Socially Responsible Investing's Bear's Den
by Selena Maranjian

How can I be against socially responsible investing? Well, I'm not really against the practice; I'm more against the term, which seems almost an impossibility. We often think about socially responsible investing in terms of a few discrete issues, perhaps deciding to avoid companies dealing in tobacco or weapons, or firms that test products on animals. We end up with mental lists of companies that fall into two categories -- "okay" and "not okay." I suspect, though, that most of the firms in the "okay" category are probably not okay on some other ethical measures.

Look at the many ways a company can be socially irresponsible:

-- It can be environmentally unfriendly
-- It can be an unpleasant or unfair employer
-- It can manufacture products that hurt people (or other living things)
-- It can support nasty foreign regimes

These are the obvious ones. There are less obvious ones, too. What about a company making products that waste a lot of people's time, like computer games -- could it not be focusing on products that educate while they entertain? What about sports equipment maker K2 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KTO)") else Response.Write("(NYSE: KTO)") end if %>, which recently offered $50,000 to whichever surfer is photographed riding the most monstrous wave in this volatile El Nino season? Isn't that going to encourage extra risk-taking in an already dangerous sport, possibly leading to a fatality?

Or how about car manufacturers, who continue to churn out vehicles that pollute and crumple upon impact. Wouldn't maximizing safety and cleanliness be the right thing for them to do, even if it costs the consumer (and perhaps themselves) a little more? How about media networks -- are they being responsible in treating Girl Scout cookie season as news and neglecting to report many major international developments? Indeed, even a company known for its social responsibility as much as Ben & Jerry's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BJICA)") else Response.Write("(NASDAQ: BJICA)") end if %> can be faulted. Eating a lot of fatty premium ice cream is bad for your health, just like smoking. Ben & Jerry's is probably contributing to heart attacks across America.

Consider the pharmaceutical company that manufactures a life-saving drug, but prices it to maximize profits. Is this socially responsible in a nation where everyone doesn't have health insurance? Is it right for some families to pay outrageous prices for medicine when the product's profit margin could be decreased? This is a tough call and involves deciding whether the company's main obligation is to its shareholders or to society at large.

The issue is further complicated when you consider that this company might score highly on most other social responsibility measures. It might be very good to its employees, might not pollute the environment, and might have even provided a lot of free medicine in some circumstances.

Socially responsible investing is far from a black-and-white issue. There are miles of gray between what's obviously good and obviously bad. A parallel can be drawn, in fact, between socially responsible investing and people. I think it's safe to suggest that even those most saintly among us still make mistakes... or worse, simply do what's wrong sometimes, perhaps even knowing it's wrong.

Consider Mother Theresa. It's hard to find anyone so widely respected and admired. All the good she did in this world, caring for the dying and inspiring the living, is pretty indisputable. But at the same time, she is also known to have supported and received funding from the likes of dictator Baby Doc Duvalier and S&L scandal figure Charles Keating (per Christopher Hitchens's recent writings.) Perhaps she also had bad habits like littering. The good may well outweigh the bad, but the real point is that it is unlikely she was without fault or error. Just as most companies engage in a mix of good works and bad works.

Now that I've turned socially responsible investing into mush, are we left to think that there's nothing we can and should do as investors? Not necessarily. I see two main options. When concerned about investing in socially responsible companies, we can choose to:

A) Refrain from buying objectionable companies (Flight)
B) Buy objectionable companies (Fight)

Flight is the standard reaction of the socially responsible investor. It has its own set of problems, though, because if you eschew company ABC because of something bad it does, it's very likely you'll end up investing instead in company XYZ, which has its own nasty habits that you might not know about.

Fighting is the option that occurs to few investors. They figure if you dislike a company's practices, it would be wrong to buy it. But when you buy stock in a company (as long as it's not bought in an initial public offering or secondary offering), your money is, for the most part, going into the pocket of the fellow investor who sold the stock, not into the company coffers.

Furthermore, you can fight a nefarious company. Even as a small, isolated investor, you get a say. You own a chunk of the company, no matter how microscopic. Your vote is solicited and counted. And this situation is greatly improved with the advent of cyberspace. You can head over to the Fool's message folder for the company and talk things out with fellow shareholders. If there are enough of you, your total votes can be substantial. If a despicable company realizes that 20% of its shareholders are vehemently opposed to a company policy or initiative, it may well take notice and reevaluate matters.

Whether investing, working, or living, we often come up against things that rub us the wrong way. Whether we choose to do nothing, walk away, or fight is up to us, and the best choice is rarely crystal clear. Whatever we do, it's unlikely it'll be entirely socially responsible.

Next: The Bull Responds