1980’s- 1990’s: ExxonMobil Denies Climate Change Through Academic/Industry Studies (Internal Research Ran Counter to Public Stand)
Sept 2008: Financial Crisis (Lehman Brothers Bankruptcy)
Jan 2012: Apple Supplier Foxconn Accused of Massive Abuses in Production
Nov 2013: JP Morgan Chase Fined $13 billion for Failures During Financial Crisis
Feb 2014: GM Recalls 1.6 Million Cars for Faulty Ignition Switches, A Problem Known for 11 Years
Sept 2015: The EPA Discovers Volkswagen Manipulated Emissions Data
July 2015: Toshiba Found to Have Overstated Earnings by over $1.2 billion
Sept 2015: Turing Pharmaceuticals Raises Price of Daraphim 5,000%
Sept 2016: Wells Fargo Accused Of Opening Fake Bank Accounts to Boost Profits
Faith and “Values” investors hold the keys to the kingdom.
More on that in a moment…
There is no doubt that the above list of transgressions is only a sampling of the instances of corporate malfeasance that have hit the headlines. A quick search yields many, many more every year. 2015 seemed to be an especially noteworthy year, so much so, that The Wall Street Journal began identifying the headline with a “Crisis of the Week…” appellation.
As the ESG/SRI industry has developed and progressed over the years…as we expand the lexicon that describes our work, as we enhance and expand the toolbox of strategies at our disposal and turn our attention to the role of corporate governance in our work and the need to think about the impact of our ESG activities and engagements, there is one lesson that should not be lost in the conversation.
In the rush to create a “new SRI”, we must not forget the one thing that truly matters: moral compass!
Moral compass is broadly defined as: “Anything which serves to guide a person\’s decisions based on morals or virtues”.
There can be no social progress unless the leaders and managers of our enterprises have a moral compass.
As the field of ESG expands into the mainstream, we must be careful that we not lose sight that no matter the number of sustainability reports that are published; no matter the number of CSR (corporate social responsibility) positions that open up; no matter if 100 percent of corporations publish and adopt ethical codes of conduct…all of this is meaningless if the leaders and managers responsible for implementing and translating them from the page into action lack a moral compass.
Remember the statement that “Faith and ‘values’ investors hold the keys to the kingdom?” Well if you cringed at the metaphor, let me explain why I say this.
From the start, our analytical framework starts at a different place. In my work, I assiduously avoid using the terms “good” or “bad” company.
I do so for three reasons:
First, faith investors start with an assumption that just as there are no perfect individuals, there are no perfect companies. Companies will never be perfect and in fact, will engage in a mix of activities or behaviors, some of which will be beneficial and some of which will not be.
Second, companies are not human. They are inanimate entities that in and of themselves have no capacities for human emotions. So, while a company may behave badly at moments, from a faith framework, it doesn’t have the capacity to “be” good or bad. And we must remember that the actions of a company represent the decisions made by individuals within that company.
Third, if we accept the above two premises, then we have to accept the fact that our role as faith and “values” investors is not to determine the “goodness” or “badness” of the company, but to move the company along a continuum where those behaviors that are perceived not to be beneficial are transformed into more beneficial behaviors.
This framework is foundational to our view that corporate engagement has tremendous transformational potential. Faith and “values” investors fundamentally see our role transforming a company’s behavior so that it becomes a better citizen of the world. It is why faith investors generally do not run for the doors when a company misbehaves. We expect that it will happen, because nothing in life is perfect. What is as important though, in our view, is how the company responds to the transgression. Does it address the problem in an ethically and morally responsible way? Can we help the company see its responsibility to respond in this way? Those are the questions that are key to us.
Unfortunately, morals and values, are not easily calculated or assessed. We tend to operate under a standard that follows the “I know it when I see it” method of assessment made famous by Justice Potter Stewart.
For example, we can measure environmental failures via a range of data points: EPA fines, effluence outputs into the environment, workplace safety violations, etc. All of those can be measured and once measured; we can create metrics that help to develop formulas, scenarios and processes that tell how large or small these metrics are in relation to others.
As I review the methodology of a number of ESG research providers and vendors, I see a lot of very good approaches to sustainability that are all metrics driven. “Measure what’s important” is an important underlying assumption.
I have not yet seen a measure of “moral compass.”
So, let me come back to the bold statement made at the outset: Faith and “Values” investors hold the keys to the kingdom. The keys are the ability to unlock that moral compass, because once that is done, then it opens the people in the company to embrace a new possibility.
Here’s why I make such a statement: First, we operate from an analytical framework that differs from a “materiality” standard. We believe in the transformational power of engagement and seek, in our work with companies, to “unlock” the moral compass or the values compass within individuals. By engaging, we can “mano a mano” try to move the company along the continuum it needs to be on. And, in addition to being armed with our data, charts and analysis, we also go into with a moral compass which seeks to assess whatever is at play.
Don’t get me wrong; analysis and data are good things and morals and values are good things. Faith and “values” investors are trying to bring both to our conversations with companies.
Second, faith and “values” investors operate from a set of core principles that are amazingly consistent across the different faiths and values that drive each individual firm.
We do what we do because we want the world to provide a standard of living for all its citizens that comes from a place of justice and sustainability….
We do what we do because we believe that a just and sustainable society is desirable and achievable.
We do what we do because we believe that all of the world’s citizens need equal access to economic success
We do what we do because our natural resources need to be preserved for future generations…
We do this because we are committed to a larger view of the world that focuses on responsible citizenship as the road to sustained profits and share price.
Now don’t get me wrong; I am a quant person at heart. Data is important. But, as a faith investor, I also believe that the core components of our success rely on us unlocking that “moral compass,” which in many cases gets shelved in the heat of the need to generate quarterly returns or the need to deal with a catastrophic emergency.
Faith and “values” investors believe that our values framework is the key that will unlock that “moral compass.”
“We need authentic leaders, people of the highest integrity, committed to building enduring organizations. We need leaders who have a deep sense of purpose and are true to their core values. We need leaders with the courage to build their companies to meet the needs of all their stakeholders, and who recognize the importance of their service to society.”
– Bill George, former Medtronic CEO
Article by Francis G. Coleman, executive vice president at CBIS (http://cbisonline.com), an investment advisory firm that provides investment services to the Catholic institutional market
Francis G. Coleman is responsible for corporate strategy and planning, strategic planning and board member and trustee relations and development, as well as overseeing the Socially Responsible Investing (SRI) and Information Technology departments at Christian Brothers Investment Services (CBIS). During his tenure, he has held the following positions: Director of Socially Responsible Investing (1994-1999), Director of Marketing and Participant Services (1989-1994), Director of Participant Services, and Operations (1987-1989). As Vice President and Director of SRI (1999-2002), he was responsible for incorporating ethical standards into investments and developing a policy and approach for CBIS that reflects the Church\’s broad concerns in an effort to impact corporations. He is on the boards of the IRRC Institute, a research center for social, environmental, and corporate governance issues; Georgian Court University, a Catholic university in New Jersey sponsored by the Sisters of Mercy; and the Park Foundation, which supports environmental and educational causes.
He is also a member of the SRI Committee for the SRI Fund, an alternative hedge fund serving primarily Catholic investors, and of the Independent Committee of the STOXX Christian Values Index, a screened faith-based index of European stocks. In addition, he serves on the Investment Committee of the Interfaith Center on Corporate Responsibility (ICCR). He formerly served as Chair of the Board of Partners for the Common Good, a community investing program sponsored by CBI; as well as Vice-Chair (1997-1998) and Chair (1998-2001) of the Board of ICCR (1997-2001). He served on the Investment Committee of the American Friends Service Committee (AFSC) from 2009 to 2015. He is a member of the Social Venture Network, is on the Board of the Montessori School of Syracuse, and served a nine-year term on the Board of the Leviticus Fund. Mr. Coleman holds a B.A. from Columbia University.
