Socially Responsible Finance and Investing: Financial Institutions, Corporations, Investors, and Activists

CHAPTER 2

Stakeholder Analysis

LLOYD S. KURTZ

Chief Investment Officer, Nelson Capital Management, Lecturer, University of California, Berkeley and Santa Clara University

INTRODUCTION

The stakeholder worldview—the idea that the firm is best described as a network of relationships with a diverse group of constituencies—has great intuitive appeal. Social investors often incorporate elements of stakeholder theory in their work, and many believe that stakeholder principles can be used to improve on conventional investment analysis.

A logical premise is that a company that treats employees well and works hard to maintain good community relationships would have numerous advantages over companies that do not make similar efforts. These efforts would likely help the company's brand image, aid employee retention and new employee recruitment, and provide an advantageous starting point for negotiations with regulators. Taken together, these advantages should allow the company to be more productive and profitable, and therefore be worth more than other firms. The U.S. social investment firm Pax World Investments (2011), one of the first investment firms to formally implement a stakeholder framework, puts it this way: “[W]e believe that well-managed companies that maintain good relations with employees, consumers, communities, and the natural environment, and that strive to improve in those areas, will in the long run better serve investors as well.”

Implementation of this intuitively appealing ...