Wallet Mouth

Share scare for thems that care

This article in the “Business of Green” special section in today’s New York Times describes a study by two Dartmouth professors that shows stock performance suffering after companies announced that they had joined a group dedicated to combating climate change.

It reminded me of something I read about in a special report on corporate social responsibility in The Economist a couple months back: the contention that responsible practices may not actually add value to business. The article, titled “The Next Question: Does CSR Work?,” pointed out that two of the best-known sustainability indexes—the Dow Jones Sustainability Indexes and the FTSE4Good—tend to underperform the market.

I don’t buy the contention—I think it’s simply a question of timescale.

And indeed, the Economist article went on to refer to a recent academic review of 167 studies over the past 35 years that concluded “there is in fact a positive link between companies’ social and financial performance” (albeit a weak one). It also pointed to Goldman Sachs’s GS SUSTAIN model, which considers responsible environmental, social, and corporate-governance practices to be “‘a good overall proxy for the management of companies relative to their peers’, hence indicative of their chances of long-term success.”

That’s reassuring. As our planet starts having to pay the bills for its dwindling resources, responsible practices will undoubtedly enhance value. The time to act is now.

SEC attempting to rein in shareholder activism

Most of the time when I talk about how consumers interact with companies, I do so in terms of boycotts and buycotts. But lately I’ve been thinking about a related topic: the attempt to make businesses behave better by changing them from within via shareholder activism.

I meant to blog last month about this excellent story in the New York Times Magazine that profiles a nun’s decade-long effort to challenge ExxonMobil on global warming by submitting resolutions at annual shareholder meetings. But I guess I got sidetracked.

Now the subject has taken on new importance, because the U.S. Securities and Exchange Commission is proposing rules that would make it harder for individual shareholders like Sister Patricia Daly to file resolutions—and make it easier for companies to get rid of such resolutions.

Why should we care? Well, for one thing, because companies are owned by shareholders. Shouldn’t boards of directors be obligated to listen to the concerns of their owners? And it really is just listening—these proxy resolutions are merely advisory. That doesn’t mean they’re not important, however. Resolutions are a crucial means for bottom-up communication with companies about the pressing social and environmental issues of our day. They represent one small way for individuals to remind businesses that it’s possible to both make a profit and behave responsibly.

The SEC is still taking comments on this deplorable idea, but only through Sept. 28. Follow this Co-op America link, and try to talk some sense into SEC chairman Christopher Cox.

Credit goes grassroots

Recent headlines have been dominated by the subprime mortgage mess, the ensuing credit crunch, and the ripple effects that continue to be felt by financial institutions worldwide.

But loans don’t have to come from banks. San Francisco-based Prosper makes it easy for people like you and me to borrow from, and loan to, other individuals. I love the idea of circumventing the banking system (especially since financial institutions’ investments sometimes conflict with people’s ethics) and instead engaging in a community-based model of borrowing and lending.

Here’s how it works. Say I need $20,000 to make a documentary film about the conscious-consumerism craze that’s sweeping the nation, and my bank wants to charge me a 20% interest rate for the loan. I think I can do better. Once I join Prosper (for free), I can request a three-year, unsecured loan of up to $25,000 by posting a listing that states how much I want to borrow and the maximum interest rate I’m willing to pay—say, 15%.

Potential lenders search Prosper’s listings and bid on requests that appeal to them (based on the maximum rate, the borrower’s credit history and debt profile, and other factors). Each bid states the amount to be lent (it doesn’t have to be the whole chunk of change) and the minimum interest rate the lender is willing to accept.

Say one person will fork over $10,000 at 15%, one lender will part with $7,000 at 13.5%, and another person will let me borrow $3,000 at 10%. Bingo: Prosper combines the three offers into one loan for me and facilitates its payment and collection. My filmmaking career is launched! (See the FAQ for details about how Prosper handles identity verification, missed payments, etc.)

Another cool feature is that lenders can form groups on Prosper that focus on specific types of borrowers—college grads under 30, entrepreneurs, active-duty members of the military, Wisconsinites... the list goes on.

Power to the people!