SRI - Taking Back Control

The main focus of each blog has been around the creation and maximisation of shareholder wealth. I can honestly say that so far it has opened my eyes to the unscrupulous world of multi-national corporations. Their immoral and sometimes arguably corrupt methods of creating wealth, in my view knows no bounds and has left me exasperated that shareholder maximisation takes precedence over all other factors.

However I believe that there may be a shinning light at the end of tunnel and that is the theory of ‘Socially Responsible Investment’ (SRI). The viewpoint that investors take an interest in the companies they are investing their money into and can influence a company’s decision to act in a social responsible way. I believe this, somewhat redeems the fundamental desire for creating shareholder wealth as together both investors and companies can work together to attain a socially responsible status.

Ultimately companies need investment for sustainable long-term growth and development; in return shareholders expect high returns for their investment. Therefore I understand that a company’s ultimate aim is to create shareholder wealth. If by taking an interest in SRI, investors are able to wield some form of power over companies to take a leading role in acting in a socially responsible manner. This therefore will have a positive impact on surrounding economies, environment and the people.

So what does it mean to be socially responsible and why in today’s world have we seen an increase in demand for more socially responsible businesses? Hellsten & Mallin (2006), argue that being socially responsible relates to our ethical behaviour and how our moral agency assumes that we should take responsibility for our actions. In recent years SRI has gathered momentum through the increasing control businesses have on our day-to-day lives. The promotions of public-private partnerships have lead to Governments progressively diminishing their control and handing the reigns to the private sectors. This has lead to investors being at the mercy of businesses and relying more and more on them to commit to being socially responsible. This has lead to more politically aware investors’ demanding clearer codes for business’ (Hellsten & Mallin, 2006).

History has taught us just how influential SRI can be. Going all the way back to the 1950’s Montgomery Bus Boycott, where a segregated seating system was in place on public transport. The boycott, lasting 382 days, was organised by Rosa Parks (an elderly black woman, who refused to give up her seat to a white man). This collective action helped people realise just how powerful groups could be once they worked together and how their influence and actions could help bring about change. In this instance the bus company changed its regulations, and the Supreme Court declared such segregation unconstitutional (BBC, 2012).

A further example of SRI came in the 1960’s by the company Dow Chemical who made Napalm Bombs for the American war in Vietnam. Such propaganda as the seen in the picture lead to huge protests across America, as many people saw the barbaric and cruel way Napalm bombs were effecting innocent civilians. As a result investors turned against Dow Chemicals, as they didn’t want outsiders to they think they were supporting such a destructive cause.

Too much of the time I think we are made to believe that the power lies solely with multinational corporations. But both of these examples show that investors can have just as much influence and if motivated their involvement in ethical investing can be hugely beneficial in promoting socially responsible businesses.

However is there such a thing as being ‘fully ethical’ and is it even possible? I think it’s important to understand that everyone has different thresholds and one person’s view of being ethical may be opposite to another person’s viewpoint. Individually we express different attitudes and preferences, as well as accepting a continual social change in opinions; therefore I think there is a clear argument of ambiguity.

I think the defence sector is a good example of ambiguity and controversy. Currently with the war in Iraq those who are opposed would not deem investing in BAE Systems as SRI, however those in support would disagree with this opinion. Therefore this represents a current day issue with SRI, furthermore I think this supports the view that people can’t be ‘fully ethical’ because no one can define a meaning for it. Ultimately investing in the likes of BAE will be influenced by ones own beliefs in what they deem to be right and wrong. Personally I believe that it is a necessity to have the provisions to be able to defend and offer aid to others. I also think it is ignorant to think that as a country we don’t need companies like BAE, therefore I think investing in BAE is being socially responsible.

Many companies have taken on board this theory of SRI, and adapted their strategy around being seen as a highly ethical company to encourage investors. The Body Shop for example prides itself on being one of the first companies to make a stand against animal testing (The Body Shop, 2012). Other companies like Gap try to promote their belief of equal rights for their workers in factories, taking an avid interest in working conditions, hours and pay to ensure the company retains their ethical image. 

Whilst some companies are creating their strategy around being socially responsible, Governments’ are also getting involved in the action. The UK was the first country to initiate regulatory disclosure of social, environment and ethical investment policies of pension funds and listed charities. This action has helped encourage all companies to become socially responsible.  Furthermore I believe this action will help drive the growth of this market.

I acknowledge that SRI cannot be distinguished and individuality plays a key role in investment decision-making. But I think that multinational companies have grown so large over the years that their uncontrollable behaviour has escalated into something that is beyond our reach. Therefore if SRI is a way of raining in the behaviours of companies colluding in unethical behaviour then I am very much in favour of its development. Furthermore I think that SRI helps give the people a voice that would otherwise be drowned out in the arrogant magnitude of multinational businesses.