It Seems to Me

In Memoriam: Anita Roddick, Frizzy-Haired Lady Who Pioneered Social Responsibility in Business

Anita Roddick, fiery founder of the Body Shop cosmetic stores, died last September 11. She was only 64. No one who ever met Anita is likely to forget the passion, energy and dedication that she brought to building the Body Shop into an exemplar of corporate social responsibility. I remember her poking fun at big corporate titans with kindred soul Ben Cohen of Ben & Jerry’s. They were both more interested in the social missions of their companies than the business mission. They both loved poking fun at big corporate titans.

At her death the Body Shop had 2,000 branches in 53 countries, but it was no longer an independent company. Anita sold the Body Shop to the French cosmetics giant, L’Oreal, for $1.3 billion in 2006. Some immediately accused her of selling out. That’s about the last thing Anita Roddick would do. She became a consultant to L’Oreal and fashioned herself a “Trojan Horse” who would move the French company in the right direction.
Dame Anita Roddick (as of 2003) made a number of pithy observations about the business world. Most of the following are from her 1991 book, Body & Soul:

I have no doubt that wealth is corrosive. No matter how sensible I try to be, I think I am corroded by my own wealth.

I hate the beauty business. It is a monster industry selling unattainable dreams. It lies. It cheats. It exploits women. Its major product lines are packaging and garbage.

The trouble is that the business world is too conservative and fearful of change. All this talk about free enterprise, innovation, entrepreneurship, individuality — it’s nothing but hot air.

I believe that if companies are in business solely to make money, you can’t really trust whatever they do or say.

I am still looking for the modern-day equivalent of those Quakers who ran successful businesses, made money because they offered honest products and treated their people decently, worked hard, spent honestly, saved honestly, gave honest value for money, put back more than they took out and told no lies. This business creed, sadly, seems long forgotten.

Large corporations are trying, bless them. Are they trying hard enough? No, but none of us is because the financial institutions are like fascists and just want a return.

After some people criticized her for selling Body Shop to L’Oreal, Anita argued on her website that it would probably have been more valid to accuse her of selling out when she and her husband, Gordon Roddick, took the company public in 1984. Anita explained:

We then became ‘owned’ by people who were happy to downgrade our stock at the merest whiff of community trade, who believed that pioneering an end to animal testing in cosmetics was a threat to our share price….That was, I now realize, selling out. To people for whom a brave, idiosyncratic, maverick, fighting for human rights or social justice in business was a threat to everything they stood for.

Anita Roddick was, in effect, the anti-corporate business leader. She recognized that a lot of people saw the Body Shop “as a flaky organization led by a madwoman with frizzy hair.” She did go her own way. She hated meeting with security analysts. She once spoke at a meeting organized by the ad agency J. Walter Thompson – her theme was “Why I would never use an advertising agency.” When the Body Shop invaded the U.S. in 1988, the Wall Street Journal quoted a Harvard Business School professor who said the company would need, “at minimum,” a major launch advertising campaign. Anita’s response was: “I’ll never hire anybody from Harvard Business School.” And she didn’t. And the Body Shop never advertised.

Book Review

“FOODFIGHT: The Citizen’s Guide to a Food and Farm Bill” by Daniel Imhoff

The Devil is in the details. This phrase takes on a serious weight in Daniel Imhoff’s well constructed and highly informative book, “FOODFIGHT: the Citizen’s Guide to a Food and Farm Bill.” The ills that plague our modern state, from environmental crisis to terrorism to national health care, seem so complex that no panacea seems possible. Yet after reading Imhoff’s book, you are left with the impression that most of these problems could be dramatically improved by simply reforming the massive body of law known as “the Farm Bill.”

“If you eat, pay taxes, care about the nutritional values of school lunches, worry about the plight of bio-diversity or the loss of farmland and shrinking open space, you have a personal stake in the tens of billions of dollars annually committed to agricultural and food policies,” writes Imhoff. In other words, everyone is affected by the Farm Bill.

The Farm Bill is actually a generic name given to a massive piece of omnibus legislation that is signed into law every five to seven years. Each new piece of legislation has its own name (the last Farm Bill passed as the “The Farm Security and Rural Investment Act of 2002.”) No matter the name, the Farm Bill is the ultimate piece of modern legislation. From its birth as a 1930′s-era relief effort for the nation’s farmers, it has grown into a massive public subsidy for the largest agribusiness and industrial interests and the ground floor of the social safety net for the poor.

The book offers a great civics lesson on how this little understood but gravely important piece of legislation works, from the shell game that is the appropriations process to the insertion of political wedge issues into the legislation. You also learn how entrenched politics helped destroy the practices of land use, biology and conservation which is now having a massive effect on climate change, through emissions, the destruction of habitat and bio-diversity and carbon sequestration.

According to Imhoff, the Farm Bill exacerbates many serious modern problems, rather that aiding farmers. He makes a strong case against the current largess of subsidies, probably the best known and most politically charged aspects of the Farm Bill. The modern farm bill typically focuses on two main areas. About 50 percent of the funding concentrates on Food Stamps and Nutrition Programs. The other half feeds a competing list of special interests in the agriculture and food industries which are designed to encourage overproduction of certain crops, particularly soybeans and corn.

The book addresses the “cornification” of America that results from these subsidies. “These two crops,” writes Michael Pollan in the foreward, “are the building blocks of the fast food nation: a McDonald’s meal (and most processed food in your supermarket) consists of clever arrangements of corn and soybeans – the corn providing the added sugars, the soy providing the added fat, and both providing the feed for animals.”

At its core, however, the book is a call to action. Because of today’s heightened awareness about obesity, energy dependence, national security and climate change, Imhoff believes the time has never been better to reform the Farm Bill. Unlike a lot of critiques, Imhoff goes out of his way to offer solutions and next steps, both practical and far reaching. The book includes resources to national and local organizations working on a myriad of different issues affected by the Farm Bill. But it’s Pollan that sets the tone in the forward to the book when he says “this time let’s call it the ‘Food Bill’ and put our legislators on notice that we are paying attention.”

It Seems to Me

As an advocate of corporate social responsibility for 40 years now, it’s astounding to see how far this movement, if we can call it that, has come. Not a day goes by without signs that it has taken root in the world of business, leading to actions that were unimaginable four decades ago.

When I began publishing my newsletter, Business & Society, in 1968, it dealt with the formation of new groups such as the National Alliance of Businessmen and the National Urban Coalition, campaigns to get more minorities hired at corporations and placed on corporate boards. One of my early issues reported how Secretary of Commerce Alexander Trowbridge asked 500 corporations to help in hiring the rural poor and the unskilled. Only 49 companies pledged cooperation, 47 flatly refused and 385 did not bother to respond. We quoted the late Senator Daniel P. Moynihan: “I’ll tell you what our responsibility is. It’s to tell white America, rich America, that it’s about the last chance to deliver. For instance the business community. They got all excited about the urban crisis, unemployment of Negroes, and so forth. However, so far I think the business community has treated this as another wrinkle in their Community Chest work.”

Contrast that scene with what’s happening today. In the first month of 2007, Business Week carried a cover story headlined: “Imagine a world in which socially responsible and eco-friendly practices actually boost a company’s bottom line. It’s closer than you think.” The authors speculated that social responsibility programs “could help investors sort long term survivors from the dinosaurs.”

The Norwegian pension fund (Europe’s largest public fund at $300 million) has barred investments in 21 companies deemed to be unsuitable on ethical grounds. Among the companies on the blacklist are: Wal-Mart, General Dynamics, Boeing, Honeywell and United Technologies. Grounds for exclusion: human rights violations, environmental damage, gross corruption, and other serious violations of fundamental ethical norms.

General Electric, still a pariah in the social investment world, reported that in the past two years it has doubled sales from such environmentally friendly products as wind turbines, water purification systems and energy efficient appliances. GE’s “ecoimagination” business now adds up to annual sales of more than $12 billion – and it’s still climbing.

JP Morgan Chase has set up an investment banking unit centered on alternative energy – and recruited Vandana Gupta from General Electric to head it.

Citigroup has committed $50 billion over the next 10 years to environmental projects.

India-born Indra Nooyi has risen to the CEO’s position at PepsiCo and she predicts that the number of women running American companies could double in the next five years. Right now 11 of the Fortune 500 companies have a female CEO. (In 1968, the number was zero.)

Florida passed legislation that would bar the state’s pension fund from investing in foreign companies with economic ties to the energy sectors of Iran and the Sudan. (U.S. companies are already barred from such activities by law or executive order.)

Unilever, the Anglo-Dutch consumer products giant, announced that it will ban the use of skinny models in its worldwide advertising campaigns. This action responds to criticism that the fashion industry promotes an emaciated look among girls, leading to disorders such as anorexia.

Finally, a first: a course in social investment at a major business school. The Haas Business School at the University of California at Berkeley will offer such a course in its regular curriculum this coming fall. The instructor will be Lloyd Kurtz, senior portfolio manager at Nelson Capital Management, a unit of Wells Fargo Bank.

Strategic View

Seventy years ago John Maynard Keynes invented modern macroeconomics in response to the crisis of the Great Depression and the mass unemployment that it engendered. His solution was to create high levels of economic activity – not necessarily for the goods this produced, but for the jobs. To this day, economy-wide (GDP) growth remains the central yardstick by which we gauge economic performance. Traditionalists worried that Keynes’s spending focus would risk long-term government indebtedness. His famous defense: “in the long run, we’re all dead.”1

Today we face a new crisis which is absent from the national growth and employment accounts: global warming. Keynes should have quipped that in the long run the environment may be dead, because our very successful economy will have killed it. According to the best science we have, carbon levels in the atmosphere must be capped at no more than double the pre-industrial level if we are to avoid what could be irreversible, catastrophic climate change (atmospheric carbon concentrations are 35% above pre-industrial levels now, and rising sharply). Yet the CO2 emissions most responsible for global warming are generated by the very production that is the lifeblood of the economic system: liquid fuels for transportation, and providing energy for residential and commercial use.

To confront head-on today’s crisis will require a new macroeconomics, and modernized metrics to go along with it. Hard environmental limits on greenhouse gas emissions condition our economic options, and cannot be traded off against fossil-fueled growth. However, the political challenge is profound. Even to hold atmospheric carbon concentrations to no more than double pre-industrial levels will require a 70% reduction in greenhouse gas emissions, while the difficult-to-negotiate Kyoto treaty only called for reductions of about 5% from 1990 levels, and only in developed countries.

Economic textbooks ask: how clean an environment can we afford? New economic models must determine what kinds of growth and investment are unacceptable or required within a carbon-constrained world. Once the biosphere is understood as necessary for production and not a luxury good, the benefits of decisive action are obvious. The recent voluminous report on the economics of climate change commissioned by the UK government puts our options in stark terms. Beyond the devastating biodiversity loss, doing nothing is estimated to cause economic disruption equal to 5-20% of GDP per year. Alternatively, the report predicts that investments to reduce greenhouse gas emissions and avoid the worst impacts of climate change would cost only a tiny fraction as much — about 1% of GDP per year. What are we waiting for?

As owners of companies, investors need to make clear that corporate efforts to dramatically reduce carbon emissions are in our long-term financial interest. The Investor Network on Climate Risk is making this case, and the millions of smaller investors at mutual fund companies should join the chorus. Today’s challenges require a new bio-economics for the long run, an economic model that respects our planet’s non-negotiable constraints.

Endnote

1 Thanks to the Global Development and Environment Institute at Tufts University for their groundbreaking work on sustainable economics, including an innovative on-line introductory text, Macroeconomics in Context.

Media Reform: This Revolution Won’t Be Televised(A)

You won’t see headlines about the need for media reform. But media reform does matter. A lot. Media reform is essentially the watershed issue that affects everything from the environment to the quality of our electoral process. And like many areas where the “free” markets have broken down, the importance of the issue is reflected in big clashes between public and private interests and small travails that affect the quality of everyday life.

Campaign finance reform, for example, is a big clash. Media outlets seldom provide much in-depth coverage of political campaigns because television and radio companies get virtually all of the hundreds of millions of dollars spent each year on political advertising. Why give the coverage away when someone will pay for it? According to a study by the Columbia School of Journalism, by the year 2000, television and radio stations were earning more than $600 million in advertising revenue.

They also use their corporate muscle to prevent meaningful reform from taking place. According to the Center for Responsive Politics, the National Association of Broadcasters and five media outlets spent nearly $11 million from 1996 through 1998 to defeat campaign finance bills mandating free air time for political candidates.

This ain’t what Congress had in mind in the 1930s when they granted the first media companies free use of the broadcast spectrum in exchange for helping to educate the electorate (!) and working in the public interest. Or what Congress should have intended when it handed over the digital spectrum (again for free) in 1997.

Now, a handful of huge media companies control most of the outlets for public expression in this country. From Fox News’ coverage of the Iraq War to the Dixie Chicks de facto censorship on Clear Channel Communication radio stations, there are many examples of why that is not a good thing for the consumer. My personal favorite was the moment I accidentally realized that big media companies are adept at making artistic moments fungible, but fallible when it comes to keeping them powerful. And this happened before the wave of consolidation that created the current group of media behemoths.

In 1992 I spent an afternoon in Golden Gate Park listening to a radio simulcast of a tribute concert celebrating Bob Dylan’s 30th anniversary since becoming a recording artist. It was in 1962 that Columbia Records released “Bob Dylan”, a self-titled LP that captured Dylan’s early singing and guitar style, which he admittedly lifted directly from his idol, Woody Guthrie.

In fact, the final song on the album was a tribute to Woody Guthrie titled “Song to Woody”, which ends with the line: “The very last thing that I’d want to do, is to say I’ve been hittin’ some hard travelin’ too.” It is a very poignant line that makes it clear that although the 19 year-old Bob Dylan might have fooled his folk audience with his hard-travelin’ folk persona and Dust Bowl singing style, he was not fooling himself.

As I listened to the concert, I was curious to hear what Bob Dylan would sing as a follow-up to three hours of all-star tributes to himself. When Bob Dylan finally took the stage, the first song he performed was “Song to Woody.” What a powerful and classy moment from the enigmatic artist.

The Columbia label apparently missed the significance of this moment. When they released the live “tribute” album about a year later, Dylan’s first number was the more commercially appealing “It’s Alright Ma I’m Only Bleeding.” “Song to Woody” did not even appear on the album at all.

In the face of Fox News’ jingo-journalism and Big Media’s role in stifling political reform, the “Song to Woody” omission is a trivial matter. But I never forgot my feeling as a consumer and it opened my eyes to the question: should a handful of big companies be the arbiters of information and free expression in this country?

I think Bob Dylan answers it best: “When something’s not right, it’s wrong.”

(Look for more specifics on Trillium’s media reform work in upcoming issues of IFBW).

Let’s Get Phillip Morris to be More Self-Destructive(A)

If you don’t think we live in a bizarre world, you need to catch up with the latest contretemps over health and cigarette smoking.

Tobacco companies have become pariahs and the targets of numerous law suits from smokers and government agencies seeking to fill their coffers with cash settlements. As a former smoker, I have always been a little dubious about the claims brought by hardened smokers who said they were misled by ads because it seemed to me that one had to be blind, deaf and dumb not to be aware of the dangers of smoking.

In any case, for a number of years now Philip Morris, the industry’s biggest player, has turned over a new leaf, admitting that smoking cigarettes can be harmful and urging parents to warn their children about taking up this habit. They are no longer allowed to run television ads for cigarettes but they have crafted public service-like messages that talk about the dangers of smoking.

Go to the Philip Morris website and you will find statements such as the following:

“Philip Morris agrees with the overwhelming medical and scientific consensus that cigarette smoking causes lung cancer, heart disease, emphysema and other serious diseases in smokers.”

“Smokers are far more likely to develop serious diseases like lung cancer than non-smokers.”

“There is no such thing as a safe cigarette.”

“Philip Morris agrees with the overwhelming medical and scientific consensus that cigarette smoking is addictive.”

Hey, to me that’s pretty amazing. This may be the first time in the history of business that a company has been shamed into labeling its principal product as a potential killer. Philip Morris said that since 1998 it has spent $1 billion on campaigns to stop young people from smoking? How bizarre is that?

But wait, an editorial in the November 27th New York Times reported that studies by academics found that these campaigns have been ineffective, namely, they did not stop kids from smoking. In fact, the studies found that the more teenagers were exposed to the stop-smoking ads, the more likely they were to smoke.

Welcome to the world of advertising. It’s only people outside the advertising industry who believe that ads have magical powers to induce people to do what the advertisers want them to do. Many ads fail miserably to accomplish their mission. All the advertising in the world couldn’t sell the Edsel. And all the advertising the Gap is now doing has been unable to lure shoppers into its stores. For many years Hershey did very well without spending a cent on advertising. Consumer behavior is influenced by many factors beyond advertising.

But the New York Times is not having any of that. Its editorial suggested that the Philip Morris campaign may be a sham. It alleged that Philip Morris just isn’t trying hard enough with these ads. The company, said the Times, “is renowned for its marketing savvy. If it really wanted to prevent youth smoking…it could surely mount a more effective campaign to do so.”

So, Philip Morris, get back to your ad agencies, hit them over the head and demand that they come up with creative ways to undermine Marlboro and all the other brands sold by the company. We know you can do it!

One footnote to this bizarre episode. If you were sitting around at the beginning of the century, in January 2000, looking for a good stock to invest in for your children’s future, what should you have bought? Answer: Altria, Philip Morris’s parent company. Its share price is up 238 percent, biggest gainer among the 30 Dow Jones Industrial stocks. And how bizarre is that?

From Bigger to Smaller(A)

On this page in the last Investing For a Better World, we wrote about the economic and environmental challenges of U.S. oil dependency. It’s easy to get discouraged by current trends. It’s perhaps even more disheartening to realize the advent of oil was only 150 years ago, and that we as a species have arguably done so much to threaten the health of the planet in so little time. Conversely, this brief history, this concentration of human activity, may provide the greatest source of hope for reversing the damage. Human beings have the capacity to create dramatic change in relatively short periods of time.

Prior to 1850, most of the energy powering economic and other human activity came from muscle power – from humans and domesticated animals. In comparison, oil as a source of energy was dramatically cheap and plentiful. According to author Richard Heinberg, “A single gallon of gasoline has about the same work potential as maybe six weeks of hard human labor. If we were to equate the two economically, either we would be paying people a fraction of a cent per hour for their labor or we would be paying over $1,000/gallon for gasoline.” Oil was also plentiful. As Heinberg states, “And then the question was, what else can we use this stuff for?” As a society, we’ve found plenty of answers – enough to equate to about 20 million barrels per day in the U.S. for transportation, agricultural production, plastics, and chemicals.

So we’ve built a world-dominating U.S. economy based on cheap oil, persistently finding more and more stuff to do with it. I can’t contemplate that these days without my thoughts going immediately to “The Lorax,” Dr. Seuss’ environmental tome, which my 3 year-old daughter (a budding environmentalist) counts among her favorite books. For anyone who hasn’t read it lately, “The Lorax” is told in the voice of the ambitious industrialist Onceler who chops all the beautiful and once plentiful Truffula trees to make non-descript but much in demand “Thneeds,” declaring “I meant no harm. I most truly did not. But I had to grow bigger. So bigger I got. I biggered my factory. I biggered my roads. I biggered my wagons. I biggered the loads… I went right on biggering selling more Thneeds. And I biggered my money, which everyone needs.”

Globally, we’ve “biggered” our oil consumption to the point where we’re now using oil at an estimated 4 to 5 times faster than it’s being discovered. The scenarios around reaching peak oil production (not to mention global warming) are consistently dismal. For the Onceler, biggering for the sake of biggering ultimately leads to a ghastly, smoggy world devoid of animals, sun and the Truffula trees that began it all. We don’t want similarly dire consequences.

There is great hope in new larger-scale global production of renewable and other alternative forms of energy, which in the U.S. is happening in spite of the lack of federal government leadership. It’s widely believed, however, that supply-side fixes won’t be sufficient to combat economic and environmental impacts of our oil dependency. Energy experts repeatedly remind us that the quickest and cheapest part of the solution is reducing demand. So it may be that the greatest hope comes from a shift in our thinking from “biggering” to “smallering” – which means rethinking transportation, communities, food production, and electricity on a global level. The big question is time. Can we shift away from oil dependency before we hit big energy shortages and/or irreversibly alter the climate? It’s conceivable that, if we could build an economy based on oil in 150 years, we could reduce our oil dependency more quickly than most experts predict. And that leads back to the Onceler’s ultimately wise warning: “Unless someone like you cares a whole awful lot, nothing is going to get better. It’s not.”

Strategic View: Can there be a socially responsible hedge fund?(A)

Hedge funds are a mystery to most people, starting with the name. A “hedge” sounds like something to reduce risk. Yet some hedge funds make headlines for providing exceptional returns, and it is an iron law of finance that high returns have a dark side: high risk. This was notoriously demonstrated “when genius failed” at the Long Term Capital Management (LTCM) hedge fund in 1998 – almost bringing the entire global economy down with it.[1]

The term hedge fund goes back over fifty years, and originally related to selling “short” some stocks while buying others, and thus reducing the risk of market exposure. Now the term is used for all sorts of unregulated investment funds, usually in partnership form, that are lightly regulated and invest using unconventional strategies. Thus the first challenge of hedge fund investing is that it can mean almost anything, as there is no consistency as to the underlying strategies. The activities of hedge funds remain murky, as funds can escape the usual level of U.S. Securities and Exchange Commission (SEC) scrutiny by restricting their customers to “accredited investors.” These include institutions and individuals that meet certain financial requirements. For example, a charitable organization or trust must have assets exceeding $5 million, while an individual or couple must have financial net worth exceeding $1 million, or a high level of annual income. [2]

What are the ethical problems with hedge funds? Oh, where to begin! Probably with over-promising and under-delivering. The lure of hedge funds is that they will provide “all-weather” high returns that avoid the cyclical losses common to stock-market investing. While the industry publishes very attractive return statistics, academic studies cite widespread problems with “backfilling” data and “survivorship bias.” Managers that have a good run with their family and friends’ money stick around and provide backfilled data to the index providers. Funds that do badly disappear and are removed from the data sets or never show up. For example, in 2004 over 250 funds closed down. Only one-quarter of the funds reporting data in 1996 still existed in early 2005. One academic paper found that these pervasive data problems inflate hedge fund index returns by as much as 8-9% per year. LTCM lost 92% of its capital, but didn’t report the disaster to database providers, and has now been expunged from the indices.

The second problem with hedge funds is the financial terms. Skeptics say a hedge fund is “a compensation scheme masquerading as an asset class.”[3] The typical fund charges 1-2% of assets plus takes 20% of the return. Some hedge fund managers make over $100 million per year, and the trading strategies are generating huge revenues for brokerage houses as well.

Problem three is some of the strategies themselves. Esoteric, clever and undisclosed strategies have a good chance of providing high returns. Shining a bright light on investments often puts the squeeze on excess returns, as the herd begins to share the wealth with the smart money. The problem is that the very lack of scrutiny of hedge funds provides plenty of room for dodgy behavior. Take just the latest example from the headlines, Millennium Partners, which has reported 17% annualized returns since 1990. Without acknowledging any wrongdoing, the firm has agreed to a $180 million settlement over an elaborate scheme it had developed to trade in and out of mutual funds.

To make a sleazy story short, this hedge fund figured out a way to avoid the usual restrictions on mutual fund trading by creating more than 100 shell companies that were used to open 1,000 accounts at 39 different firms processing the trades. The long-term, largely middle class investors in the mutual funds subsidized Millennium’s profits, as inflows and outflows from the strategy created transaction costs borne by mutual fund shareholders. The strategy was esoteric, secretive and apparently profitable. I also think it was inherently unethical, a wealth transfer from the middle class to the fund’s more affluent “accredited investors.”

In theory, it would be possible to provide a responsible hedge fund, but for me this would require going well beyond the basics of what companies were placed in the portfolio. First, the fund should have a transparent strategy that involves no unethical conduct. Second, its fee structure should make a radical break with the norm in the industry. If profits are going to be shared, then the basic fee should be reduced. Also, substantial profit sharing should only be for that portion of returns that relates directly to the manager’s skill, in excess of a risk-free cash rate or any net exposure to the stock and bond markets. Generating returns from holding cash and market exposure shouldn’t require handing over 20% of gains to the manager, on top of a 1-2% fee on assets.

Hedge fund investing requires significant due diligence, and the general lack of regulatory scrutiny means that much of this work has to be done by the investors themselves. A “fund of hedge funds” offered by an established provider is one way to diversify risk and provide an additional layer of fiduciary oversight. There are now over 7,000 hedge funds, with assets over $1 trillion. The number of funds and their profitability now rival the entire mutual fund industry. Caveat emptor!

[1] I’m referencing here Roger Lowenstein’s entertaining account of this disaster, When Genius Failed. The title refers to the fact that LTCM’s team included two Nobel prizewinners in economics.

[2] Changes are afoot as starting in early 2006 hedge funds will have to acknowledge their existence to the SEC, and submit to inspections of their books and records.

[3] Much of the data in this article (and this quote) comes from “The new money men,” www.Economist.com, February 17, 2005.

Let’s Hear It for Bill Scandling-You Won’t Read About Him in the New York Times(A)

William F. Scandling, a good friend of mine, died in August – and after I helped to write his obituary, I spent more than a month trying to extract from the New York Times the reasons why it chose not to run any notice of his death. It seemed inexplicable to me. I’m an obsessive reader of Times obits, and I see there obituaries of people who had far less impact on American life than Scandling had. (During this stretch the Times carried an obituary of Jack Nicklaus’ caddy.)

Scandling was one of three World War II veterans who met on the campus of Hobart College in upstate New York. Before they graduated, they were running the student cafeteria, and they used this contract as a springboard for a catering company specializing in feeding college students. Their company, Saga Corporation, rose to become one of the leading food service organizations in the country, feeding students on more than 400 campuses as well as employees at corporations and hospitals; in addition, they operated restaurant chains (Velvet Turtle, Straw Hat Pizza, Black Angus). At its peak, Saga employed more than 50,000 people. Scandling was CEO of the company.

Aside from its commercial success, Saga was known for enlightened policies and practices with regard to employees. It was one of the companies featured in my 1984 book, “The 100 Best Companies to Work for in America.” But in 1986 Saga disappeared from sight after being acquired, over Scandling’s bitter objections, by Marriott Corp. In his post-Saga years Scandling became a philanthropist, making multimillion-dollar bequests to the University of Rochester and his alma mater, Hobart, where he chaired the board of trustees for a dozen years. I met him in the early 1990s, editing and then publishing his memoir, “The Saga of Saga” (Vista Linda Press, 1994). This was not your usual fawning company history. Scandling told the story in a straight-forward fashion, owning up to mistakes, the biggest one being the decision to turn the company over to so called “professional managers,” who presided over its downfall.

An impressive resume, right? But it was deemed not worthy of a New York Times obituary. The last explanation I had from the Times was that every obituary is “the result of an editorial decision.” Thanks a lot. After thinking about it, I concluded that the decision probably resulted from a bias against business. Sure, if you were CEO of ExxonMobil or General Motors, you will get an obituary. However, it’s easier for an actor or writer or composer or baseball player to make the Times obituary page than it is for business leaders.

My view of these matters was confirmed when I looked at the November issue of the Smithsonian, monthly magazine of the Smithsonian Institute. The cover article was on 35 people anointed as “innovators of our time,” people “who made a difference.” They are a distinguished bunch — Gordon Parks, Edward O. Wilson, Richard Leaky, Wynton Marsalis, for example – but only one, Bill Gates, came from the business world, and Jimmy Carter’s profile of him concentrated entirely on his philanthropy, not his business accomplishments. Maya Angelou, Yo-Yo Ma, Julie Taymor, Sally Ride and Andy Goldsworthy all made the list, but not Jack Welch, Warren Buffet, Gordon Moore, Fred Smith, Robert O. Anderson or David Rockefeller. The presumption is that the latter bunch did not “make a difference.”

There is, of course, nothing new about this verdict. If you are familiar with the way business leaders are portrayed in novels, movies, plays and television sitcoms, you know they are invariably evil-doers. The bad actors – Dennis Kozlowski, Bernie Ebbers and Kenneth Lay – leave the lasting impressions – and they will get obituaries. Not Bill Scandling.

In the end, I comforted myself with the remark Scandling once made about the New York Times: “Any newspaper that doesn’t carry comic strips takes itself far too seriously.”

Spotlight on Your Portfolio: What We’re NOT Buying…Yet(A)

Investors with Trillium managed portfolios know that an important part of our investment discipline is diversification across economic sectors. We are often asked if, due to social screens, we have trouble finding investment opportunities in certain sectors and the answer is almost always no (with some client-directed exceptions). Our policy is to under- or over-weight sectors relative to the market as an intentional reflection of our financial outlook for that segment of the economy.

There are stocks we avoid as social investors: tobacco (classified under consumer staples), weapons manufacturers (typically industrials), and nuclear power (primarily utilities), as examples. We apply our expertise in analyzing the influence of these specific holdings on their sectors and make explicit adjustments to create prudently diversified portfolios. You’ll find Procter & Gamble, Group Danone and Whole Foods Market in consumer staples, but not Altria; industrials like 3M and W.W. Grainger rather than Lockheed Martin, and a nuclear power-free utility sector with natural gas-focused Keyspan and hydropower-based Puget Energy.

Two stocks with prominent positions in their respective market sectors, which you won’t see us buying in Trillium portfolios, are diversified industrial General Electric and consumer staples giant Wal-Mart. Both companies historically have not met our social criteria. But recently, there have been exciting and potentially groundbreaking announcements at both companies. So we’ve been re-evaluating – do GE and Wal-Mart have a place in Trillium portfolios?

In May, GE announced the launch of its Ecomagination initiative to aggressively address the need for cleaner and more efficient energy, reduced emissions, and new sources of water. GE’s commitments include doubling its research budget for cleaner technologies, introducing new wind, solar, water purification, and energy efficiency products, and reducing its own greenhouse gas emissions. These developments present an opportunity for true environmental leadership from one of the world’s largest companies.

Other aspects of GE remain of concern: GE’s legacy of PCBs in the Hudson River followed by decades of unsatisfactory negotiations around clean-up, its development of nuclear power plants, its position as the 14th largest U.S. military contractor with both conventional and nuclear weapons-related contracts, its recent equipment sales to Iran through European and Canadian subsidiaries, and the conflicts of interest inherent in GE’s ownership of broadcast network NBC. As much as we applaud Ecomagination, we are not ready to add GE to Trillium portfolios.

In October, Wal-Mart announced a set of social and environmental commitments with perhaps even greater transformative potential than GE’s Ecomagination. Wal-Mart’s ambitious commitments address climate change, product and store sustainability, product sourcing, workplace diversity, benefits and wages, and are, in rhetoric at least, a turnabout from Wal-Mart’s formerly defensive stance. For Wal-Mart, the key will be implementation. Will Wal-Mart bring true change to those core issues that have been of such concern. The jury is still out about whether Wal-Mart will become an acceptable investment for us. In the meantime, we continue to own other attractive retail and consumer stocks.

From an investment perspective, we are satisfied with the opportunities to diversify around big stocks like GE and Wal-Mart – there are plenty of alternative attractive investment candidates in their sectors. But from a social perspective, we would very much like to add GE and Wal-Mart to our universe of buyable securities. The recent announcements are good steps in moving both companies in that direction. So keep watching… we may see GE and Wal-Mart as socially responsible stocks yet.