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Note to Gekko: Governance is Good

Good governance that includes a system of checks and balances in corporations can assure that the rights and responsibilities of all are respected. Faith-based investors can hardly ignore these priorities and opportunities.
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All of the attention that News Corp has been receiving on both sides of the Atlantic in recent weeks has immediately raised questions for any investors who are owners of the stock as the different allegations unfolded and evolved. The many troubling dimensions of this evolving situation ... invasion of privacy, cover-ups, dishonesty, bribery and flagrant abuses of power ... have focused attention on investment processes and criteria for choices that all investors make, but they present a specific set of challenges to both socially responsible and faith-based investors.

As the investment processes followed by these groups of investors have evolved over the years, three umbrella categories have emerged that serve to organize their concerns: environmental, social and governance (ESG). The social and the environmental principles and criteria that have been adopted and implemented have grown out of the values and beliefs that individual and institutional investors embrace as part of their identity and life and have been in place for decades. That is less true when it comes to adopting principles and criteria around corporate governance and I suspect that the News Corp debacle will result in an evaluation of that position.

Stories and accounts from missionaries, colleagues and, reporters have documented human rights abuses and affronts to human dignity from many corners of the world, particularly those that have focused on sweat shop labor, discrimination and most appallingly human trafficking and modern day slavery. This resulted in the adoption of criteria and screens that eliminate companies that are judged, through a robust empirical process, to have failed to implement policies and programs that preclude such practices. This work was reinforced last month when the U.N. Human Rights Council endorsed the Guiding Principles on Business and Human Rights that are designed to ensure that companies do not violate human rights when conducting business and adequately monitor their supply chains for potential abuses.

On the environmental side, faith-based investors have focused on the stewardship of God's creation. The toll of business practices on water, air and land and the resulting impact that such activities have on local communities over generations is the basis of our sustainability work with the world's largest corporations. Global warming, nuclear power and waste disposal, food safety and security ... many of these concerns have emerged from the testimony of our parishioners in local communities that have been adversely impacted by some of the ongoing hazardous environmental practices of negligent corporations. Meanwhile active shareholders have collaborated with the numerous environmental non-governmental organizations in the creation and promotion of specific principles and criteria for inclusion in the evaluation of corporations.

The governance arena that started out looking primarily at issues of board diversity has evolved into a more robust and transparent set of principles and criteria. Much of the more recent work in this area has evolved out of the growing conviction that ethical, well-organized and well-governed corporations bring improved shareholder value over the long term. The emerging consensus around this conviction has found faith-based investors collaborating with the larger public and private institutional investors who have adopted specific criteria on good governance.

These criteria include the separation of the positions of the chair and CEO, the establishment of an independent Chair and an independent board where the best practice is a 2/3 majority of independent directors. In addition the adoption of policies and practices by companies that actively endorse a culture of honesty, integrity, transparency and accountability. These practices and policies that are rooted in the teaching and wisdom of the scriptures and the commandments will provide all stakeholders with assurances that the board and management are prepared to identify and manage emerging risks while operating a reliable and productive business.

While it is immediately obvious why faith traditions might focus their attention on issues that have an immediate and often negative effect on the lives of people and communities across the world and the poisonous impacts that particular business models and practices can have on the environment, the consequences of bad governance practices have received less attention. The News Corp revelations to date that were enabled by a governance structure that disenfranchised a large number of shareholders, concentrated control of the company in one individual and facilitated a board composition that did not protect shareholders and stakeholders calls for increased attention by those responsible for their investment decisions. Good governance that includes a system of checks and balances in corporations as in politics can assure that the rights and responsibilities of all are respected and promoted. Faith-based investors can hardly ignore these priorities and opportunities.

The movie Wall Street and the world's history books are filled with cautionary tales about the destructiveness of absolute power. The Murdochs could do with a bit of a history review.

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