Catholic Mutual Fund Managers Keep Corporations On the High Road
BY Jay Copp
February 15-21, 1998 Issue | Posted 2/15/98 at 1:00 PM
CHICAGO—A growing number of Catholic stockholders are putting their money where their conscience is. The stockholders are beating their shares into swords, wielding their financial clout like a weapon to prod corporations to be socially responsible. They are determined to make money and to make a difference.
The most prominent mutual fund with a proactive Catholic social conscience is the Dallasbased Catholic Foundation's Aquinas Funds. Aquinas's investment decisions are guided by Church teachings. Investments are made in companies that are involved in objectionable activities — abortion, contraception, and other issues — in order to alter corporate behavior.
Aquinas pressures companies to change their ways by proposing shareholder's resolutions or by quietly exerting pressure behind closed doors. The fund takes advantage of corporations’ fear of negative publicity, declining investment, and divestiture. Frank Rauscher, president, said the fund's activism has helped force many companies to change their policies.
Aquinas follows investment guidelines approved by the U.S. Catholic bishops in the mid-1980s, said Rauscher. The company either avoids investing in companies whose actions violate Church teaching or, more commonly, invests in such companies and then lobbies for change. The top seven issues are abortion, contraception, military weapons of mass destruction or violence, race discrimination, gender discrimination, affordable housing, and credit. Additional issues include tobacco and treatment of Mexican workers in U.S. plants.
Some Catholic groups previously may have managed money poorly, but today some continue to ignore the bishops’ directives on investing, said Rauscher. Some dioceses he won't identify blithely invest in index funds involving companies with policies and practices that are anathema to Catholics.
While Aquinas makes it a point to follow the bishops’ directives, it also invests with an eye on financial returns. Its first step in an investment decision is a standard analysis of a corporation's fiscal health. Aquinas has done well in the marketplace. The Aquinas Equity Income fund posted a 25.9% annualized rate of return during the last three years and recently was given a four-star rating by Morningstar, a Chicago-based fundresearch company. Aquinas's three other funds earned three-star ratings and posted high rates of return.
The fund's performance, as well as its success as an agent of social change, has drawn investors. In four years its assets have nearly doubled, from $90 million to $170 million. Aquinas manages money both of individual investors and non-profit groups, such as religious orders.
Aquinas has found that money does indeed talk. One of its successes involved PNC Bank Corporation, one of the nation's largest banks. The Pittsburghbased company had an all-male board of trustees. Aquinas, a $500,000 investor in the bank, was able to persuade bank officials to add a woman to its board, says Rauscher.
Luby's , a cafeteria chain based in Texas, also was devoid of women in senior management. Alocal group of religious had been trying to no avail to pressure company officials to promote women. Aquinas, though not a shareholder, intervened. The conflict was leaked to the media, embarrassing Luby's , a company reliant on many lower-level female employees and a customer-base, of course, full of families and single women. Last spring the company finally promoted five women to senior management.
Gregory Gronbacher, director of the Center for Economic Personalism in Grand Rapids, Mich., which integrates papal teaching into economic principles, praised the practice of investing with a social conscience. Such investing “resonates with papal teaching on property and wealth,” said Gronbacher, referring to Pope John Paul II's 1991 social encyclical Centesimus Annus (On the Hundredth Year).
“The Pope challenges people to find creative ways to be good stewards of wealth,” he said. “You can give it away to charity, and that's fine—but there can be more to managing wealth than that.”
The stock market and corporate America are sometimes attacked as antithetical to Christian ideals, but Gronbacher said that the Pope has not criticized capitalism per se but capitalism run amok.
“The market has to be kept in a proper perspective,” he said. “The problem is when market principles are more important than people.”
Yet social investment is sometimes criticized for its lack of effectiveness. U.S. shareholders voted on 103 non-binding social policy resolutions in 1996, according to the Investor Responsibility Research Center in Washington. None was passed.
“I think the success has been limited,” said Bill Droel, a college instructor, campus minister, and board member of the Chicago-based National Center for the Laity. “A second problem for investors is that companies have conflicting goals. The moral concerns are mixed up. A company may be doing great things in the inner-city while making money off cheap labor overseas.”
Droel said that investors who choose funds such as Aquinas deserve credit, but that they are “always obliged to carry their moral compass.”
Aquinas claims many successes. The German chemical and drug giant Hoechst was poised to market RU-486, the abortion drug, in the United States. Aquinas, along with many pro-life groups, took the offensive. The pro-life groups threatened to boycott a new Hoechst allergy drug. Aquinas warned drug companies not to be involved in RU-486. The pressure worked. Last spring Hoechst announced it would stop producing the drug and transferred all rights to another firm.
Aquinas was one of many voices that raised a fuss. That's how it usually works, said Rauscher. “The general rule is that it's hard to effect change by yourself. You have to do it in collaboration with other groups.”
A group Aquinas has partnered with is the New York-based Interfaith Center on Corporate Responsibility, which represents nearly 300 Christian and Jewish institutional investors. The two took their concerns to Texaco after the oil giant made headlines when corporate executives were caught on tape making racially offensive statements. Aquinas owns 10,000 shares of Texaco. The oil company was under national pressure to change its stance on race and hiring. Working together, Aquinas and the Interfaith Center were able to meet with company officials and help to steer the changes, said Rauscher.
Aquinas is especially attentive to Planned Parenthood. It screens for companies that donate to the abortion group and invests in some of them. Aquinas continues its investments with the companies that assure them the donation was an isolated incident and divests itself from the corporations whose support of the group is regular policy.
Another successful campaign was mounted against NBC-TV, owned by General Electric. For four years Aquinas, along with other groups, took NBC to task for the violent content of its programming. The pesky protests paid social dividends. A recent study by UCLA showed that NBC had become the least violent network.
Aquinas remains an investor in Disney despite its release of controversial movies such as Priest and Kids. Disney needs an “attitude improvement,” said Rauscher.
An ongoing concern of Aquinas is for companies to clarify their policies on TV advertising. Too few companies have clear standards on what constitutes objectionable material to them, said Rauscher.
Some investors promote social causes by refusing to put their money where their heart isn't. The Catholic Values Investment Trust, based in Connecticut, does not invest in companies that promote principles that violate Church teaching. Rauscher believes that approach is admirable but somewhat short-sighted. “How many companies have changed a policy because you don't invest in them?” he said.
Rauscher noted that Aquinas actually loses many potential investors because of its commitment to Catholic values. Many would-be investors are drawn to Aquinas's social concerns—except for its pro-life stance. Because of that issue—and because it advertises in Catholic markets—Aquinas's investors are nearly all Catholic.
Social investing itself is a growth industry, popular across the religious spectrum. About 10% of all investments in the United States are now based on some sort of social criteria, according to Bloomberg Personal magazine. That percentage was minuscule a decade ago. Droel dates the start of social investments to the mid-1960s when famed community organizer Saul Alinsky led a protest against Kodak for its dearth of black employees. Alinsky persuaded Churches to designate their Kodak proxies and ultimately was able to pressure the film company to change its hiring pattern. The Interfaith Center for Corporate Responsibility grew out of that effort, said Droel.
The Catholic Foundation began managing money for non-profit groups in 1985 and accepted individual investors several years ago. Prior to investing with Aquinas, many religious orders merely deposited their money in interest-bearing bank accounts or purchased certificates of deposit. When they sign up with Aquinas and other funds, they demonstrate they are more savvy today about making the best use of their money.
An axiom from the '60s claims that money doesn't talk—it swears. Those individuals whose investment choices are divorced from moral concerns may see Wall Street as a ticket to easy street. But those who want to bring Christ to the marketplace are taking stock of their choices.
Jay Copp writes from Chicago.
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