I’ve been receiving a lot of press releases from different socially responsible money managers and research firms, filled with lots of enthusiasm about the new year. And you know what? I think they are on to something, and here’s why:
First, the stock market in general is up. That will bring in some investors who have been on the fence and who would like to avoid dealing with those who appear culpable for the excesses that led to the 2008 market crash.
Along with the improved stock market is the improved economy. It’s not great out there, but there are some signs of life. This means that executives of underperforming businesses are losing the ability to blame the economy for their results. That, in turn, means that activist shareholders will have greater success in getting change.
Finally, there’s a shift in the balance of power. Before 2008, people threw money at anything. Maybe not the stock market, but there were plenty of people willing to invest in US assets. After 2008, everyone pulled out of the market and paid off debt. And now, financiers are faced with the challenge of getting people back into the markets. That means running a clean business, and who doesn’t love that?
Here’s how you’ll know if social investing is going to be the new thing. The first will be watching what happens at company annual meetings. If shareholders are pushing for changes, that will indicate renewed activism and pressure on management. The second will be corporate restructuring activities such as CEO resignations and hostile takeovers, as these will be part of holding executives accountable for their companies’ behavior.
Social investing is pure capitalism because the people who provide the capital are influencing the choices that the business makes. It may have no effect on performance, but it is good for the soul