How to Change Corporations

Quote of the day:
“The happiness of most people we know is not ruined by great catastrophes or fatal errors, but by the repetition of slowly destructive little things.”
--Ernest Dimnet

A few weeks ago Gov. Schwartzenegger announced that the California Public Employee Retirement system (Calpers) would divest itself of all companies doing business with Iran, as a way of making known our displeasure with that country’s intervention in Iraq.

This sounds like a good idea, even a bold idea. After all, Calpers controls a huge investment fund.

To me, it’s not as easy as that. Question: is it more effective to work for change from the inside, or from the outside?

It’s certainly much easier from the outside. All we have to do is criticize and not invest. But does this work?

If we think a “boycott” approach will actually put pressure on the companies, divesting makes sense. But I haven’t seen any evidence that such a strategy accomplishes anything.

On an individual level, “socially-responsible” investing has been around for many years, and there are now dozens of mutual funds that promise to avoid companies dealing in such products as tobacco, arms or alcohol.

I’m not sure this has accomplished anything beyond making individual investors feel virtuous.

What HAS worked to change corporate policy, again and again, is expressed shareholder discontent. Calpers has done this, usually to address concerns of fiscal irresponsibility.

It doesn’t work all the time, of course. But often enough, it does work. Things do change.

Shareholder pressure just might get a company to pay attention to a justice concern, especially if a shareholder the size of Calpers speaks up.

How you approach this is dependent on your personality. If you see yourself as an outsider (especially a “righteous” outsider), you obviously will prefer attempting to change from the outside.

You’ll also work from the outside if you dislike being part of an organization, or don’t want to be “tainted.”

On the other hand, if you like to be part of organizations or movements you probably prefer trying to change things from the inside.

My personal preference, and where I’ve spent my life, is as an insider. I think that someone who has an investment in an organization--personal, financial or otherwise--can naturally speak with more authority and command more respect than someone “throwing bombs over the fence” from the outside.