domingo, 23 de enero de 2011

'Socially responsible investing' ignores layoffs

If you'd like to see a world without guns, oil rigs, racial discrimination, abortions, liquor or tobacco, you can easily find a mutual fund that will cater to your concerns. Just buy one of dozens of so-called socially responsible mutual funds and feel assured that none of your retirement or college savings will go into companies that will make your stomach churn.

But what if you are one of the millions of Americans furious at the banks that brought the nation's economy to its knees, or disgusted with companies that slashed their work forces and still have done little to bring back the 17 percent of Americans who are unemployed or underemployed?

Then, it's slim pickings.

Despite the massive screening that socially responsible funds do to avoid investing in companies that abuse the environment or disadvantaged people, most don't pay attention to corporate pink slips. A few mutual funds in the $3.07 trillion business of socially responsible investing come close.

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For example, the Parnassus Workplace Fund won't invest in companies that don't treat existing employees well. The fund favors investments in companies that offer good health insurance, 401(k) matches, flexible schedules for working mothers, severance pay amid layoffs and minority and women appointments to management and board positions. The fund avoids companies that pay the chief executive millions more than their employees.

On a related matter, Appleseed has said publicly that it won't invest in the five "too big to fail banks" such as Citigroup and Goldman Sachs. The fund managers hold the giant Wall Street banks responsible for the wild strategies that caused the worst recession since the Depression. Joshua Strauss, one of the co-fund managers of Appleseed, said the banks are larger than ever, and he sees no evidence they won't endanger the economy again and leave taxpayers with the price tag.

"They have about $10 trillion in notional value of derivatives on their balance sheets, and Warren Buffett has called derivatives weapons of mass destruction," said Strauss.

But fund managers throughout the socially responsible realm say they are not comfortable screening out companies that have slashed work forces.

Parnassus screens out companies that make a practice of hiring, laying off, then hiring again, figuring good management should be consistent rather than leaving the work force on a bungee cord, said Jerome Dodson, president and portfolio manager for Parnassus Investments. But managers want companies to be productive and profitable.

"The economy needs businesses to hire again, but, from an individual company standpoint, they are doing the right thing: hoarding cash and working people harder," said Dodson.

Even from the standpoint of employees, he said, it makes sense to "wait until the last minute to hire. You don't want them to hire and then be laid off."

While corporate employment practices are discussed at conferences on socially responsible investing, hiring and firing generally are not, said Meg Voorhes, deputy director and research director for the Social Investment Forum. The focus has tended to be on the discrepancy between pay for employees and CEOs.

She said the forum played a role in getting language into the Dodd-Frank bill on financial reform that will give shareholders a chance to nominate directors to corporate boards. Shareholders would like a say in executive pay, she said.

The challenge before socially responsible funds is to grow investors' money without also compromising values. Some advocates of socially responsible investing, such as Dodson, claim that a happy work force translates into shareholder value as workers give their all to the company. And a study by University of Pennsylvania Wharton School business professor Alex Edmans supports that.

But Henry Mintzberg, a professor of management at McGill University, said socially responsible investors are not going far enough and fail to appreciate that layoffs simply provide the illusion of profitability.

"There is too much short-termism in business," he said. "Companies can fire everyone and ship everything from stock" rather than investing in making new or innovative products. "But in the long run they will not be serving customers" and will fail to be strong companies. "The people left behind after layoffs will be burned out and fearful, and companies will throw the bones to Wall Street."