The new client on your doorstep this morning is the cheery kind of person that everyone wishes were his grandmother. Her husband died of lung cancer several years ago, but she still gets out to visit friends and stuff envelopes for the American Cancer Society.The only time she's ever been known to shout was when she caught her grandson puffing on a cigarette three years ago. She has a small pension from her 30-year career as a respiratory therapist, and says she just wants a little reassurance that the investments her husband's broker bought her long ago are still on track.
Sounds like smooth sailing, right? But when you delve into her portfolio, you can't help but blink: The top company in this former nurse's portfolio--the one that's meant to finance her health for the remainder of her golden years, to fund her faithful annual donations to the American Cancer Society in loving memory of her husband, to help send her grandson off to college to become a doctor and save the world from diseases like the one that killed his grandfather--is . . . Philip Morris?
We all know people with pieces of their lives that don't quite fit--the divorced marriage therapist, the pudgy dietician, the Greenpeace organizer who drives to work in a monster-truck-sized Chevy Tahoe that gets 14 miles to the gallon. Sometimes this irony can be amusing, but when it comes to investments, planner Jan Schorey of Portland, Oregon, believes that integrating one's values and beliefs with one's financial decisions merits serious attention. "If you wouldn't buy toy guns for your children, why would you invest in weapons manufacturers?" asks Schorey. "And if you knew those were in your portfolio, would you be upset with the planner that put you into them?" The fee-only firm she founded, Portlandia Investment Management, is built upon the idea of putting your money where your heart is--otherwise known as socially responsible investing, or SRI.
Schorey is in good company these days. SRI has blossomed into a major market force: as of 1999, some $2.2 trillion was held in socially or environmentally responsible portfolios in the U.S., according to the Social Investment Forum. And advisors who want to follow SRI principles now have a wealth of support groups and Web-based data sources to turn to for help (see table, page 46, and the following article, "An SRI Schooling," page 48).
At first blush, you might think Schorey and her clients are misty-eyed holdovers from the 1960s, but you'd be wrong. She comes to financial planning from a profession that's about as analytical as you can get: Schorey, 44, spent 13 years as a computer information systems manager for a high-tech company in Portland before changing careers in 1987. What's more, she came to social investing after cutting her teeth on the technical investment training regimen of American Express (then known as IDS). In her current practice, it's clear that cold, hard numbers don't get lost in the SRI shuffle. If push came to shove in an investment decision, the client's financial goals would take precedence over social concerns. But Schorey's point is that she can successfully combine both. "There's such a wonderful synergy that happens when clients realize they can have their money working for them according to their values, and that they can do well at the same time," she says. "There's objective data to prove that they can. Sure, I'm going to restrict my investment universe a little bit. But so is Joe Smith down the street. Everyone has a different mix of stocks that they follow. And between this collection or that one, why not pick the one your client believes in?"
When Schorey joined IDS in 1987, she was, she admits, pretty naive. "I thought I could invest in companies that I related to, rather than, say, a tobacco company or an environmental polluter," she says. "But at the time I entered the field, that just wasn't the case." Schorey started to wonder if her preconceptions of the financial world hadn't been right after all--that it really was all about selfish agendas, churning, and stockbrokers who drank martinis for lunch. In 1989, she moved to Progressive Securities, a firm specializing in socially responsible investing (SRI). The match was a good one, philosophically. It wasn't half-bad for business, either. "Clients would walk in the door as if this was water to them, something they needed for their nutritional makeup, and they couldn't find anyone who could provide it to them," she says. "I've never had such an easy time growing a business." She earned her CFP in 1991, and by 1996, was ready to make a go of it on her own.
The leap was a success. Every client at her firm today is involved in socially responsible investing in some way, and her firm has flourished to the point that she needs to do almost no marketing. Current clients, who have an average net worth of $500,000 and include physicians, artists, educators, and retirees, refer their friends and associates. Even then, Schorey can't always take them on. "In the past two or three years, I've turned away more clients than I've taken in," she says. "I want to be as accessible as I possibly can to all of
|Portlandia Investment Management|
Jan Schorey, CFP |
Portlandia Investment Management
2701 NW Vaughn St., Suite 455
Portland, Oregon 97210
Year practice began: 1996
Number of planners in office: 1 planner, 1 part-time assistant
Number of clients: 45
Compensation method: Fee-only
Average fee for a comprehensive
financial plan: Usually included in asset management fee
Fee for managing assets: 1% of assets. Minimum new account: $250,000
Client demographics: All clients have at least some interest in socially responsible investing. Two-thirds are women; many are single. Average net worth is $500,000. Most clients live in the Portland area. Ages range from early 30s to 80s. Occupations range from physicians and artists to retirees.
Education: MBA, Heriot Watt University, Scotland
Previous incarnations: Information systems manager for 13 years
Professional designations: CFP
Outside interests: Classical guitar, various forms of art and meditation
Quotable quote: "There's such a wonderful synergy that happens when clients realize that they can have their money working for them according to their values, and that they can do well at the same time. Sure, I'm going to restrict my investment universe a little bit, but so is Joe Smith down the street. And between this collection or that one, why not pick the one your client believes in?"
my existing clients."
A personable and engaging woman, Schorey nevertheless gets ticked off ("disappointed" is how she diplomatically puts it) when people dismiss SRI out of hand, claiming that screening companies on the basis of corporate citizenship will diminish investment returns. "My greatest frustration is people who make decisions about this and simply don't have all the facts," she says. "To tell a client they're going to sacrifice returns if they invest according to their values--I can't tell you how disappointed I am when I hear that. It can be done, and there's data to prove it." In fact, clients often come to Schorey after traditional planners try to scare them away from socially responsible investing.
Schorey, whose firm now has $25 million under management, is willing to put her convictions to the test. About six years ago, the board of directors of River Network, a not-for-profit organization, hired her to manage $1 million. While the bulk of the account went into gilt-edged agency debt, River Network had Schorey split $100,000 equally between the Domini Social Equity Fund (DSEFX) and the Vanguard S&P 500 Index fund. "I have to admit I was really nervous," says Schorey. Vanguard's management fees were much lower, and the fund based on the Domini 400 Social Index had only been around for a few years. But she was right. "I am happy to say that, to this day, they have realized a higher return on the Domini Fund, net of all management fees," she says. "This was, for me, the real test." Even though the Domini fund "got shellacked" in 2000, according to Morningstar analyst Catherine Hickey, its five-year annualized returns still beat those of its Vanguard rival.
Some critics argue that SRI's outperformance is due more to luck than investing skills. And luck has, in fact, played a role. A technology company, for example, will tend to score higher in social criteria than an oil producer, defense contractor, or maker of cigarettes or booze, and SRI funds have generally had high concentrations in tech. But since the tide turned against tech investors, won't SRI crash and burn among the ruins of all those dot-coms? Schorey, unruffled, says no. "We've had a sell-off in technology recently because of all the overvaluation, but technology, in my view, is still the industry of the future," she says. "Technology companies will become the leaders in our global economy. I just don't see tobacco companies as that leader. I don't see oil companies as that leader, either, especially as we're looking at alternative uses of energy and fuels."
Technology isn't going to go away, and besides, poor corporate citizenship can have financial costs. Consider how much the tire tread separation lawsuits will cost Bridgestone/Firestone and Ford. Likewise, consider the financial impact on General Electric if it is forced to clean up the widespread polychlorinated biphenyl (PCB) pollution of the upper Hudson River in New York, or the more than 150 sites classified as Superfund sites by the EPA. Says Schorey, "I think that we only have to look at the court cases against the tobacco industry to imagine what could happen in the future to environmental polluters."
The field of socially responsible investing can create strange bedfellows. After all, what is socially responsible to a gay, pro-choice, vegetarian environmentalist labor activist from Berkeley might be the pinnacle of irresponsibility to a gun-owning, anti-abortion, death penalty supporter from Bob Jones University. So as part of Schorey's initial getting-to-know-you sessions, clients fill out and discuss with her a social screening questionnaire, indicating what issues are of greatest concern to them. In "avoidance screens," a client might choose to avoid companies that produce tobacco or weapons, or that have records of pollution, discrimination, inhumane treatment of animals, unsafe products, or failure to meet international human rights standards. In "supportive screens," a client might choose to seek out corporations with particularly good records in community involvement, pollution prevention, labor relations, or equal opportunity employment. Typically, Schorey's clients are more on the Berkeley end of the social attitude spectrum. Schorey herself is uncomfortable screening investments on the basis of extremely conservative views toward abortion or sexual orientation. "I have a pretty broad base of social screens, I think," she says. "But if somebody is coming across with a really strong belief system that is way out of alignment with me, that's one of the beauties of being independent. I can say, 'No, that's not why I set up my business.'" Such prospects are courteously provided with referrals to other planners, as well as information on socially conservative mutual funds.
After a client fills out Schorey's questionnaire, the answers are used in evaluating investments for the client's portfolio. Clients with more than $500,000 generally are directed toward individual stocks; those with less primarily get mutual funds.
As you might expect, tobacco is the major bad guy among Schorey's clients, followed by polluters. "That really crosses everyone's backyard, no matter how rich or poor you are," she says. More than two-thirds of her clients are female, and many are interested in what she calls "women's issues," such as how many women are in leadership positions within a company and how their compensation compares with their male counterparts. Other screens are more client-specific. One client once requested that Disney be removed from her portfolio after ABC, which is owned by Disney, aired an episode of the sitcom, "Ellen," with preview notices intimating that Ellen's very G-rated on-air "coming out" was "adult content." Others might have found the incident perfectly acceptable.
Many companies straddle the line between socially acceptable and unacceptable, eliciting outcries in one arena while earning kudos in another. "Nike is a perfect example," says Schorey. "They've come under a lot of scrutiny over exploitation of overseas labor, and with not having enough diversity. On the other hand, Nike has been great on sustainability and environmental issues." As a rule, Schorey's decision to invest in or avoid a stock comes down not to the company's problems, but its reaction to them. "Do they have a culture of poor quality control and covering up the truth? Or are they stepping up to the plate and saying, 'Yes, we have a problem, and we need to solve it,'" she says.
For the most part, Schorey keeps her personal social screening opinions to herself. "I'm basically a vehicle of choice," she says. "SRI is not about one person or one group of individuals defining what socially responsible is for everybody else. It's about being consistent, saying, 'These are things that are important to me,' and investing accordingly." Schorey sees her role as a provider of information that allows clients to make informed decisions about issues that are important to them. However, she does realize that in recommending that her clients align their financial lives with their values and beliefs, it only makes sense that she do the same with her business life. Part of that means living close enough to her downtown office suite that she can make the commute on foot; part of it means setting limits on the kinds of clients she'll take on and the investments she'll buy.
Her beliefs aren't so narrow that she's tossing prospects out the door every day with the morning mail, but her clients do know what she will and won't do. If a client already owns a stock, she will bring her up to speed on the company's social record and then let the client decide on a course of action. One client inherited nearly $1 million in GE stock that he couldn't feasibly sell anytime soon. Schorey monitored the stock and kept him abreast of the company's shareholder resolutions. Another client, who had inherited Philip Morris stock with an extremely low cost basis, was pleased to have assistance gifting the stock into a charitable gift fund.
How does Schorey keep track of which companies behave badly--or well? One of her primary sources is a powerful database maintained by Kinder, Lydenberg, Domini, the creators of the Domini 400 Social Index and the Domini mutual funds. The database, which was recently moved from CD-ROM to the Internet (www.kld.com), provides subscribers with in-depth, up-to-date social report cards on more than 650 major corporations. Her membership in the Social Investment Forum, a trade association of SRI professionals, helps her keep up to date on the SRI industry through publications, conferences, and a Web site (www.socialinvest.org). She also subscribes to "Investing for a Better World," a monthly print n
|SRI Resources Online|
Interested in finding out more about socially responsible investing? With the help of planner Jan Schorey, we've compiled a list of links to help. |
Social Investment Forum (www.social-invest.org). A clearinghouse for information on socially responsible investing, this is a "must-see" site for anyone interested in SRI, says Schorey. Explains the basics, plus information on trends, corporate citizenship, SRI mutual funds, shareholder action, and community investing.
Kinder, Lydenberg, Domini (www.kld.com). One of the premier sources of corporate social report cards, KLD recently moved its powerful database from CD-ROM to the Internet. Offers detailed profiles of more than 650 major corporations as well as issue-specific reports. Subscribers can sort data with multiple criteria, track portfolios, and monitor shareholder actions.
SocialFunds.com (www.socialfunds.com). This site offers SRI mutual fund news and stats, company research, and a fund analyzer, plus information on community investing.
The Proxy Monitor (www.theproxymonitor.com). Outsource the hassle of voting clients' proxies to this online service. Key in the clients' holdings and social criteria, then receive customized proxy vote alerts, research, and recommendations.
Trillium Asset Management (www.trilliuminvest.com). For corporate citizenship research, subscribe to Trillium's print newsletter, "Investing For a Better World."
Shareholder Action Network (www.shareholderaction.org). Shareholder action has shut down sweatshops and helped end apartheid. Get involved: Look here for news about recent shareholder campaigns.
Interfaith Center for Corporate Responsibility (www.iccr.org). This ecumenical coalition of 275 religious institutional investors presses companies to be socially and environmentally responsible. Check the site for the more than 100 shareholder resolutions the group sponsors each year.
ewsletter published by Trillium Asset Management (www.trilliuminvest.com).
Schorey uses these sources for more than simply screening companies in or out. Shareholder activism is an important part of socially responsible investing, and she uses the research to help clients make informed proxy voting decisions. Many clients have given her limited power of attorney to vote on their behalf according to social guidelines they've specified. Others enjoy getting involved themselves. "I have a really special client who loves taking responsibility for these things, and reads about them in great detail. This is unusual: I don't think most of my clients read their proxies," Schorey laughs. "But this one in particular likes to call me and talk about every issue. It's really fun--she really keeps me on my toes."
While she would support any client who wanted to spearhead a shareholder resolution, Schorey believes that she and her clients can often have more impact by co-sponsoring with a larger organization. "I don't dismiss the power of what an individual can do through a shareholder resolution, but sometimes it can dilute things if you have too many small voices," she says. She believes that "if you're going to be active, make it count. Do it in the best strategic way that you can, with people who are experienced and know how to talk to the companies and possibly get the issue solved without getting to a resolution." And remember what your goal is. "The bottom line is about making change occur. It's not about being a radical, or being mean to a big corporation. It's about enlightenment, it's about education, it's about having a cultural shift take place at the company, if necessary," she says. "Sometimes it's just about letting them know that something is working for other companies in a positive way, and can have a good shareholder return if only they'd look at it."
Schorey recently co-sponsored a resolution put forth by the Interfaith Center for Corporate Responsibility (www.iccr.org) to convince corporations to adopt voluntary environmental guidelines known as the CERES (Coalition for Environmentally Responsible Economies) principles. She has also co-sponsored a number of resolutions put forth by the Social Investment Forum.
The key to SRI is remembering that human beings are involved in and affected by every financial exchange. "Every time we make a financial transaction, whether it's buying a newspaper or making a billion-dollar trade deal, we need to do so with a clear awareness of the implications for other human beings," she says. "This may sound hokey, but the core of SRI is about relationships and how we use money to relate to one another." In the earliest societies where money was used, money was not simply a tool to simplify barter, she says; the exchange itself was symbolically significant, sending a message about the importance of the relationship between the people involved and the occasion on which it occurred. As societies have become more complicated, it is easy for financial professionals to forget their relationship to the faces behind the numbers. But the faces are still there. "Money is like human language," says Schorey, "and like language, it can be a medium for almost any quality of behavior, from prostitution to a morally inspiring exchange." Indeed, money talks. For a socially responsible advisor like Schorey, the trick is to make sure that clients' assets send the message they desire.