Will we see a Carl Icahn of Socially Responsible Investing?

Veteran retires from the Catholic SRI investing cudgel:
Will we see a Carl Icahn of Socially Responsible Investing?
Call them the socially-conscious corporate agitators.

The director of socially responsible investing at Christian Brothers Investment Services Inc., John K.S. Wilson, is moving over to TIAA-CREF in a corporate governance role. In February, he spoke to a class of MBA candidates at his alma mater, Columbia Business School, and noted some of the challenges related to socially responsible investing. When he discovers concerns in companies his firm has stakes in, he often writes nonbinding shareholder resolutions, meets with company executives and lobbies for change in corporate strategy.

CBIS has $4.3 billion in assets under management for 1,200 clients, who want to follow socially responsible management and investment principles that do not violate the teaching of the Catholic Church. He has had successful dialogues with Coca Cola, Nike, Wal-Mart and other multi-nationals. “Some companies have open cultures. Others are not and are very insular. Those cultures are not amenable to talk to us. Many companies don’t see socially responsible investing as integral to their corporate strategy.”

➢ The Social Investment Forum, a nonprofit group dedicated to promoting responsible investing, reports that socially responsible investing assets in the U.S. surged 18% to $2.71 trillion in 2005 and 2006 and up 324% from the $639 billion in 1995. There were roughly 154 socially screened mutual funds in the U.S., managing $159.2 billion in assets at the end of 2006, compared with 151 funds and $148 billion in assets two years earlier. It claims SRI assets grew at a faster rate -18%- than the broader market of investments, which grew at 3% from 2005 to 2007. It reports that roughly 11% of assets under professional management in the U.S. – nearly $1 of every $9 – are now involved in SRI. New types of funds are allowing for more applications of socially responsible investing. Beyond mutual funds, these include exchange-traded funds, closed-end funds, alternative investments and other pooled products. These funds and shareholders are also forming new types of advocacy efforts. The total number of shareholder resolutions filed by socially responsible investment funds increased from 360 in 2005 to 367 in 2006.

Mr. Wilson believes that SRI and other factors are having an impact on managers and boardrooms of public companies large and small.

“Companies can’t just give a speech, take out an ad, or attempt other public relations tactics to imply corporate social responsibility,” he said. “I think they are starting to realize they need to have real solutions to offer. There is still a lot of PR and talk but things are starting to change.”

Over the years, Mr. Wilson has found himself digging into Pope’s encyclicals and theological works to determine positions he should take up with companies in which Christian Brothers invests. With 2,500 stock holdings, he doesn’t always have time to take up issues of concern with all companies so he shares the workload with other socially responsible investors in the Interfaith Alliance. He said the leverage of ideas and relationships as a shareholder is more valuable than threatening to divest holdings or to publicly embarrass a company.

The relationship approach with companies and proxy filings Mr. Wilson took at Christian Brothers is not as aggressive as activist investors such as James Goldsmith, T. Boone Pickens and Carl Icahn of years past. They are also not as aggressive as the players in private equity’s leveraged buyouts or in modern hedge funds, which sometimes increase shareholdings and then call for specific action by management.

As the socially responsible investing industry evolves, will we ever see a socially responsible corporate raider on the level of Carl Icahn?

“It could happen the stronger the business case becomes (for socially responsible investing),” said Mr. Wilson. “We haven’t yet seen the Carl Icahn or T. Boone Pickens in this space. Ten years from now? You never know.”

- Paul Glader