When Does Socially Responsible Investing Go Too Far?, an advice item at Forbes (“the capitalist’s tool”) on money and ethics misses a major point. A reader writes in that his wife “has become passionate about social and political issues and asked that we not invest in companies she believes are bad corporate citizens.” Her list has grown so long there are few companies left. Jeanne Fleming and Leonard Schwarz advise it is “irresponsible of Julia to be indifferent to the costs associated with doing what she wants… you need to sit down with Julia, explain how the lines she’s drawn are incompatible with your family’s investment objectives and discuss how you might relax the rules underlying her list.”
Here’s my take: By black-listing companies she thinks are immoral, Julia isn’t helping to change them, she is simply letting them get away with murder… or whatever crimes she thinks they are committing. If caring people like Julia refuse to buy a company’s stock, it makes the situation worse. Companies with no Julias will have owners who only think of short-term gains, putting additional pressures on companies to externalize costs and generally behave badly.
The husband seeking advice should be told that active ownership is more powerful than hiding their heads in the sand. Take a look at websites like CorpGov.net, Shareowners.org and ProxyDemocracy.org. You will soon learn that power lies in engagement, not in denial.