There is a theory going around that the social performance of corporations can be influenced by capital markets responding to pressures from investors and customers who perceive new goals for their money. Choosing Socially Responsible Stocks HOULD SOCIAL ISSUES be considered in making investment decisions? A number of individuals and institutions are beginning to think so. While corporations have long been under a variety of pressures to meet their social responsibilities, they are now faced with the possibility that their publicly traded shares will be bought or dumped on the basis of their actions or inactions on this front There is at this point no real evidence that capital markets will be materially affected by social performance, But a number of recent de~ velopments should give companies pause. The nation’s two largest philanthropic institutions— the Ford Foundation and the Rockefeller Founda- tion—undertook studies of their investment port- folios, using a social lens to examine the securi- ties they held. The objective was very simple to determine whether the socialimprovement guidelines used in the grantmaking area were being violated on the investment side. ‘At least two universities—Yale and Cotnel also subjected their investment packages to s analysis. And four new mutual funds have been ‘organized with the specific mandate to favor com- panies which are alert to the social needs of the From San Francisco, Milton Moskowitz edits 8usi- ness and Society, a biweekly report on business and social responsibility. He is a contributing editor to Business and Society Review. n MILTON R. MOSKOWITZ country. These are First Spectrum, Pax World Fund, Social Dimensions, and Dreyfus Third Cen tury. The Vantage Ten Ninety Fund, organized in. 1968, is under charter obligations to invest at least 10 percent of its portfolio in new or expand. ing firms in three social categories: pollution con~ trol, the inner city, and the war on hunger. Socially sound investments need not, of course, bbe unsound financially. To the contrary, the argu- ment has been made that the socially aware cor. poration possesses the special sensitivity that will enable it to surpass competitors. Assuming that social responsibility is a relevant factor for a particular investor, how does he go about finding socially acceptable stocks? It is ex- tremely difficult to construct standards by which a company’s social performance can be accurately Company A racks up 2 20% annual growth in profit but it won't hire blacks and’ ts factories polite the alt. Company 8 is growing only 15% annually but its reputation on social problems 16 good. You manage Investments for 3 pension Fund. 50, which stock do you buy?” Charles N. Stabler, The Wall Street Journal, May 1971 measured. And while a company may be sttong. in one area, such as pollution control, it may be laggard in another, such as minority hiring. After four yeats of closely monitoring businesses’ social involvement, however, | have observed a number of company names cropping up time after timen BUSINESS AND SOCIETY REVIEW with regard to positive and constructive responses to social problems. Here, then, ate fourteen such companies whose securities might well belong, in the portfolio of any investor, large or small, who feels that social responsibility is @ relevant factor in the investment decision, This is just the beginning of an attempt to assess corporate re- sponsibility The data here is inadequate for an investment decision based on the usual financial considera- tions. While many of these choices. probably make good sense considered from a profit oriented standpoint, and have been so recom- mended by qualified analysis, the securities are being suggested here on the basis of corporate behavior that can be considered socially. re- sponsive. Chase Manhattan Corp., New York, N.Y. The third largest bank in the country, in terms of assets, and the second largest in terms of de posits, Chase has compiled a superlative record in many categories associated with corporate social responsibility. The bank has increased its minority employment to 30 percent of staff, it has upgraded minorities into managerial positions, and it has been a leader in the financing of minority-owned enterprises. Chase was one of the first corporations in the land to name a black to its board—Thomas A. Wood—and it recently added another black, Mrs. Patricia Roberts Harris. ‘The company was also one of the first to report a “social budget” expenditure for its various ac- tivities—§3.5 million a year. Ina recent poll (see 99), Chase outranked forty-four other corpora: tions which were being rated on social per- formance. Dayton Hudson Corp., Minneapolis, Minn. Result of a 1969 merger between Dayton of Minneapolis and J.L. Hudson of Detroit, Dayton Hudson ranks today as the twenty-second largest retailer in the nation. In addition to its depart tment store operations (Dayton’s in Minnesota and Hudson in Michigan), the company runs the Tar- get discount chain, the B. Dalton and Pickwick bookstores, Lechmere hardware stores, and sev- eral jewelty store chains. In its two principal tities, Minneapolis and Detroit, the company has been a bulwark of support for urban improve- ment programs. To help the line companies carry out their social responsibilities, Dayton Hudson maintains a five-man environmental development depariment headed by Wayne Thompson, former city manager of Oakland, California. Mr. Thomp- son reports directly to the chairman, Dayton Hudson has long been famous for making it a practice to take the full 5 percent deduction allowed! for charitable contributions (the average in US. industry is 1 percent). In its most recent fiscal year, that amounted to $2 million (5 percent of pretax profits First Pennsylvania Corp., Philadelphia, Pa. The nation’s twenty-second largest commercial bank, First Pennsylvania has set a hot pace under the aggressive leadership of its young president, John R. Bunting, who told stockholders this year ‘Our involvement in the social problems of our time is based on two premises... it is right morally and ethically, and itis a necessity.” First Pennsylvania has backed those words with perfor. mance. It has actively rectuited minorities, and it has opened its doors to community groups in Philadelphia. It has also been an innovator in its own industry. During 1970, it sold Earth Bonds to back antipollution efforts, and it astounded the banking world by going directly to the public with the sale of mini-notes bearing interest of 7.25 percent and available in denominations as low as $100. First Pennsylvania also expanded its board to make room for a black, a woman, and a student. Jewel Companies, Melrose Park, Ill From a social standpoint, Jewel is a standout. When President Nixon announced his wage-price freeze last summer, Jewel rolled back prices and said it would keep them rolled back until the ‘end of the year, no matter what happened to the freeze. The company has been quick to respond to consumer interests, whether it's unit-pricing, posting of detergent phosphate levels, or nutri tional labeling. It recently placed two women on its board of directors. Jewel is primarily 2 food chain, but it also operates drug-and-variety stores, department stores, and ice eream/sandwich shops. Johnson Products, Chicago, Il. This is the largest and most successful of the black-owned companies whose shares are traded.CHOOSING SOCIALLY RESPONSIBLE STOCKS a publicly. A cosmetics and toiletries producer, Johnson sells primarily to the black market. The bulk of its sales comes from hair products, mar- keted under the Ultra Sheen and Afro Sheen lab- els. This company is included for those who feel that “black capitalism” is an avenue for helping to achieve racial equality and should be encour aged from that standpoint alone. Levi Strauss & Co., San Francisco, Cal. ‘An acknowledged leader in the social respon- sibility area, this San Francisco-based jeans maker went public early in 1971 in the largest new-issue offering since Ford Motor went public. The com- pany also made history by insisting that the under- writers, Lehman Brothers and Dean Witter, single ‘out Levi's social commitment in the official SEC prospectus. Thus, the three-paragraph descrip- tion of “The Company” had one paragraph de- voted entirely to this subject. (A thorough run- down on Levi's exceptional social performance can be found on page 94.) Mutual Real Fstate Investment Trust, New York, N.Y. M-REIT is a real estate investment trust orga- nized in 1965 with the sole purpose of acquiring apartment houses in white neighborhoods and integrating them. And the concept has worked, oth from an investment and social viewpoint ‘The trust currently has holdings of approximately $34 million, encompassing some 3,000 apart- ments in seven states, All have been integrated without incident The New York Times Co. New York, N.Y. Publisher of the finest newspaper in the world, this company must, almost by necessity, have acute sensitivity to social movements, and it has in recent years demonstrated a flexibility that he- lies its stodgy image. Many sections of the New York Times have been redesigned and rejuve- nated, and the paper has been making a strong effort to correct a long-time failing: poor cover age of community life in New York City, Under Arthur O. Sulzberger, the Times has also been making a determined effort to rectuit more mi= nority employees, especially in the editorial de partment. Rouse Co., Columbia, Md. Creator of the new town of Columbis—mid- way between Baltimore and Washington, D.C— Rouse has done an extraordinary job of urban planning. When completed in 1980, Columbia will have a population of 110,000. It’s already a flourishing city integrated both racially and eco- homically. A mortgage banker and the nation’s largest builder of enclosed shopping malls, Rouse brings great expertise to the urban-rural planning problems facing the country. It has a subsidiary, American City Corp., which tackles urban re- rewal in a practical fashion (Hartford, Conn. is now following @ Rouse blueprint). A subsidiary ‘of American City, the Urban Life Center, is func tioning at Columbia as an “urban think tank.” Standard Oil (Indiana), Chicago, Il When Standard Oil was faced several years ago with a decision to move its headquarters to Tulsa, it elected to remain in Chicago. One factor in this decision was a desire not to desert the city. Now that it’s building a new headquarters on Chi- cago’s lakefront, Indiana has coerced its con- tractor into making the project a model of equal ‘employment opportunity. Actions of this kind are typical of the social sense that Standard has brought into play in many aspects of its opera- tions under the pioneering leadership of urban affaits director Phil Drotning, who reports directly to the president. On this front, it’s the No. 1 per- former in the petroleum industry Syntex Corp,, Palo Alto, Cal. Developer of the oral contraceptive, a major factor in declining birth rates, Syntex is one of the pharmaceutical “wunderkinds” of the postwar world. The company has stated that the key to its future growth is the maintenance of “an en- vironment which fosters tree. inquiry.” Syntex has also expressed a commitment to apply its marketing and scientific expertise to. areas. 35. sociated with improvement of the “quality of life." For example, an afiiated company, Zoe- con, is developing a new generation of pest-con trol products which will be both effective and devoid of harmful effects on the environment. Spearheading the company’s social programs, Frank Koch, director of corporate. public rela: tions, states: “The greening of capitatism is al- ready underway.74 BUSINESS AND SOCIETY REVIEW Weyerhaeuser Co., Tacoma, Wash. ‘A major timber producer, also involved in shelter and land development, Weyerhaeuser had the outstanding pollution-control record in the comprehensive study of the paper industry pub: lished by the Council on Economic Priorities in 1970. A follow-up study by Joseph Bragdon and John Marlin indicated that Weyerhaeuser's pollu- tion-control investment had also paid off in su- perior growth. Weyerhaeuser has been socially sensitive in other ways also. Last year it pub- lished, for the benefit of its managers, a back ground paper summarizing the company’s in- volvement in the “Thicd World.” This paper tied the company’s investment in these areas to the pressing need for economic development, noting, for example, that Weyerhaeuser’s upgrading of Bantu workers in South Africa is probably working to undermine apartheid. This investment would obviously not be appropriate for those who feel that any involvement with South Africa is unde- sirable. Whirlpool Corp. Benton Harbor, Mich. ‘This major appliance maker has been a social galvanizer on many fronts. In its hometown, it has been the leading force in rallying the business Editor's Note: After Milton Moskowitz completed this article, we asked a small number of people in investment firms and mutual funds to comment on the con- cept of a socially responsive investment portolio. Royce Flippin, President of First Spectrum Fund, a new mutual fund which intends to "secure and analyze information on corporate responsibility” with regard to prospective investments, holds to the assumption that 2 company’s economic inter- est cannot be separated from the public interest. Socially responsible companies, he says, are very likely good investment vehicles in that their be- havior reflects those qualities of management vi- sion and statesmanship that also produce profits Flippin is not as interested in corporate benev- lence as he is in generating profits in a respon- sible manner—always bearing in mind such fac tors as consumer protection, pollution control, and the protection of civil rights. Of the com- panies suggested by Moskowitz, the First Spec- trum portfolio already includes First Pennsylvania community to rehabilitate blighted slums where black families five, It has backed minority em- ployment and minority entrepreneurship. On the consumer front, it led the way with the establish- ment of a toll-free number ta handle complaints and service requests from Whirlpool appliance owners. It is currently experimenting with an un: conditional guarantee: Your money back if your appliance doesn’t work within 60 days after pi chase. Whirlpoo!’s chief executive officer, Elisha Gray, was the No. 1 sparkplug in the recent reor- ganization and. strengthening of the National Council of Better Business Bureaus. Xerox Corp., Stamford, Conn. A company that needs little introduction, Xerox is the dominant force in the copier business, owns, a computer manufacturer, and has an education division which now does more than $100 million of business a year, Its reputation as a socially pro- gressive force in American life is well deserved. The two most recent examples were its program to grant employees leaves of absence, with full pay, to pursue social projects of their own choos- ing and its move to deposit $3 million in minority- owned banks. In the recent corporate-rating sur- vey (see p. 981, Xerox received more writes votes than any other company. Corporation, Levi Strauss, Standard Oil of Indiana, and Xerox. Asa result of Mr, Moskowitz’s recom- mendations, the Fund's managers are now con- sidering Jewel Companies, Mutual Real Estate In- vestment Trust, and Rouse Company. Harold W. Janeway, Research Director of White, Weld and Company, made the following observations: (1) | believe social criteria do have a growing relevance to investment decisions. However, | think one must be careful that the social pect does not dominate. Obviously, the fun- damentals of the business, the trend of earn- ings, the balance sheet, accounting. practices, the stock price, etc., are still key. Losses in a socially-oriented portfolio are no better than losses on a selfishly-oriented portfolio, (2) The more socially responsible companies tend to be more profitable, but it is not at all certain which comes first. One can also argue that the more profitable companies can afford to be more responsible.CHOOSING SOCIALLY RESPONSIBLE STOCKS 7 (3) From a performance standpoint it might make more sense to concentrate on avoiding the ‘socially irresponsible’ companies than to tty to profit from a portfolio of the most re- sponsible companies. Social irresponsibility may be only the tip of the corporate iceberg, with many other problems lurking beneath the surface. Milton Friedman’s belief that a cor- poration’s highest goal is to achieve maximum profitability may be stretching things too far in this era but earnings per share are likely to con- tinue to be the name of the game. (4) The portfolio itself is certainly a mixed bag, Johnson Products is a great success story but otherwise irrelevant. A decision to include the New York Times depends almost entirely upon. one’s political views, an uncertain criterion. Most of the other companies would appear to qualify although | am sure a thorough search would uncover many, many more companies that in their own quiet fashion are accomplish- ing a great deal. One company for which | have a high regard whose work has brought Feifter ie ey Mp 3 laches “Mer & ee benefits to millions is DEKALB AgResearch. This company is the leader in the development and production of hybrid com, which has re- sisted the recent blight and brought great pro ductivity gains to our farms. OF greater im- portance, the company is well along in the development of hybrid wheat which could have favorable implications for the whole world.” Peter Bernstein, Chairman of the Board of Bernstein-Macaulay, Inc., investment management subsidiary of CBWLHayden, Stone Inc, men- tioned the recent decision at Wesleyan University to bring pressure on management of portfolio companies for higher degrees of social responsi- bility. Wesleyan’s president, Colin G. Campbell, announced in October that the university would “participate in proxy contests in the future, back- ing proposals seeking to improve social condi- tions which are directly related to a corporation's activities.” The university's holdings exceed $150 million, eee A i NF HOWL he BE | 3 st 78 It tle fewamaton WAR ME “> i