fatvegan

I've had another thought about how an ethical super fund could be used to save the world. It goes a little like this.

Ageing hippies and other good sorts put all their super money into this ethical super fund. It's an international fund and it gets a few billion dollars (or something) from peace-loving retirees. Its charter is to make money for its investors and use its resources to improve the world. Perhaps it guarantees to return at least the rate of inflation, or perhaps it offers a little more than that. But it's free to pursue strategies that don't maximise financial return.

This company invests a chunk of its money in normal ethical investments. The rest it uses as a cycling takeover fund. It takes over large companies and then reforms them. The "company" declares that it will behave ethically from then on. It signs contracts with various organisations vouching that it will fulfill various criteria. The company improves. The share price probably drops. The hippy fund sells for a loss, and goes off to do the same thing for some other company. Maybe the company will revert, but I imagine it could be quite difficult. You'll have other ethical investing companies who'll buy shares in it when they drop, and they'll have some influence and probably make loud noises when the company changes tack. It's also embarassing to suddenly change your mind, and might make shareholders even more flighty. People like the idea of acting ethically, even if they don't put their money where their rhetoric is. So I'm betting that if some of these companies were given a nudge, they might realise it's not as bad as they think.

But the fun bit comes in after the hippy fund has demonstrated that it's willing to lose money pursuing its hippy ends. After a while of that, merely the threat of being taken over, will make both the management and the shareholders at unethical companies freak out. The management doesn't want to be replaced and the shareholders don't want their share price to go down. So they'll reform themselves until they're no longer the least ethical company in an industry. Then the company that becomes the least ethical will freak out, and start reforming themselves. And so on, until all our nasty selfish unethical companies frighten themselves into creating a hippy utopia.

Even if the management wants to hold on and refuses to change, the threat of takeover (and the drop in the share price that would follow) will cause the share price to drop anyway. The hippy fund will get a bargain, and the share price won't drop any more once they take over, so they won't even lose any money.

The whole lovely scam makes me all happy with hope. I'm trying to think of the holes in it. The main one is that you need a whole lot of hippies who are willing to make less money than they could, at least in the short-term. But ethical companies have already found those sorts of people, so they definitely exist. The other risk is that nice ethical manager actually can't run a company to save themselves, so it's possible that the hippy fund will bring in some hippy managers to manage their company and they'll run it into the ground. The one thing you can say for the selfish, unethical arsemunchers, is that they are good at not running companies into the ground.

I just had an extra thought. While it's in charge, the hippy fund could issue a whole lot of options to itself, that it can only exercise if the company starts being naughty again. That will reduce the resale price a little, because potential shareholders will know they can't play up once they've rid themselves of the hippies, but I don't think it will by that much. And how cool would it be to have all these options floating around, that give hippies control of the unethical companies as soon as they become too unethical. Way cool. You could have an index of ethicalness, and companies who underperform the index just get taken over by hippies.