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Reading a Company's Proxy as a Socially Responsible Investor

How to Monitor and Influence Your Investments

After social investors identify their investment criteria — what they look for in terms of risk, returns, and value-alignment — they can start looking for the investment vehicle that aligns with those criteria. Your criteria may exclude certain investments, whether they're industries, such as alcohol, or investment classes, such as bonds. Other social strategies may actually expand your investment universe.

Then social investors have to invest the same way that any other investor would: by reading financial statements, looking up news reports, and maybe even visiting the company.

Easier said than done, right? After all, companies and situations change. Investing socially requires more than simply picking things that meet your investment needs now and then forgetting about it. Not to worry. You can ensure that the investment opportunities you pursue remain on your “companies you want to do business with” list and what to do if they don't.

Social investors tend to fall in love with a company's mission and then assume it will be a great investment. It doesn't work that way. You have to combine social criteria with information about the investment's financial condition and outlook. No investment will do well just because you want it to.

Keeping abreast of changes

The beauty of social investing is that it forces companies to make changes. But the marketplace is so dynamic that companies change all the time anyway. To be a successful social investor, you have to stay on top of the news. You want to know whether your investment is making financial progress and whether it still fits your style.

Some companies that fit when you first put money into them won't always stay aligned with your goals: Maybe you don't invest in companies involved in gambling, and the company just acquired a hotel and casino operation. Some companies that didn't fit your criteria initially may be a good match for you now because the management has responded to shareholder pressure. You may want to reward the positive change with your investment.

The specific issues that matter to social investors change all the time. International investors have to change their lists of companies and tactics as new world hot spots develop. Thirty years ago, many people wouldn't invest in companies that did business in South Africa. Today, the concern for many investors is companies that do business in Sudan. What will the concern be in 30 years? Who knows, but an investor clinging to old notions of good and bad will miss opportunities that an up-to-date investor will seize.

Making a careful selection of assets

To be successful as a social investor, you have to do more than just find good companies to invest in. You need to find a mixture of investments that reflects your risk and return parameters. If you only invest in stocks, you may take too much risk and lose too much money in those years when the stock market is down. If you put your money in a federally insured bank CD, even if the bank specializes in community lending, you'll have a responsible investment that barely beats inflation and probably won't help you meet your goals.

Fortunately, with the huge range of investments available, you can diversify your risk and improve your returns without compromising your investment goals. Your options range from very secure life insurance to very risky hedge funds. You can invest in real estate, venture capital, and exchange-traded funds without compromising your social beliefs. And that diversification across assets can help you get a better return at the same time.

Using shareholder activism

Shareholders are part owners of a company. Bondholders are lenders. In either case, money gives them power. Even if you're a relatively small investor, you can still be an activist. Even smaller investors can research issues, find out who the big investors are, and put the power of their purses to work.

As a stockholder, you have the right to vote on some corporate issues, including the members of the board of directors and certain compensation packages. Although no one shareholder usually has enough votes to count, many shareholders together can combine their votes and put pressure on a company's management to make changes or else face dealing with new directors who may not be as accommodating.

Companies also accept proposals for shareholders to vote on. You can ask for a report on environmental policies or for the closing of operations in a world trouble spot or for more equitable pay for workers. Even if these resolutions don't pass (and, in truth, they rarely do), the mere fact that they're proposed can sometimes get a management group to think about addressing the issue later.

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