Thursday, January 18, 2007

Bill Gates and my own private Bizarro Universe

I was talking with my homies today about proxy rights, institutional investors, markets for corporate control, and corporate social responsibility (Ok, my homies are freaks, but I take what I can get), and on the way home I remembered an article from the Financial Times this weekend about how Bill Gates just gave a big Flip of the Bird to the ethical investment movement. (See Bill Gates in snub to ethical investing.)

This issue flared up last week when the LA Times published two articles questioning the good works of the Bill and Melinda Gates Foundation because the Foundation invests its money according to how well the investments make money (more or less), rather than on whether the company does good deeds, doesn't hurt the environment, treats sweatshop workers less sweatily, etc. (See Dark cloud over good works of Gates Foundation and Money clashes with mission.) Fortunately, being as rich as God means you don't have to suck up to stupid newspapers and social activists; rather than bow to the CSR altar, the Gates Foundation issued this statement basically saying that, while they won't invest in anything the couple considers "egregious" (which, apparently, means tobacco) or anything that presents a conflict of interest, they otherwise aren't going to grade companies on their corporate social responsibility or otherwise invest on these principles:

There are many important issues that the foundation does not focus on, such as lending laws and environmental regulation. The organizations that do work on those issues—together with governments and all of their legislative, executive, and judicial resources—play a critical role. We do not want to duplicate that role.

Bill and Melinda have prioritized our program work over ranking companies and issues because it allows us to have the greatest impact for the most people. They also believe there would be much room for error and confusion in such judgments, and that divesting from these companies would not have an effect commensurate with the resources we would divert to this activity. The foundation’s not owning a tiny percentage of a company or selling it to another investor would often go unnoticed, and Bill and Melinda would not be comfortable delegating this kind of judgment.

Shareholder activism is one factor that can influence corporate behavior. The foundation is a passive investor because we want to stay focused on our core issues. But as responsible shareholders, the investment managers do vote proxies consistent with principles of good management and good governance, and have voted against management’s recommendations when they have disagreed with them.

This is frighteningly enlightened as charitable foundations go. Basically, Bill and Melinda Gates are saying that their expertise lies with making money and with giving that money to groups and people who are able to do the most good. However, their expertise does not lie with judging such socially and politically contentious issues as the costs versus benefits of environmental protection laws, child welfare laws in extremely poor countries, the effects of minimum wage laws on developing world poverty, whether organic farming ultimately helps or hurts the poor and the environment, etc.

This is not only wise, but profoundly democratic. By contrast, much corporate social responsibility stems from developed world hubris -- the idea that there are no trade-offs in life. For example, some seem to believe that those poor souls living in the developing world would prefer that a handful of their neighbors are able to earn something approximating a developed world income than that everyone could earn more than the barely-subsistance wages they get now. Or that everyone in the developing world would prefer a pristine environment to an income.

Which raises a conundrum for me. My first computer was a Mac. For me, Bill Gates was an evil monopolist, inflicting an inferior Windows and Internet Explorer on the world through predatory anti-competitive activity. But now, Bill Gates looks good. It's Apple and Steve Jobs who are the evil-doers. And the more I think about activist shareholders, the more -- quell' horror! -- I'm starting to think Roberta Romano and even Stephen Bainbridge might be right.

What kind of bizarro world is this, when up is down and black is white? And does this have anything to do with the beard I grew?

Finally, does this mean that George W. Bush is really a genius?

Well, no universe is that bizarre...

(BTW, I particularly liked the quote in the FT article from Penny Shepherd, chief executive of the UK Social Investment Forum, who accused the Gates Foundation of having "...a rather outdated perspective. The evidence is that you can invest responsibly without damaging your financial returns." Yeah, that's why socially conscious investing in a niche market, Penny, and Bill is as rich as God. Just fifteen seconds on Google Scholar shows you're wrong.)

1 comment:

Ryan said...

I am always horrified when people say things like, "you can invest responsibly without damaging your financial return." I know the US public school system is in a shambles, but can they really have failed us that badly? Look, if you could do just as well by doing good, then why on earth has anyone ever invested in tobacco? Modern economists get a bad rap for assuming people are selfish and uncaring. But the "ethical investing doesn't hurt your return" idea is much stronger (and dumber): it necessarily requires that everyone who doesn't do "ethical investing" is consciously, actively evil. That they actively prefer to harm others than to make money for themselves. I have a pretty pessimistic view of human nature, but even I don't think that. (Well, okay, the Fox executive who cancelled Firefly -- that guy is clearly evil. But I mean, generally)