Personal Values And Account Values

//Personal Values And Account Values

Personal Values And Account Values

Originally posted in Financial Advisor (fa-mag.com) on March 1, 2020

I recently was invited to a think tank hosted by Eventide Asset Management, a company in the values investing space. CIO Finny Kuruvilla gave a talk and I was confronted with the question, “Do you want to own companies that you are proud of?” Well, of course I do. But truth be told, I haven’t been paying that much attention. Kuruvilla defined good corporations as those that treated their workers well, which in turn engendered happy clients, demonstrated community-mindedness, environmental responsibility, etc. In short, it meant owning companies that produce goods and services for the good of people. Sounds easy, but it’s not. The degree of due diligence required is onerous and ongoing, and the indicators are not always obvious.

We see a broad range of values-driven investment choices today, including, but not limited to:
• SRI (Socially responsible investing);
• ESG (Environmental, social, governance investing); and
• BRI (Biblically responsible investing)

There is a whole subset of questions beyond the one asking whether I would be proud to own a company:
• Would I want to work for it?
• Would I recommend its products?
• Would I want my kid to work there?
• Would Grandma approve of the company’s working conditions and atmosphere?

What value does it bring? (There’s a broad range of value out there, from new flavors of bubble gum to potential cancer cures.)

Some companies strive to deliver value, while others exist only to extract it. Extractors are the companies that the ESG movement is trying to weed out. Why would any of us want to support firms that don’t care about anything or anyone? Fred Reichheld of Bain Consulting said the following thing about such companies:

“Instead of focusing on innovations to improve value for customers, they channel their creativity into finding new ways of extracting value from customers.” Such companies, he says, “regard the people who buy from them as their adversaries, to be coerced, milked or manipulated as the situation permits. The Golden Rule—treat others as you would like to be treated—is dismissed as irrelevant in a competitive world of hardball tactics. Customers are simply a means to an end—fuel for the furnace that forges superior profits.

“This view is utter nonsense. Companies that let themselves be brainwashed by such a philosophy are headed into the sinkhole of bad profits, where true growth is impossible.”

Scrambled Signals
In our modern age of values-screened investing, one could be forgiven for incredulity when it comes to getting truth from corporations and knowing their actual behaviors. Don’t all corporations try to say the right things, give the proper appearance and elevate their standing in the global community? Don’t values range wildly from one individual to another, and from one credo, culture and affiliation to the next?

Consider that one ESG data vendor gave Philip Morris a higher score than Loxo Oncology (bought out by Eli Lilly and Company in 2019) because the ESG screens heavily weighted clean water and board diversity. Rather ironic that it’s for a tobacco company producing products that science has proved cause cancer, while Loxo has gone to market with a potential cure. Yet the party causing the problem is rated higher in ethics, sustainability and governance than the party with the cure. Excuse me while I scratch my head for a moment and wonder how “values” have become so perplexingly scrambled. According to an executive at this gathering, one of the big weaknesses with ESG historically is that it does not consider the products or services of the companies, but focuses instead on their sustainability “practices.”

I suspect that we will soon see progress in the filtering process as well.

Locate Your Values
Everyone has to choose what matters most to them personally. Eventide sets its searchlights on companies making strides in health care, cybersecurity and clean water (among other things) around the planet. One of its investments is a company that came up with a new treatment for schizophrenia that impacts 3 million people in the U.S. This disease is a leading contributor to homelessness (and the subject resonates with me, as my older sister struggled her whole life with it).

I learned that 1.6 million people a year die from diarrhea, and over 80% of them are under the age of 5. This is due to unclean water, a problem that could be corrected in a few short years via proper infrastructure.

I learned that cybersecurity breaches cost over $2 trillion a year, and the leading victims are the elderly and retired. It’s hard for any of us not to care about these issues. Is it possible that we can care with our investment dollars and turn a profit as well? Is there a sweet spot between humans flourishing and profitability that is begging for our vigilance and participation?

What matters to you? What matters to your clients? How much longer can we ignore these questions or patronize the issue with superficial discovery questions like, “Are there any stocks or companies you’d like to avoid?” I don’t say this to denigrate the value of such a question, but to illustrate the idea that being against certain products (against “sin” stocks, for example) is valid, but the conversation will need, at some point, to move from “What are you against?” to “What are you for?”

The Time is Upon Us
I suspect that your clients are hungering for such a conversation right now. I suspect that today’s clients are keen on the idea of alignment between their personal values and account values. Are you ready to bring it?

One advisor who is ahead of the curve on this issue is Jeffrey Gitterman, who serves clients in the NYC and New Jersey area. Gitterman has emerged as a thought leader and a leading advocate in the ESG space. His clients are largely college professors, and they are amenable to aligning assets with their views. He has been bold and intentional, and in 18 months moved every dollar under management into the ESG arena. Not a single one of his clients said no to the idea.

“Eighty-eight percent of clients surveyed want to have this conversation, and only 6% of advisors are engaged in the conversation,” he told me. “What pool do you want to be swimming in? Where all of the advisors are and no clients are, or where all of the clients are and no advisors are present?”

I’ve tracked his career for many years and know he’s been very successful and that his key driver has always been the well-being of his clients. Maybe we could all learn something from his example. After all, when is the last time you presented an idea to clients that got a 100% positive and active response?

Righteous Profits, Happy World
It just makes sense to reward the companies that reward their employees, their communities and the world at large. Obviously, ESG screens cannot be agnostic to profits. But it stands to reason that if a company treats its workers, clients, communities and environment well, then profits would result. King Solomon, one of the wealthiest individuals to ever live, said in Proverbs 11:10, “When the righteous prosper, the city rejoices.” When business is done the right way for all involved, then all are somehow beneficiaries of the product or service well done. I heard a phrase at this gathering on values-based investing that I had never heard before: “investing that makes the world rejoice.” We’re all happy to turn a profit—we’d be all the happier to know that we turned a profit properly and on principle.

I had to do some soul searching myself. It boggles my mind that as a society we seek to align our values in almost every aspect of life, but we are largely impartial to this alignment with our hard-earned savings. We seek an alignment of values in how we raise our children, how we vote, who we work for, where we give our money, etc. Why wouldn’t we be just as adamant to seek our values through our investments as well? Imagine walking your child, at 18 years, to the front door and saying, “I don’t care how you do it, just go out there and bring back as much money as you can.” We would never act that way, but this is largely how we deal with our investments. In the past this mode of operation has been unwitting. That is no longer the case. From this point forward we will be either witting participants or willfully negligent.

This is a conversation that is just beginning. Awareness is growing. We would all do well to take the time to get educated enough to be able to translate the possibilities to clients and to give them investment choices that will do their souls some good … as well as their account balances.

Mitch Anthony is the creator of Life-Centered Planning, the author of 12 books for advisors, and the co-founder of ROLadvisor.com and LifeCenteredPlanners.com.

By |2020-05-13T19:48:42+00:00May 13th, 2020|

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