Who's Responsible?

Who's Responsible?

Putting money above all else is irresponsible, amoral, and bad investment practice.

By Robert A.G. Monks

Who's Responsible?

 

Robert A.G. Monks has written numerous books and articles about corporate impact on society and how improved governance enhances the societal and corporate value. He is the author of Corporate Governance (with Nell Minow), Watching the Watchers, The New Global Investors, and Corpocracy. From Citizens DisUnited: Passive Investors, Drone CEOs, and the Corporate Capture of the American Dream. Reprinted with the permission of Miniver Press.

They were still burying schoolchildren in Newtown, Conn., when the private-equity firm Cerberus Capital Management announced that it would be selling the Freedom Group, manufacturer of the .223 Bushmaster assault rifle used to mow down six adults and twenty first-graders at Sandy Hook Elementary School.

Cerberus, whose leadership team includes former Vice President Dan Quayle and former Business Roundtable chairman and U.S. Treasury Secretary John Snow, had purchased Bushmaster in 2006. The company was later merged with other arms manufacturers to create the Freedom Group, which the firm's website describes as "the world's leading innovator, designer, manufacturer and marketer of firearms, ammunition and related products for the hunting, shooting sports, law enforcement and military markets."

Cerberus left little doubt that the decision to sell "the world's leading innovator," etc. had less to do with the massacre itself than with market conditions in its aftermath: "It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level," as the press release put it. But unmentioned in that communiqué was another, far more powerful precipitating event: a statement from the super-size California State Teachers' Retirement System, or CalSTRS, that it was reviewing its investment in Cerberus specifically because of its holding in the Freedom Group. And underlying the importance of that was a simple hard fact: As of March 2012, CalSTRS had over $750 million invested with Cerberus, and commitments for much more.

The moral: Sympathy walks; money talks.

We've seen this before, of course, if never quite so starkly, washed in the blood of so many little innocents. Events specific or, more often, general lead to public outrage; the rage focuses on specific industry groups, perhaps on specific products and stocks; and the dormant giants of investing are finally stirred to action, or perhaps not. Over the last forty years, campaigns against tobacco products, cluster bombs, and apartheid in South Africa have all led to major institutional divestitures of holdings in related companies, as well as to major institutional resistance.

A Harvard group calling itself Students for a Just and Stable Future is pressuring the Harvard Corp.—which oversees the university's endowment, with $30 billion-plus in assets—to divest itself of holdings in fossil-fuel producers. After refusing multiple times to meet with the student group, Harvard president Drew Gilpin Faust, ex officio head of the Corporation, announced the creation of a donor alternative—a "social-choice fund" within the endowment that will "take special account of social responsibility considerations." This builds on the work of the Coalition for Responsible Investment at Harvard (I'm on the board of advisors) and might even represent the beginning of a trend. The Harvard Management Co. has since appointed a new VP of sustainable investment to monitor environmental, social, and governance issues as they relate to the endowment.

But why should this be so hard? Harvard, one hopes, is ultimately about bettering the world. To support with its endowment investments in corporations and business models that have exactly the opposite effect is a fundamental contradiction. And it is also fundamentally bad investment practice.

Democracy and Drone Corporations

The struggle, in short, goes on—a minuet between specific stimuli (a schoolhouse slaughter, Hurricane Sandy, global warming) and carefully calibrated and well-publicized institutional responses (divestiture, social-choice funds, and the like). But here's the real point I wish to make out of all this: In corporate America today, the stimuli are constant, omnipresent, insufficiently noted, and collectively (if not individually) truly frightening; and the institutional responses continue to be largely massive indifference.

Let me be clear: Nothing, absolutely nothing can touch the sheer awfulness of what happened on Dec. 14, 2012, at Sandy Hook Elementary School. No threat to the well-being of the planet and all the people living on it might be greater than the one that Harvard students are now protesting. Global warming, greenhouse gases—they're the 800-million-pound gorilla in everyone's closet today.

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The Conference Board Review is the quarterly magazine of The Conference Board, the world's preeminent business membership and research organization. Founded in 1976, TCB Review is a magazine of ideas and opinion that raises tough questions about leading-edge issues at the intersection of business and society.