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Witnessing to Wall Street

The Work of Friends Fiduciary

If you ask an average Friend what “socially responsible investing” means, chances are he or she will cite the importance of screening out companies that produce weapons, alcohol, tobacco, or firearms. Some may add a prohibition of investing in companies that operate gambling operations or for‐profit prisons. Still others will emphasize a company’s record on labor, the environment, and social and governance issues. Few, however, recognize the opportunity—or the importance—of actively using the power of the shareholder vote to ensure conformity with Quaker values. In addition to co‐sponsoring and supporting shareholder‐initiated resolutions, socially responsible investors can engage company management in dialogue to clarify policies and positions, which potentially influences their practices. Although shareholder resolutions are often labeled “non‐binding,” the threat of adding one can convince a company to engage with concerned shareholders in order to avoid extra costs and negative perceptions.

Socially responsible investing is an inexact science, made more so by the complexities of the current global business environment. There is difficulty in discerning Quaker values and right action in the context of our twenty‐first century, profit‐driven global economic system. There is tension between garnering a market‐based return for investors and seeking to reflect Quaker values; it is tricky to decide when to sell a particular company’s stock instead of continuing to engage that company in efforts to try and effect change. Therefore, socially responsible investing requires a continual process of vigilance, review, and discernment.

As Quaker investors, the staff and board of Friends Fiduciary Corporation are keenly aware of the limitations of our impact in certain situations. The available levers for creating change are quite limited and indirect. This is why we seek to be discerning, strategic, focused, and patient. We believe an important part of our unique Quaker witness is to balance accountability with forthrightness and fairness. While we understand that people can have strong beliefs and concerns about particular corporations or industries, socially responsible investing cannot rest simply on listening to the most vocal positions. Friends Fiduciary is responsible for carefully investing the financial resources of a diverse group of organizations who depend on that income. This is why our investment choices are an effort to reflect the broadly shared values of the Religious Society of Friends.

Recent activities demonstrate the important, real, and complex issues with which Friends Fiduciary engages.

In the fall of 2011, Friends Fiduciary received a minute from a constituent meeting stating their concern with companies who provide products or services they identified as supporting the Israeli occupation. They asked Friends Fiduciary to implement a no‐buy list of 29 companies, only 4 of which were in our portfolio. 25 of the companies on the no‐buy list were already excluded based upon our existing screening process.

Like all Quakers, Friends Fiduciary board and staff abhor the seemingly endless cycle of violence in the Israeli‐Palestinian conflict. After receiving the minute, staff contacted the constituent meeting, researched the genesis of the no‐buy list, and began dialogues with the four companies in question. We considered the approach of the no‐buy list, but after careful deliberation and discernment, the committee and board uniformly affirmed the current screening process. We deemed the current process more appropriate, effective, and comprehensive than a punitive approach toward some targeted companies. The Friends Fiduciary Board believed that in this type of conflict, lasting change rests in governmental and political solutions, not corporate ones.

We did, however, use the opportunity to take a closer look at the four companies held by Friends Fiduciary. One of the four companies was Caterpillar, Inc. Our investment policy states that off‐the‐shelf products sold to the Department of Defense are not considered weapons components. For example, a shoe manufacturer may sell boots to the military, and this company would not be excluded from the portfolio. We also do not reject a company because a purchaser or consumer of that company’s product chooses to use an otherwise constructive or benign product in a harmful manner. Therefore, the focus of the Caterpillar review was whether the products supplied (bulldozers and earth‐moving equipment) were being modified by Caterpillar such that we would effectively consider them weapons or weapon components.

We engaged directly with company officials through a series of communications.  We sought clarity on whether the products being sold to the Israeli military were being modified specifically for their use and, if so, the nature of the modifications.  Even though Caterpillar did state that they were not “weaponizing” their products, our progressive, detailed questioning helped us discern we were not comfortable investing there anymore. At the end of April 2012, we sold our shares.

We also questioned Valero Energy Corporation, an independent petroleum refiner and marketer that provides commercial grade diesel and jet fuel through a Department of Defense program. They responded immediately and forthrightly to our inquiries. Discussions with company management led us to determine that they provide the same off‐the‐shelf products that are used for non‐military purposes. When we shared this information with the concerned monthly meeting, we learned they were open to reconsidering Valero’s inclusion on their “no‐buy” list.

As an aside, some might question our investment in Valero on the basis that it is in the oil refining business. While oil refining can raise environmental issues, we believe that Valero is better than many of their competitors with their low‐sulfur gasoline program, their use of advanced technology “scrubbers” that reduce sulfur dioxide emissions at their refineries, and their investments in renewable energy sources including a wind farm and emerging, alternative biofuels. As investors, we believe our primary lever to encourage a clean energy future is to promote responsibility and accountability in the oil and gas industry so that the risks and impacts of exploration, production, and distribution are addressed and mitigated. We also believe companies like Valero should be encouraged to invest in sustainable energy solutions.

Staff was continuing its dialogue with the two remaining companies at the time this article was written. Friends Fiduciary has received a number of emails in support of the decision on Caterpillar, many from people who would like to see Friends Fiduciary take a broader political stand. However, we believe the investment committee and board’s process and action was one of careful discernment and integrity.

We received one email that seems to go to the heart of this difficult discernment process. It read, “I recently signed a public letter of thanks for your divestment of Caterpillar on grounds of conscience. The letter is fine but does not say all I want to. In addition to saying thanks, I want to acknowledge the difficulty and sensitivity of the issue you decided. As a Jew, I have long counted on the tolerance of the Religious Society of Friends. There can be no doubt in my mind that there is still anti‐Semitism hiding behind the movement for boycott and divestment directed against the government of Israel.”

When faced with dynamic tensions and difficult choices, Friends have long turned to the Spirit and their testimonies for guidance. At Friends Fiduciary, we do the same. We team with Quaker organizations and faith communities to align stewardship of their financial resources with their mission and values. I believe our approach to socially responsible investing is an important contribution toward Friends’ testimonies of peace, simplicity, integrity, and justice. This is the work we are called to do.

Jeffery W. Perkins is executive director of Friends Fiduciary Corporation and a member of Chestnut Hill Meeting in Philadelphia, Pa. Friends Fiduciary applies Friends testimonies and values in its management of more than $250 million in endowments and other assets of Friends’ meetings, churches and organizations.

Posted in: October 2012: Wall Street, Main Street, and Meetinghouse Road

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