Investing for Change

A Microsoft millionaire wonders if his money can express his values.

A year ago, a woman I was dating asked if I could ever live in a smaller house. I don't own a huge house by Seattle standards, but at 2,700 square feet, it's certainly bigger than I need. "If I had your wealth," she said, "I'd give it away."

Owning my home gives me a sense of safety that I lacked as a child. Being able to spend what I want without having to balance a checkbook at the end of every month helps me feel independent and secure.

But to her, interdependence with community—living with awareness of our reliance on others—was an important value. It was a turning point for me in my relationship with money. I could no longer ignore the fact that wealth was an emotional crutch for me, a kind of security blanket.

I'd become wealthy at Microsoft. After eight years with the company, I left with about $5 million. What other baggage might I be carrying?

I had known for some time that the investments I'd been making with my windfall were supporting corporations whose harmful practices conflicted with my values. Why would I allow my investments to operate with a different set of values than I demand of family, friends, and colleagues? Why is it acceptable for me to buy from and invest in corporations that exploit and harm people?

I began a journey to discover what my money was doing and how I could become a more thoughtful consumer and investor. Along the way, I spoke with community leaders, investment advisers, and people with less, little, and no savings.

I wanted to see if I could align my money with the kind of change I'd like to see in the world.

If I gave away my wealth, how would I meet my basic needs? Would it help others meet their basic needs? How does the structure of our society have an impact on my sense of security and my desire for investment profit? Why do I need more money?

"Our society is set up to isolate people with class privilege so they don't have to be confronted with those questions," says consultant Alison Goldberg of Resource Generation, a nonprofit that helps wealthy young people effect social change. "Classism insulates people with wealth from seeing how the unequal distribution of resources impacts others."

I thought it would be fairly simple to find responsible corporations to invest in, but it turned out not to be.

In fact, if you're one of the 95 million Americans who own mutual fund shares, you might be surprised to learn that you own corporations such as Halliburton, Wal-Mart, Exxon-Mobil, Altria (formerly Philip Morris), Dow Chemical, Nike, Coca-Cola, News Corp., and Microsoft.

It turns out that no matter how thoughtfully we invest our money, we're going to have to do something about the fact that corporations have more power than people do.

But you don't need to be a millionaire to have an effect. I'll show you how to use what you have in meaningful ways. Then I'll walk you through what I'm going to do with my own money.

The Corporation

The everyday choices we make with our money have a powerful cumulative impact. After 9/11, President Bush asked us to do our part in the War on Terror by shopping. In 2003, American corporations spent more than $245 billion marketing to us. Only the most starry-eyed idealist can say that America is a country governed by the people, for the people. In 2003, the Los Angeles Times called Bush's half-trillion-dollar Medicare bill "a sweetheart deal for the drug companies that represents a gigantic rip-off of our nation's taxpayers." That same month, the San Francisco Examiner reported that Bush's energy bill was so pork-laden, Republican Sen. John McCain of Arizona called it the "No Lobbyist Left Behind Act of 2003."

The Bush presidency has been very good for corporations, especially those that benefit from war and deregulation. The Vice Fund, a mutual fund that invests in such companies, has risen 73 percent in value over the past two years. The $250 billion spent in Iraq has helped double Halliburton's stock price.

Last November, the Los Angeles Times reported an epidemic of 50,000 young children sickened by ingesting rat poison after the Bush administration removed two safety requirements for manufacturers: an ingredient that makes the poison taste bitter and a dye to make it more obvious when it's ingested. The Washington Post reported that the Natural Resources Defense Council has documents "showing that Bush's EPA not only worked hand in hand with the industry, but also complied when manufacturers wanted the risks associated with rat poison downplayed in EPA assessments."

Matt Patsky, portfolio director of Winslow Management Co., a "green" investing firm, recently told the environmental magazine Grist that " . . . for the first time ever, over the last two years . . . the best performing stocks in the S&P 500 were the companies that have been the most flagrant environmental polluters. . . . Investors are starting to believe there is no liability: that the EPA is ineffective, that there is no enforcement, and that polluters will never have to pay the piper."

For the past century, we've allowed corporations to make the rules that are used to make the rules. Few of us understand the true meaning of the self-governance that our founding fathers killed for. Today, harmful corporate activities are perfectly legal.

Seattle Weekly reported last fall that Microsoft uses corporations in Nevada to avoid paying more than $55 million annually in Washington taxes. Wal-Mart's harmful impacts are too numerous to name here, but most recently the company's presence has been found to impose a burden on taxpayers whose communities must provide basic services to underpaid workers. Exxon continues to be one of the world's greatest polluters. Its greenhouse gas emissions are 50 percent more than competitor BP, even though Exxon produces approximately the same amount of oil and gas. Coca-Cola has devastated communities in India by extracting most of the groundwater and polluting the environment with toxic chemicals.

Why are we so quick to trade our values for profit? In part, political attacks on our community safety net, Social Security, Medicare, welfare, and public education force us all to invest for ourselves, for survival. Bush's plan to divert Social Security retirement contributions to Wall Street pits us against each other at work and in the stock market. As we fend for ourselves financially, it becomes easier for us to make financial decisions without regard to their impact.

Most of us would say what's most important are our families, our health, our time, and a safe environment for our children. Yet whether we have $10,000, $100,000, or $1 million, we often don't consider those priorities when making decisions to spend or invest our money. We work for, invest in, and buy from large multinational corporations without questioning whether we're creating a world that reflects our values.

It's our relationships with other people that account for most of our happiness, says Cecile Andrews, author of The Circle of Simplicity: Return to the Good Life. "After a certain point," she says, "community declines as affluence goes up, because you don't need each other." According to Andrews, one of the biggest indicators of health in a nation is the gap between rich and poor. "Health is traditionally measured in terms of longevity and infant mortality," she says. "Out of 27 industrialized nations, we are at the bottom. And we also have the biggest gap between the rich and the poor. . . . All the research shows that when you narrow the gap between the rich and poor, everyone is happier and healthier."

Community leaders are warning that the rise of corporate power is widening the wealth gap. Says the Rev. Don Mackenzie of the University Congregational United Church of Christ, "The limited-liability, publicly held corporation, a product of the 19th century, is like all institutions: very vulnerable to getting off the track or losing sight of its purpose. For many corporations, the bottom line has shifted from the quality of the product or the service being produced to the accumulation of wealth for investors."

Tim Harris, executive director of Real Change: "Third World model of wealth and poverty."

Tim Harris is executive director of Real Change, a newspaper sold by the homeless in Seattle: "Eventually, if we proceed along this path, we're going to look like Brazil, where you have a small number of fairly well-off people and elites who are living in walled communities. You'll have squatters' communities, a lot of poor people, and an eroded middle class—that kind of Third World model of wealth and poverty."

Says Andrews, "We bought into Adam Smith," author of An Inquiry Into the Nature and Causes of the Wealth of Nations, on which most modern economic theory is based, "that if everyone looks out for their own self-interest, that maximizes the best interest of the community." But, Mackenzie says, "Even Adam Smith never was a proponent of unlimited wealth. . . . In his book, he talks about a certain amount of material goods being a human and civil right for each human being."

Corporations, meanwhile, are unconcerned with whether individuals have food, shelter, or adequate medical care. As we invest, we need to be willing to acknowledge the social and human cost of our decisions.

Values vs. Value

Investing with this consciousness is most commonly called "socially responsible investing," or SRI. The SRI industry originated with religious groups, such as the Quakers, who wanted to avoid investing in "sin" businesses such as alcohol, tobacco, and gambling. Today, there is a variety of companies that offer socially responsible mutual funds and investment products, many of which you can purchase through a mainstream stockbroker.

SRI funds work in four ways. First, they most often apply "negative screens" that rule out companies in specific industries. The most common negative screens are involvement with nuclear power, weapons, alcohol, tobacco, and gambling. Second, SRI funds apply "positive screens" to select companies with good records in areas such as diversity, the environment, and labor relations, and companies offering products and services that benefit society. Third, the best SRI companies actively work to engage corporations to improve their behavior by monitoring and discussing activities and proposing or supporting shareholder resolutions, which is the most visible way stockholders can affect the values and behavior of a company. Finally, SRI funds invest in local banks and bonds that provide capital to strengthen disadvantaged communities.

Screened SRI funds offer an investment that helps people sleep at night, knowing that their money is at least somewhat aligned with their values. But more importantly, the theory of SRI funds is that these are corporations that minimize behavior that can negatively impact their businesses, so they are less vulnerable to loss due to environmental degradation, increased regulation, or litigation. For example, a logging company that doesn't plan to mitigate its impact on the environment might later get sued for causing soil erosion and flooding—or it might run out of trees. Theoretically, SRI funds should be more profitable over time because they hold companies with fewer long-term liabilities.

While the traditional investment industry promotes the myth that SRI funds earn less than regular stock funds, there is no conclusive data on this. In fact, there is anecdotal data that seems to indicate SRI funds are at least as profitable as, or more profitable than, the Standard & Poor's 500 index, which is the traditional benchmark of performance for mutual funds and individual stocks. In his interview with Grist, eco-portfolio director Patsky said, "That proved true under Reagan, and Bush I, and Clinton: Stocks of companies that were good environmental citizens outperformed those that weren't." Amy Domini, founder of Domini Social Investments, says the Domini 400 Index has outperformed the S&P over the past year, the past three years, and the past 10 years.

Steven Lippman of Trillium AssetManagement: pressuring Wal-Mart worked.

If there is a weakness in SRI funds, it's that they tend to lack diversification in terms of company sizes and areas of business. A diverse portfolio of stocks can perform better with less risk. "One limitation of this movement is that it has focused largely on relatively large-cap U.S. stocks," meaning bigger companies, says Steven Lippman, senior social research analyst at Trillium Asset Management, an SRI firm for wealthy investors and institutions. Large-cap funds hold shares in the largest companies on Wall Street, such as Boeing and General Electric. Yet in any given year, small and medium-sized companies might actually grow in value faster. For SRI investments to perform as well as conventional stock funds, it's important to diversify a portfolio to include small, medium, and international companies.

More seriously, the emphasis on large-cap stocks in most SRI funds might shock socially responsible investors. SRI funds own companies like McDonald's, which is ground zero of America's obesity epidemic, antiunion Whole Foods, and environmentally destructive Starbucks. A recent report by environmental author Paul Hawken of the Natural Capital Institute criticized the SRI industry for misleading investors. The report found that the combined holdings of SRI mutual funds were virtually indistinguishable from conventional funds and that almost any corporation could pass the myriad SRI screens.

A good example of this is the fact that Microsoft is the most widely held stock by SRI funds. Despite its antitrust convictions here and in Europe, a citation by Amnesty International for human-rights lapses, lack of diversity in management, and tax avoidance here in Washington, SRI funds hold Microsoft because it is a good performer and is a lesser evil than at least half the other companies out there.

Geoffrey Ashton of Calvert: "Every company that we own is a compromise."

When I asked about this, Geoffrey Ashton, senior vice president for marketing at SRI firm Calvert, said, "We have our issues with Microsoft as well. Let me also lay it all out here and tell you every company that we own is a compromise—there is no such thing as a perfect company. Does not exist."

Says Domini: "We made a decision when we started the Domini Social Index that we would keep ourselves in the better half of the Standard & Poor's 500. We eliminate half of the S&P by policy. International oil is most likely never going to get there for us. Nuclear power is never going to get there. Military is never going to get there. And then you're down to which is the better fast-food chain," she says with a bit of resigned laughter.

Despite its roots in negative screening and divestment, the SRI industry today is largely a movement based on engagement. While conventional fund managers often vote our absentee proxies in line with corporate management, SRI funds are actively engaging corporations and challenging their behavior, says Trillium's Lippman. He points to a two-year campaign that pressured Wal-Mart to protect gay and lesbian employees from discrimination. Says Domini: "The power is not in the selling or purchasing of a stock. The power is in the building of the infrastructure of corporate accountability."

But it seems to me this isn't working. A corrupt administration is handing tax dollars to wealthy executives. The gap between rich and poor is widening. If shareholder advocacy has been around for 20 years and it's led to this state of affairs, it can't be the answer—at least not in its present form.

Richard Grossman, co-founder of Programs on Corporations, Law, and Democracy, a Massachusetts-based organization that questions corporate power, says leaders in the SRI industry don't see a need to change because they're already regarded as heroes and heroines for taking on the establishment years ago. He says their success has blinded them to the ongoing corporate harms they continue to invest in. Says Justin Harris, a Seattle-based SRI adviser with KMS Financial Services: "I think that success can breed complacency, whether you're an artist, entrepreneur, or a mutual fund company."

If we want to reduce the harm caused by corporations, we cannot depend solely on the SRI industry. We have to use all the resources at our disposal to influence corporations that cause harm. Because most of us spend significantly more each year than we save or invest, we can have the greatest impact with everyday choices.

Simplicity guru Andrews recommends eliminating debt. "The person who's decided, 'I'm going to live on less and I'm going to cut my expenses down,' actually can feel more secure than the person who has that huge house and huge income," she says. "Debt is other people tricking us into thinking we'll be happier if we're in debt."

Lesley Christian of Progressive Investments: "Buy local. Buy organic. Buy thrift."

Our impulse to buy inexpensive goods, often made abroad in sweatshops, creates pressure along the entire supply chain, which can lead to exploitation of workers, outsourcing of domestic jobs, and environmental harm. Says Leslie Christian, an SRI adviser with Progressive Investments: "Quit buying the cheapest. Substitute quality for quantity. Buy local. Buy organic. Buy thrift."

Co-op America, a nonprofit consumer organization, helps members shift purchasing power toward more responsible corporations. Its Green Pages Online ( can help you find environmentally responsible suppliers, while its Responsible Shopper Web site ( shows how common consumer corporations fare when SRI standards are applied. and are Web sites that help consumers identify companies whose employees support progressive causes.

Those are a few ways to spend more thoughtfully. But how we invest is equally important. I am fortunate to have several million dollars with which I can act, but you don't have to be a millionaire to effect change.

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