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Clear Thoughts
What happened to ethics in investing?
Originally Published Thursday, May 26, 2005
| As scandals continue to occur within the business world, many people are seeking investments in companies that do the ?right? thing based on certain ethical standards or religious beliefs. But how does an investment company define what is ?right?? Shouldn?t the investor be given the freedom to determine what is right for him or her self? |
Business scandals continue to happen. Insurance companies, mutual funds, investment banks... they are in the news almost every day. How about big polluters? Utilities are now trading as commodities how much air and water they can damage. Logging, mining and drilling are all in the news from the White House to State Houses. Yet, we need paper, coal and metals, electricity and oil and gas. Which companies act responsibly, if any?
There is a push for ethics classes in MBA programs across the country and many top universities have adopted ethics classes in their undergraduate business programs as well. The big question is: can we train managers and executives to do the right thing?
This situation seems simple; we teach our kids to do the right thing, but surely it must not be so simple to most people or would we be in this situation now? Being brought up believing in the American Dream, well, what does that mean? The basic moral fabric of this country is in question and involves so many issues, how far can each of us go before we are over the line?
So many people want to do the right thing; they seek out consultants and investment firms to help them invest responsibly. There are more and more funds labeled; Responsibility, Socially Aware and even some pegged to Religious beliefs. We saw an ad on the news site MarketWatch for Christian Mortgages. After reading the web site linked to the ad, we still have not figured out what makes a mortgage Christian.
How does anyone know where to invest? How many of these new funds have Rule 12b-1 fees that pay brokers and other third parties commissions just to sell them?
Let us address a more basic question; what is aware, responsible or religiously acceptable mean?
With only a few hours of research it is easy to see that it means something different to almost everybody. Look! This fund invests in Company A, which is trying to cure a major disease, so do they fit the criteria? Well, Company A is also a major polluter, and they are defending pollution law suits because it is cheaper to litigate than pay, they are also doing animal testing outside the country to avoid bad press, so how good are they?
What about the arms manufacturer who makes armor plating for trucks used to protect our troops in Iraq and Afghanistan, are they acceptable? Well. how about if they also make bullets and bombs?
How about companies that make alcohol, tobacco, use child labor in other countries; and at the same time donate more to education than most other companies?
Recently we read about an investment manager that aims to invest in companies that are financially sound and have high levels of corporate philanthropy, accountability, and ethical standards. We are still waiting for how ethical standards are defined.
Clear Asset Management has very strong opinions on this topic. We feel that each person has the right to their own opinions. What we provide our investors is a way of excluding any sector. If that is not granular enough, we allow for exclusions by individual stock ticker. This way, investors can decide for themselves what companies they do not want to own. The rest we leave up to our computers, whose sole mission is to provide superior long-term returns. Investing based upon the ethics of a company, we feel, should be a personal decision.
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