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Investments consider more stakeholders

watering dollars

By Joel Dresang

His words stunned but didn’t shock me, like when a doctor says there’s no hope for a patient long in decline. I had just finished interviewing the CEO of the company that was closing the paper mill in my hometown.

We spoke by phone while I was at a park just upriver from the mill. Soon afterward, I reported on a rally across from the mill, a candle-light vigil estimated at 3,000 employees, their families, neighbors, clergy, union members and total strangers pleading to keep the mill open.

The scenes came to me as a flashback when I learned about the Business Roundtable’s resolution to commit to “all of our stakeholders.” The association of top executives of America’s leading corporations extended their companies’ responsibilities to their customers, employees, suppliers and communities. Previously, they pledged their corporate existence solely to shareholders.

Shareholders have prospered over the last few decades—even including the financial collapse. Of course, working Americans who also are shareholders are better off. That’s the point of investments—putting your money to work beyond the sweat and brainpower you put into your job.

But the Business Roundtable’s statement—and my observations while a journalist covering the paper industry—suggest that corporations might have become too focused on shareholders at the expense of other stakeholders.

Two years ago, after a family funeral, I went with siblings to where the mill once stood in our hometown. Our father had worked there for more than 40 years. Three of my brothers and I worked there at one time or another. Almost all the men in our neighborhood were millworkers, as were the fathers of most of our classmates growing up.

Many of my schoolmates ended up at the mill. Some were at the rally that night 11 years ago, suddenly, desperately needing to find jobs in middle age. For some, it would be their first time looking for work.

It was easy to feel forsaken. The workers just kept doing what was asked of them at the mill, as they had done generation after generation since the mill’s founding in 1889. Even as ownership changed four times in the mill’s last 32 years, workers kept doing their part, and still the mill failed.

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Globalized trade, economic recession and a seismic shift in demand for ink-on-paper products all played into the mill’s demise. But public enemy No 1., from my hometown’s view, was corporate greed.

Although the Business Roundtable’s about-face seems remarkable, it is part of a trend suggesting that businesses—and their shareholders—can benefit from being more mindful of a broader array of stakeholders. In turn, it’s possible for investors to uphold their values without abandoning the value of their portfolios.

“Years ago, it was widely thought that you’d give up return in exchange for trying to do good and feel good about your money. I don’t think that’s accurate anymore,” Bob Landaas said in response to a client’s question at an investment seminar a few years ago. “I think that CEOs that are multitasking and that are good at a lot of issues tend to be good CEOs.”

Others have agreed. Their money has followed.

Investors had $12 trillion in sustainable and responsible investments at the beginning of 2018, according to the Forum for Sustainable and Responsible Investment, a non-profit advocacy group.

That $12 trillion was 26% of all assets under professional management in the U.S. It was up 38% from $8.7 trillion so invested in early 2016 and 18 times the $639 billion the forum found in 1995.

“We’re seeing more and more investors jump on board of the socially responsible investing,” Kyle Tetting said in a Money Talk Video, “everything from young investors to sovereign wealth funds to private pensions and endowments that are recognizing that no longer does doing good have to be perceived as a drag on performance. That you can do well by doing good.”

Responsible investing has grown so popular that last year the College of Financial Planning announced that it would offer coursework to designate financial professionals as Chartered SRI Counselors.

In 2016, independent investment research firm Morningstar devised a system for measuring the degree and success to which mutual funds were sustainable and responsible.

Another investment research firm, FactSet, has begun tracking how often companies in the S&P 500 mention environmental, social, and governance factors in their quarterly earnings calls, given the growing focus by investors on such issues.

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“What we have found, and one of the reasons why we use the term sustainability,” Kyle said in another Money Talk Video, “is that companies who tend to score highly, tend to be businesses that are around for a long time. They tend to be businesses that are making good investment decisions for their investors.”

Through their statement, the Business Roundtable has sparked debate about the role of corporations in society and whether everyone would be better off if they focus just on their shareholders.

The executive I interviewed before the rally at the mill happened to be the father of one of my best friends. I have known him now more than half my life. I consider him reasonable, principled, compassionate—and also very successful.

The business case he made for closing the mill made sense to me. We didn’t know it then officially, but we were in the midst of the Great Recession. He acknowledged that conditions possibly could improve enough to reopen the mill someday. But he added that he didn’t want some slim hope of recovery to hamper the employees—and the community—from moving on.

Critics have disparaged the Business Roundtable’s statement as impractical and even antithetical to the principles of capitalism. Cynics have suggested that Business Roundtable CEOs were just protecting themselves, acknowledging that they have a target on their back, not just from some of the Democratic presidential candidates but also from President Trump, who has called certain corporate leaders names and publicly criticized their decisions.

Regardless of the motivation or effectiveness, I find the statement to be a reminder that investors have more options with their money, options that include factoring in how their investments correspond with their values.

“Clients need to really understand that there are multiple ways to accomplish their objectives,” Kyle says. “It’s important that they have that conversation with their advisor so they can understand the trade-offs involved.”

Joel Dresang is vice president-communications at Landaas & Company.

(initially posted September 30, 2019)

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