When you’re looking into ethical investing, you want what you’re putting your money in to line up with your values on top of the returns you hope for from any investment. For ethical investors, values are an important part of financial decisions. For these investors, how an organization conducts its business, which is also called corporate governance, can be important.
Investors who look into an organization’s corporate governance are concerned with business ethics. Broadly, they value openness and integrity, and they pay attention to how the company is structured, its operations, and the kinds of growth it encourages. More specifically, though, these factors are going to be on the mind of any investor with ethical concerns (and any business interested in adding value to itself):
Anything against the law puts stakeholders at risk. If an organization has a history of insider trading, kickbacks, or bribery, this is a strike against them. Ethical investors won’t want to fund illegal activities.
How an organization relates to its shareholders is important. Shareholders want to be able to have a say in what goes on in the organizations they’re invested in, from mergers to board elections.
The biggest accounting-related factor is how honest and accurate the organization is about their methods and what they disclosed. Accounting fraud isn’t something that ethical investors will want to be associated with.
Donations from organizations to political figures could be given with the understanding that they will get special treatment for their loyalty. They could also discourage the passing of laws and regulations. Ethical investors might not want to support anyone that uses capitalism in this way.
Compensating the higher-ups is a delicate affair. CEOs that are paid well are more likely to stay, and the stability will benefit investors, but there’s also the concern of how much more a CEO should be making than their employees.
Conflicts of Interest
This is simple: are the responsibilities of management divided in such a way that there aren’t any conflicts of interest? If the CEO is the chairman of the board of directors, that could be a sign of trouble.
Whether or not an organization repairs its problems is a big indicator of how ethical they are. While not complying with an industry’s regulations could pay off right away, it could be penalized later, which hurts investors.
Board diversity is another important factor in terms of corporate governance. Studies have shown that companies with more diverse boards have delivered superior financial performance. That means women and minorities should be included on corporate boards.
If you’re looking into investing in organizations that have corporate governance policies that reflect ethical practices, Falcons Rock Impact Investments could be right for you. We would love to help you take your ethical investing to the next level. Together, we can help bring the possibility of good to more people. Learn more about our portfolios and how it all works.