John Harrington advocates investing with a social conscience. He is president of Harrington Investments, which manages $170 million for...
John Harrington advocates investing with a social conscience.
He is president of Harrington Investments, which manages $170 million for individuals and institutions, and co-founder of Working Assets.
Harrington is in Seattle to read from his new book “The Challenge to Power Money, Investing and Democracy” at 7:30 tonight at Elliott Bay Book Co. Here is the transcript from an interview with him yesterday.
Q: Almost three years have passed since Enron collapsed following massive corporate fraud, yet as you point out in the book, corporate corruption is on the rise. What do you attribute this to?
A: Greed. Greed and the fact that there’s really no control. Shareholders, who are the legal owners of corporations, are separate from the managers. The resolutions they can introduce are only advisory. …
Over the years, shareholders have become very diversified and so management has been able to control the corporation with very little outside influence. Without the federal government or Congress stepping in and taking back control, it’s difficult to have any say over the management of a company.
Q: How would you evaluate the performance of the Securities and Exchange Commission?
A: With Enron and all the other debacles and accounting irregularities, you had some very limited steps taken by the SEC on transparency and disclosure. I think that was at least a step in the right direction.
Q: Is the socially responsible investment movement having much effect on these larger problems?
A: I think around the edges. I think the socially responsible investment movement is able to raise issues, such as fiduciary issues, environmental concerns or corporate governance. But again it’s not dealing with the control issue. Shareholders have no rights other than to raise an issue, so they have a limited amount of influence. However, what’s important is not only the shareholder process, but also the dialogue process that institutional investors can have with management.
Q: What are some examples where it has worked most effectively?
A: I think probably the most effective influence on corporate conduct would be the South African issue, where you had about 350 American companies that were very strategic to the South African government in supporting apartheid, the racial segregation system. Investors began to introduce shareholder resolutions and work with cities and counties and states.
In addition to raising ownership responsibility issues, they raised issues like if you do business with South Africa, the state of California will no longer buy your products and services. Banks were pressured to reduce their lending to the South African government. A combination of socially responsible investors and institutional investors had that kind of influence, and it was very effective.
Q: Do you have any current targets for organized shareholder action?
A: The issue now is socially responsible investing and understanding the immense power of money in our society. It’s not just investing, but it’s also consuming and philanthropy, making sure individuals and institutions understand they can have a tremendous impact on how our country and economy operates. It’s not just one target, it’s trying to have corporate management become much more responsible.
Q: What are some of the best or worst practices you have seen among corporations?
A: The one that comes to mind would be a company like Harley Davidson, which has granted employees basic and decent rights. On the other side of that, Lockheed Martin just announced that they were no longer going to be providing benefit packages to their employees, which means that more and more employees will no longer have pension plans.
Q: Microsoft’s annual shareholder meeting this year has no shareholder proposals. In recent years, proposals geared toward social responsibility have received only a very small percentage of votes.
A: You are always facing an uphill battle. The only party that can solicit proxies unless you have hundreds of millions of dollars are the companies themselves. Most proxies are returned unmarked, so management ends up controlling the overwhelming majority of the proxies anyway. There’s no communication between shareholders either.
On issues like reelecting the board of directors or approving the audit, brokers vote shares for their client. If 60 percent of shareholders don’t return proxies to their brokers, the brokerage firm can vote their stock and they inevitably vote in favor of management. So I always say Stalin would have loved this system. It’s sort of like one party control.
But corporations often have people within them who want to see some change in policy. You may see a company very resistant to a shareholder resolution, and five years later they do what the resolution asks. It takes a while.
Q: Socially responsible investing may be a luxury for people with wealth. For others simply trying to get by, how could they be expected to exercise any influence on corporate behavior?
A: You’d be surprised at how many people have pension plans or retirement plans. It may not be a lot of money, but the first thing to do is see how that money is invested. If they do have choices, there are now over 200 mutual funds that use socially and environmentally responsible screens.
They can also invest locally, put their money into locally controlled banks and credit unions. We’re all consumers; even the most destitute of us consumes something. It’s making a conscious effort looking at the food we eat, the clothes we wear.
Q: While we’re talking about consumerism, I’m curious what kind of car you drive.
A: I drive a 1992 Jeep, which has about 160,000 miles.
Q: That sounds like a gas guzzler.
A: No, actually it’s not. It’s a dependable, great old Jeep. One thing I’m looking for now is a hybrid pickup.
Q: What do you think of Google’s mission to make money without doing evil?
A: I really take everything that a company says as simply noise until their conduct is monitored and there is an enforcement mechanism. Whether it’s Microsoft or Google or Yahoo!, they can have all the corporate policies and social responsibility in the world, but unless they are independently monitored and there’s an enforcement mechanism and sanctions, it’s dead on arrival.
You want to be optimistic. When they went into the public market, they gave more people access to the stock. I think that’s important. But time will tell whether they are able to do what they want to do, and the realities of the marketplace may prevent it.
Q: When was the last time you moved money out of something because you didn’t agree with the practices of that company?
A: A few years ago we were engaged in dialogue with Hewlett Packard about their policies in China and we introduced shareholder resolutions for three years running and got very little response. At the end of three years, we decided to divest.
We approached Intel and, of course, they are manufacturing in China. We brought in Global Exchange, Amnesty International and we sat down with Intel senior management and people coming out of China. They went through an elaborate process of disclosing their work and its environment. They were very responsive, they agreed not to join our China Working Group but to participate in it. We felt they were at least making the first step.
Q: So you kept your money in Intel?
A: So we kept our money in Intel.
Kristi Heim: 206-464-2718 or email@example.com