Shareholder activism as a tool for social change

This was originally written in October of 2006.

I have been thinking lately that shareholder activism might be one very effective method of instigating social change. There are certain mutual funds, among them Domini Social Equity Fund, that actively examine the corporate policies of funds they invest in and put forth shareholder resolutions in support of progressive policies.

I find this sort of report heartening:

"Domini helped convince JPMorgan Chase -- a $1.1 trillion bank with operations in more than 50 countries -- to adopt a comprehensive environmental policy, addressing global warming, illegal logging, protection of habitats, and the rights of indigenous peoples. It will impact the bank's loans, investments, research and lobbying activities, employee training, and internal operations. Our coalition, led my Christian Brothers Investment Services, helped convince the bank to hire its first Director of Environmental Affairs in 2004."

Corporations can easily ignore all but the most prominent and newsworthy popular protests. Management is responsible to its shareholders, not the public. But if the protest comes from the shareholders themselves, that is a different matter. Management is extraordinarily sensitive to anything that can affect the share price by even a small amount. Any shareholder resolution necessarily comes to the attention of all shareholders, and even the psychological effect of a losing resolution is of concern tomanagement.

I suspect that there are many progressives with sums of money large enough to invest. They might make modest contributions to progressive causes, but are reluctant to give much of their money away. This is a natural and understandable human tendency. But as a result they conduct their investment decisions largelyc ompartmentalized from their personal activities for socialchange.

Investing in activism funds is a way to break down that compartmentalization at very little cost to investors. The socially responsible mutual funds earn rates ofreturn that are comparable to those of other funds. Domini's current expense ratio is 0.95%, which isn't too bad. At some level the shareholder activism itself has to be paid for, of course. But we have a potent force for social change if an investor breaks down the wall between their personal involvement in progressive causes and investing, and views their slightly lower return as a form of doing good.

The Unitarian-Universalist Service Committee (UUSC) engages in shareholder activism,(http://www.uusc.org/info/shareholder.html), but presumablythis is with dollars that have already been designated for the purposes of doing good, and thus far less money than progressive individuals hold.

The concept of socially responsible investment also includes more passive approaches, such as not investing in companies trafficking in weapons, tobacco, or alcohol. This is good as far as it goes, but the effect of shareholder activism is going to be far greater. Merely keeping one's own hands clean in this way may be completely invisible to the relevant companies.

A few relevant links:
http://www.iccr.org

http://www.domini.com/shareholder-advocacy/index.htm

I am interested in whether other people find this analysis to be on target or are aware of other thinking on the subject.