Can you invest while paying attention to social concerns, or should you be mutually exclusive? Clearly, the goal of any investment strategy is to maximize returns. One might argue that the goal of life is to do good while avoiding evil. As a result, some investors’ interpretation of the latter goal means compromising the former.
Some investors, in effect the managers of some mutual funds, refuse to put their money into tobacco companies, casino operators, gun makers and/or military contractors. Others take a positive attitude and look for wind companies and their peers. Then there is the American mutual fund, which is aptly named the secondary fund (nasdaq: VICEX), which selects stocks that are more restrictive than those of its more restrictive peers.
If any company’s business lasts long enough and is profitable enough, some interest groups will sooner or later accuse it of exploitation. Some groups argue that McDonald’s makes children fat. Environmental groups that produce greenhouse gases from American airlines, international rainforest destruction documents and the poisoned air from exxonmobil.
Even arguably America’s most popular company, it is not out of the woods. Foxconn, apple’s giant supplier, which actually makes ipads and iphones, gained notoriety in 2010 after a spate of employee suicides. But foxconn is so big, with 920,000 employees in China alone, that a small number of suicides seems statistically inevitable.
More importantly, foxconn is not supported by apple. It provides almost all tech giants, you can think of, including Microsoft (Nasdaq: MSFT), cisco (Nasdaq stock code: systems), DELL (Nasdaq: DELL), IBM (NYSE: IBM), hewlett-packard (NYSE: point) MOTOROLA (the New York stock exchange code: MSI), Toshiba (OTCBB: TOSYY) and amazon (Nasdaq code: AMZN). But apple is foxconn’s best-known customer, and the company has borne the brunt of criticism for failing to put its own stamp on every product leaving the plant.
However, from a purely investment perspective, what does the indirect link to employee jumping off a building mean? Just months after the foxconn suicides, apple bypassed exxonmobil to become the world’s largest company by book value. (for more information on analyzing companies with low reputations, read the hide-and-seek in scandal-tainted stocks.)
As a “sweatshop”, add a few words to the feelings of the first world. It conjures up images of oppressed workers operating under angry floor bosses. Or, worse, the cold, impersonal company with free clothes on the other side of the world.
In the 1990s, critics saw Nike as the main beneficiary of cheap Labour, allegedly exploiting innocent workers in south-east Asia while lavishing high prices. Some might argue that Nike factory jobs are considered a good career for a country like Cambodia, where 58 percent of the population is farmers.
Few prospects in Cambodia are as enticing as an indoor job, where you can sit down, work for hours and take a day off. Given the purchasing power of its currency, a Cambodian job paying less than the us minimum wage can still provide a decent standard of living.
Still, for a clothing manufacturer, even with the word “sweatshop” the most weak link also mean to put resources into defensive public relations activities, and prevent the accused. Even today, Nike is a simple problem, largely because of the company’s popularity.
The least negative pr impact on the company’s long-term prospects is good or bad for the company. In the early 1980s, before tamper-proof packaging became commonplace, a Chicago murderer added potassium cyanide to several bottles of Tylenol, killing seven people. It’s hard to imagine a company growing any worse than this, but today tylenol maker Johnson & Johnson (JNJ) is still a major player in the dow 30. (for more information on how public image affects the company, read Bad Bad Bad PR for good investment opportunities.)
As far as we know, because no company open a factory in poor countries, in the old forest paper print directory, or Tommy Hilfiger’s founder, is accused of racism and suffered lasting damage.
When a company’s ethical problems are questioned (not including business ethics and compliance with the law, which is a completely different subject), it is rarely the end of the world. Normally, companies need to quell the anger (and make money back), on the company website briefly mentioned it’s commitment to corporate responsibility, it contains “virtue”, “stakeholders”, “moral”, “progress” and “fair”.