As we approach the season of goodwill to all (wo)mankind, our thoughts often turn to those less fortunate than ourselves, and how we might achieve a better world with what we have to share. It’s a tradition that stretches well back before the iconic 1843 Dickens novella “A Christmas Carol“. In many ways, socially responsible investing is an alternative expression of the same – deploying capital in a way which (of course) maximises return but in a manner which also improves the the common weal.
There are many thematic disciplines within SRI, many of them beset with complications and contradictions (wouldn’t the world be dull otherwise?). There’s one in particular we’re looking at today: labour standards and supply chains.
Most readers of this blog will be familiar with the arguments for more sustainable supply chains, not least because they play out in the high street and supermarkets in the shape of the fair trade movement. Fair pay for banana, coffee or cocao growers in far flung corners of the world? Who could search their soul and disagree with that?
Closer to home, a conspicuous “Fair Trade” contradiction – sub-minimum wage RI analysts
Should those involved in responsible investment buy research from providers that plan to pay below the minimum wage in the country where the work is done? It all sounds rather Dickensian, doesn’t it? We are all familiar with the challenge of downward pricing pressures, so we should expect professional investors to be vigilant of their potential long term effects, surely? The simple fact of the matter is, here today in 2013, institutional investors around the world are indeed buying research from providers that do pay below the national minimum wage in the country of production.
There’s a clear moral conundrum here. If investors are supposed to be challenging companies about their supply chains and working conditions, it really doesn’t reflect well on those RI principles if the investors’ own supply chains were found to have under-paid workers delivering RI-related research they use to steward their investments.
Are investors even aware of the problem? Possibly not. But if investors don’t accept ignorance as a defence from their investee companies (and we’re not aware of many who would have been willing to accept that defence, say, from BP or Debenhams [1]), then they should be careful that their own house is in order too. Otherwise our whole industry loses credibility.
There’s also a pure play quality question too. What kind of quality of research can you expect to produce with low- and under-paid workers? Are they being paid enough to get things right (or even to care whether they get things right)? If you pay peanuts, do you really get monkeys? Would Ebeneezer Scrooge have actually made more money if he paid Bob Cratchit a Living Wage? It’s a question that’s not the sole preserve of modern society as you might expect – the 1830’s Malthus–Ricardo debate on the equilibrium (or otherwise) of political economy was a significant part of the cultural backdrop of “A Christmas Carol” itself.
So, how does this Dickensian practice persist in this day, age and industry?
One prominent way is through the use of internships. Whilst internships may have their place in terms of helping young people gain relevant work experience and enabling employers to find potential employees, there’s plenty of scope for abuse of the situation. Some criticise internships as creating a more unequal society, where internship opportunities are unattainable for those who have to support themselves financially. And once you’re working there, well you want to have a good reference on your CV so you’ll bend over backwards to make a good impression.
How do we spot potential trouble, then? We could ask the question directly, because one obvious warning sign is where the intern(s) is (are) actually delivering mission-critical work for their employer (i.e. where the company in question wouldn’t meet its obligations without the help of low- or un-paid interns). Another warning sign might be in cases where there is a comparative lack of competition for the provision of the research and yet the existence of downward pricing persists.
In the context of responsible investment research, there are some obvious questions to be answered:
- What standards should we reasonably expect in terms of the use of internships within the RI research industry?
- What is it reasonable to expect institutional investors to do, as consumers of responsible investment research, about ensuring acceptable employment standards by their research providers?
- How does the quality of RI research suffer if the analysts producing it are badly paid, and is this actually of concern for investment decision makers and consumers of the research, not to mention the research subjects themselves?
- As an industry, how do we manage the conflict between promoting initiatives like the Living Wage and the selection of the cheapest service provider at procurement time?
Scrooge’s vision of Christmas yet to come was grim – no-one mourned or missed him and his business associates were relieved he was gone, yet the moral of the whole story is it’s never too late to make a change for the better. It has been said that A Christmas Carol was an indictment of 19th-century industrial capitalism. [2] [3] So, we ask you, when £15billion of client commissions has been wasted on unread sell-side research this year [4]:
- Does RI Research reflect the current state of 21st Century capitalism? and
- What does the ghost of “RI Research Yet to Come” look like to you?
Merry Christmas Everyone.
Further Reading
- Saigol L. & Robinson D. (2013) “Debenhams demands Christmas discount from suppliers” Financial Times 17 December, www.ft.com
- Pinkett, Lyn (2002). Charles Dickens. Palgrave MacMillan. p. 91. ISBN 0-333-72802-5.
- Davis, Paul Benjamin (1990). The Lives and Times of Ebenezer Scrooge. Yale University Press. p. 178. ISBN 0-300-04664-2.
- Johnson, Steve (2013) “Expensive research is not being read” Financial Times 15 December, www.ft.com
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Last Updated: 17 December 2013