses of this concept.
It won't be easy. In a recent issue The Economistquestioned the value of 'fair trade' and characterized the challenges of organic food production as a political problem. The Economist argument wasn't very good economics in the first place (externalities, anyone?), but never mind that. If they're on form, the political scientists will bat the ball back, saying that the political forces in play are heavily mediated by economic questions, and therefore not their problem either.
I have no problem with The Economist generally (they once inaccurately called me an economist, doing my career a world of good). But there's no place for this kind of cop-out anymore. Bhutan has made a brave start - its up to the rest of us to carry it further.