In business and in investment, values are not an optional add-on

George Russell: “It’s either 100% or it’s not integrity”
George Russell: “It’s either 100% or it’s not integrity”

The demise of two of President Trump’s advisory councils raises several questions: Is it right for CEOs to take a stand on social issues? What is the role of a corporation? Do institutional investors have a responsibility beyond making money?


Corporate social responsibility in the news

In an earlier post, we contrasted Milton Friedman’s assertion that “the social responsibility of business is to increase its profits” with Peter Drucker’s assessment that “This is not enough. Any institution exists for the sake of society and within a community… one is responsible for one’s impacts.”

We’ve looked, too, at how this debate translates into the institutional investment context, and specifically at how agency effects come into play. And we’ve highlighted Charley Ellis’ argument that “the secret to building a great [investment] business is to assure priority is given to the profession” and the apparent paradox that the more attention a firm pays to business results in the short term, the less likely it can become that they succeed in the long term.

In a section headed “Integrity is more important than the bottom line” of his book Success by Ten, George Russell also draws the link between values and the long term view. He argues that looking beyond the bottom line is not only the right thing to do, it’s also necessary if a company is to endure: “the companies that have the best chance of long-term success are the ones that are honest and accept a set of core values”.1

Each of these leaders – Peter Drucker, Charley Ellis, George Russell – is arguing, in effect, that a business cannot afford to be only about business. We all have values, and if those values begin and end with “I want to make money” then at some point society will not want to do business with you. George reports the conclusion of a panel on global competitiveness at the Davos Economic Forum that “companies that paid most of their attention to the bottom line would fail.”

It is consistent with that logic that changing societal expectations are causing a shift in the approach of corporations, and a greater focus on values. And we’re seeing an analogous change in the institutional investment world, too.

A pension plan sponsored by a corporation will reflect corporate values (although there are other stakeholders, too, so the two entities are distinct and the plan’s values should recognize that.) Other institutional investors – public plans, endowments, foundations, sovereign wealth funds – will draw their values from their own circumstances and stakeholders. A look around the global institutional landscape points to enormous change in attitudes in the past twenty years. Values are no longer an optional add-on.

It’s not necessarily a simple exercise to identify and articulate an institution’s values, or to separate motherhood-and-apple-pie statements from true core values. And those values will not be static over time; emphases change. Care is needed to avoid the trap of applying the values of those managing the assets (staff, executives, external money management firms) rather than the asset owner. This is one reason that asset owners increasingly seek managers with values that align with their own. And there’s no doubt that it’s possible to go too far, losing the focus on the primary purpose of the investment program.

For all of those reasons, it would be simpler to reduce the mission of an investment program to the question of returns only. But the world is not quite that simple. Today, corporations and the CEOs that lead them have a broader societal role than we used to think they did. Expectations of institutional investors have increased, too. Recognizing one’s impact is now part of the deal.


George F. Russell, Jr., with Michael Sheldon (2010). Success by Ten: George Russell’s Top Ten Elements to Building a Billion-Dollar Business. John Wiley & Sons.
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