Let Shareholders Decide This One
Sadly, I've nearly ruined more than one friendship by debating the merits of socially responsible investing, or SRI, as it's often called. Many people can't bear to own stocks of companies that peddle tobacco or abet a dictatorship. Others don't see such connections, don't care, or, like me, think investing and morality are complex enough issues without mixing the two. SRI can drive reasonable people into irrational, inflexible positions.
Just that is now facing the Teachers Insurance & Annuity Assn.-College Retirement Equities Fund, or TIAA-CREF, the $260 billion group serving 2.3 million clients, mostly professors and other college employees. It's as classy as money managers come, with a superb record of high returns at low cost. Since 1990, it has offered an SRI option to pension clients. Yet TIAA-CREF is under attack by clients who want it to take SRI further.
Instead of simply avoiding such stocks as tobacco giant Philip Morris (MO ) and brewer Anheuser-Busch (BUD ) (table), they want the fund to "positively" invest in such ventures as low-income housing or companies developing pollution-control devices. After years of discussions, TIAA-CREF last year concluded that positive SRI in its $4 billion Social Choice Account is neither feasible nor likely to be cost effective. This year, advocates began staging protests outside the Manhattan homes of TIAA-CREF CEO John Biggs, chief investment officer Martin Leibowitz, and Edes Gilbert, who's on the trustees' corporate governance and social responsibility committee. On Nov. 13, dissidents plan to press the issue further at TIAA-CREF's annual meeting and a demonstration on the street.
Why should anyone without money at TIAA-CREF care? Because TIAA-CREF often serves as a model investment manager, and because the dispute has driven both sides to twist basic principles of investor democracy and fiduciary duty. To me, the issue is not whether positive SRI is worthwhile. It's that TIAA-CREF's pension-account holders--the people whose money is at stake--should be able to make broad decisions about how it is invested. Yet, neither SRI's advocates nor TIAA-CREF appears willing to trust them. Both sides say I'm wrong to draw this conclusion. But their actions speak louder.
Consider first what proponents of "positive" SRI, amid all of their protests, have failed to do. They're led by Neil Wollman, a professor at Manchester College in Indiana. Wollman knows that a well-established process exists to bring investment policy questions to a vote. Yet SRI advocates let the deadline for filing proxy materials pass. Why? "It is very hard to get 50% of the vote," Wollman told me. "It wouldn't be a fair vote, and as soon as we didn't get 50%, they would say, `Look, it lost."'
SCREEN SAVERS. TIAA-CREF expresses eagerness for such a vote. But it's quiet about the 1995 findings of a survey it commissioned of Social Choice Account participants. Back then, TIAA-CREF said its purpose was "to evaluate how well [their] needs and wants are being met and whether any changes should be made." The survey found 81% of contributors to the Social Choice Account favored seeking out "companies who have an outstanding record of good performance on social issues rather than relying on negative screens." Only 3% were opposed.
Common sense dictates that no manager of other people's money, however classy, can cater to every client's political bias. Yet given such strong interest in positive SRI, TIAA-CREF can spend another year pretending the issue is settled and suffering the advocates' street theater. Or it can reopen the issue, make sure it knows what clients want, and then do it.