Money Talks ... And Portland's Money Should Speak Up for Corporate Responsibility

Steve Novick

Next week, I will ask the Portland City Council to adopt social responsibility criteria to help guide the City’s investments. Although the City does not buy stocks, it does buy corporate bonds. Up to now, we have had no social responsibility criteria to apply to these bond purchases. I think it is time for that to change.

I know that Portland alone is unlikely to have an impact on the business practices of Fortune 500 companies – but acting together, the cities, counties and states of America certainly could have an impact. If a significant number of such governments follow our lead, corporations that don’t meet our criteria will start to find that it’s harder for them to raise capital. If that happened, those corporations would have to think about changing their behavior.

Under the new policy, we would examine corporations that meet our stringent financial criteria for investment to see how they fare on certain other criteria. We would take note of abusive labor practices. We would ask if the company has conducted activities that are damaging to human health or the environment. We would determine whether the corporation has a history of generally unethical behavior – e.g., engaging in bribery or deceptive marketing practices. We would ask if the company has engaged in extreme forms of tax avoidance. Finally, we would ask whether the company wields such extraordinary market power that they can use, and have used, that power in a way that disrupts normal competitive market forces.

Recognizing that there are few saints in the ranks of major corporations (as in the ranks of humans), I would not expect us to put on a ‘do not buy’ list any corporation that had, at some point, run afoul of one of these criteria. However, I hope that if a corporation has a long history of violating multiple criteria, we would instruct the Treasurer not to buy that corporation’s bonds.

As a first step toward implementing this policy, I am asking my colleagues to put one corporation on the ‘do not buy’ list immediately. That corporation is Wal-Mart.

Wal-Mart stands out as a company that has a long and ongoing history of violating not one, not two, but three of these criteria. It’s not just that Wal-Mart has, historically, locked employees in its stores, forced them to work “off the clock,” and paid low wages; Wal-Mart also, just last year, further reduced the number of its employees who get health insurance. It’s not just that Wal-Mart engaged in extensive bribery in Mexico, and decided in 2006 to shut down an internal investigation into that issue before it saw the light of day; it’s that, early this year, we learned that Wal-Mart’s current CEO, Michael Duke, was personally informed of the bribery scandal in 2005.

And sure, many big companies wield an unnerving amount of power in the marketplace – but not too many can actually force manufacturers to dilute the quality of their goods, as Wal-Mart can and does. In his book “The Wal-Mart Effect,” Charles Fishman showed how manufacturers are forced to choose between maintaining the quality of their products and meeting Wal-Mart’s demands for ever-lower prices. And you wouldn’t read a passage like this one in Fishman’s book about too many companies:

The CEO of an instantly recognizable consumer products company whose products are sold at Wal-Mart, in the course of a forty-five minute conversation in which he explained why there was no possible way he could talk about his relationship with Wal-Mart, said, ‘They have killed free-market capitalism in America.’

There are other major companies with big black marks on their records that I think we need to study further for possible inclusion on the ‘do not buy’ list. (I am proposing that the City engage a citizen committee and/or an investment adviser to develop ‘do not buy’ recommendations based on our criteria.) General Electric is a poster child for tax evasion. Coca-Cola is practically in the business of increasing the incidence of diabetes. If further research shows they also fall far short on other criteria, I at least would want to add them to the list.

But you have to start somewhere – and we might as well start with a company that is openly, notoriously and extravagantly bad to the bone. When I first reviewed the City’s bond holdings, I was stunned to see that we had millions of dollars in Wal-Mart bonds. We now have $36 million. I hope we don’t buy any more.

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