Are Apple’s investors appalled?
The ethical investment movement’s impact on corporate social responsibility
As Apple attempts to clean up its image and establish itself as a responsible corporate citizen, the question of social responsibility for technology companies has entered an important phase. Socially responsible investing has grown from an obscured niche to an influential force in the last 30 years. Its role vis-a-vis the tech industry has been particularly instructive.
The ethical investing movement first came to prominence with the movement to divest from South Africa in the 1980’s. Musicians helped to bring the movement to end apartheid into popular awareness and mass support grew to pressure businesses to stop doing business in a country that treated blacks as second-class citizens. The tactic of “screening out” stock of companies actively engaged with South Africa gained momentum as large portfolios such as university endowments and pension funds caved to public pressure.
Massive divestment from companies doing business in South Africa precipitated historic changes and investors around the globe proved the timeless truism – ‘money talks’. Many still equate socially responsible investing with this tactic of screening distasteful investments out of one’s portfolio, but this is simply one method. Also, screening has grown more nuanced and today is as likely to be positive as negative, with investors just as likely to seek stocks reflecting positive values, such as clean energy and organic food, as they are to disqualify companies engaged in dubious activities, such as selling tobacco or exploiting workers overseas. This is one reason Apple wants to appear so proactive about conditions at its manufacturing facilities overseas.
Another method of socially responsible investment – shareholder activism - is premised on the notion that stockholders will have more influence on a company by retaining their investments and using their power as shareholders to positively influence a company’s behavior from within. It is ironic that the argument made against divestment from South Africa in the 1980’s was that companies were more likely to positively influence South African politics by continuing to do business there. History has proven that argument was specious at the time. Today, it has more merit. The debate between screening and shareholder activism is active today with Apple computer being exhibit A. Some of the largest social investment mutual funds – Domini Social Equity and Calvert Social Equity – hold Apple stock, while another of the largest ones, TIAA-CREF Social Choice Equity Fund, does not (as of 2nd quarter 2012).
Shareholder activism recognizes the nuances and complexities that go with socially responsible business concepts and the power that shareholders have to influence corporate behavior. The reasoning is that large shareholders are in a better position to influence corporate behavior by introducing shareholder resolutions and challenging management about its business practices.
As rapidly evolving consumer electronics result in landfills laden with toxic waste, technology companies no longer get a pass on environmental issues.
Shareholder activism has had an influence on Apple in making improvements in its overseas manufacturing processes. Apple and other technology companies have recently brought such issues into focus. During the 1990s, when socially responsible investing first arose as a substantial niche in the investment community, high tech companies were among the favorites of socially conscious investors and comprised large portions of socially responsible mutual funds. At that time, environmental issues were at the movement’s forefront and the emerging tech sector compared favorably to the eco-unfriendly behemoths of the aging industrial sector. Technology stocks soared in the late 1990s and the credibility of social investing thrived accordingly. But when the tech sector crashed in 2000, mutual funds laden with such investments took a beating.
In the decade since, socially responsible investing has gotten more sophisticated, as has the technology sector. As ‘green’ issues have become a prominent concern among consumers, workplace issues, fair trade, and the impact of globalization have become more important concerns to ethically motivated investors. There is no question that this trend has influenced the efforts by Apple to become proactive in such considerations.
In short, massive multi-national corporations are being held to account for their behavior as global citizens. Pressures from both consumers and investors have profoundly impacted this phenomenon. As rapidly evolving consumer electronics result in landfills laden with toxic waste, technology companies no longer get a pass on environmental issues.
In the tech sector, shareholder activism coupled with consumer awareness may have significant power to influence corporate behavior. This is due to the relative sophistication of the tech-minded consumer and their ease of access to social media. The power of social media to increase awareness and mobilize consumer, and by extension, investor behavior is a game-changer when it comes to corporate accountability. Apple’s reaction to bad press on working conditions in China proves that. It would be nice to think that large corporations would be conscientious global citizens based on ethical motivations alone, but history has demonstrated that this is rarely the case. Apple has taken meaningful steps recently and the role of socially responsible investing and consumer behavior will be essential to assure that it continues.
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