Saint Mary’s College of California, a Lasallian, liberal arts college with a strong commitment to service and social justice. And now, with the Elfenworks Center for Responsible Business, the school is poised as a leader in responsible business, as well. [SMC website / press release]
Exciting 2014 Launch
Can businesses change the world for the better, improve the environment, reduce poverty or improve K-12 education? Discovering the answers to those questions is part of the mission of the new Elfenworks Center for Responsible Business (ECRB) at Saint Mary’s College of California.The goals of the new center, formerly known as the Elfenworks Center for the Study of Fiduciary Capitalism, include research to address sustainability challenges, which includes figuring out how to produce goods and services that won’t endanger future generations and the environment. The ECRB will promote best practices in corporate governance and corporate social responsibility, continue focus on fiduciary capitalism and responsible investments, provide students opportunities to work with companies with responsible business practices and foster business education models to promote real and positive sustainable change in the world today.
“This new Center for Responsible Business expands on our prior focus on fiduciary capitalism,” said Saint Mary’s Provost Bethami Dobkin. “The research and educational programs of the ECRB will reflect the mission of the College by encouraging businesses, through the scholarship of our faculty and engagement of our students, to develop innovative solutions to help solve social and environmental problems in their immediate communities and across the globe.”
To mark the launch of the Center, the ECRB held a panel discussion “Responsible Business: What It Is and Why It Matters,” on Tuesday, March 25, 2014 at 5:30 p.m. featuring leading executives from responsible businesses in the Bay Area, including Ken Munson, chief executive officer of Sunverge Energy and Augustine Gill, chief operating officer of Catholic Charities of the East Bay. The forum will be moderated by Professor Saroja Subrahmanyan, the executive director of the ECRB and will also feature ECRB Senior Fellow and Saint Mary’s Management Professor James Hawley.
“Responsible business must mean more than simply claiming to be responsible,” said Hawley. “What are emerging worldwide are standards for responsible business through the concepts of E-S-G, for environmental, social and governance standards.” The author of 35 articles on responsible investment, the international financial system and the ownership and governance of corporations, Hawley explained that the “E” and the “S” focus on the impact of products and services that a business provides and how they impact society and the environment, both positively and negatively, while “G” is about governance and focuses on how firms are owned and controlled.
“The panel reflects the planned business partnerships and public outreach the Center will have going forward,” said Subrahmanyan, whose academic research includes sustainable consumption and consumer behavior of economically disadvantaged people. “Our plans are for the Center to take a leadership role promoting and inspiring sustained research, advancing responsible business pedagogy and fostering ongoing partnerships among academics, students and businesses,” she added.
In addition to research and outreach, Zhan Li, SEBA’s dean said student engagement will be a key focus of the Center. “The ECRB will allow our students to partner with, invest in and advise various enterprises that meet the criteria for responsible businesses in the Bay Area and internationally,” said Li. “These are important educational opportunities and they are an outgrowth of the ongoing focus on the global leadership and responsible business orientation in the School of Economic and Business Administration at Saint Mary’s.”
The Center’s Fiduciary Capitalism Roots
The Center’s purpose has widened. When originally launched, it was known as the Elfenworks Center for the Study of Fiduciary Capitalism. At its heart was the premise that institutional investors such as pension funds can also promote a more socially responsible agenda. Imagine an institutional investor saying to a company “stop that bad (e.g., poverty-inducing) act, it’s bad for my portfolio” – that’s an aspect of capitalism at its brilliant best. It is our hope that the concept of fiduciary capitalism will be taken up by fiduciaries far and wide as institutional investors such as pension funds (which now control nearly 60% of all publicly traded equity) recognize that it’s in their best interests in the long-term to promote a more socially responsible agenda. The reason is that these behemoth investors, by virtue of owning large portions of the global economy and having a long-term investment outlook, have to eat the costs of doing business and, as a result, are motivated to reduce those costs or externalities.
An externality is the portion —positive or negative— of the costs and benefits of production that are borne by society at large, rather than the buyer or producer individually. For example, from an insurer’s point of view, the return of an insured person to productivity (as a tax-paying member of the workforce) after state-of-the-art restorative surgery would be an example of a positive externality; the societal gain does not directly offset the costs associated with covering rather than denying the claim, so the incentives lean against society’s best interests. A coal-burning power plant with outdated equipment is an example of a company benefiting from a negative externality, shifting to its neighbors the true costs of staying in business. Likewise, business practices that result in more poverty also create an externality, as management pays little of the external costs of its actions while adding to the burdens on government-funded healthcare and social services and exposing more children to the hardening and hopelessness that flourishes in poor and dysfunctional homes, schools, and neighborhoods. In these scenarios, the externalities cost the business managers and shareholders virtually nothing, but the costs are real, the bill will come due, and it only grows bigger the longer we run the tab. We all reap the benefits when harmful these practices are changed, whether through responsible investment or any other method which internalizes these costs and benefits, causing the decision maker to fully weigh the results of their actions.
Fiduciaries who manage today’s huge pension and mutual funds recognize that negative environmental, social and corporate governance externalities will, over time, adversely impact the fund’s portfolio. Their response is to eliminate the negative externalities in their portfolio. That translates into more socially responsible investment policies and corporate governance. The fiduciary capitalism model also calls for a process of engagement with corporate managers rather than divestiture as the means to change corporate governance. It’s an idea so powerful that, in 2006, the United Nations used it to develop their six “Principles for Responsible Investment,” which provides institutional investors with a much-needed framework for their investment decision-making. The New York Stock Exchange has signed on to those principles, and we’re thrilled.
“I am delighted that the Elfenworks Foundation has named the Center and elected to be a guardian in our efforts to study ethics and social justice in the corporate world and within capitalism itself. The ‘fiduciary capitalism’ of large institutional investors and other ‘universal owners’ plays an increasingly important role in the world, and we look forward to how this role responds to pressing social issues such as poverty, inequality, and climate change, among others. There is no doubt that your gift will advance the mission of Saint Mary’s College and the Elfenworks Foundation. The Elfenworks Center at Saint Mary’s College is uniquely placed to make a positive difference in the business community and in the field of higher education.” –Brother Ronald Gallagher, President
Even as the Center’s mission and scope have expanded, the original work on Fiduciary Capitalism and activist investors continues under its umbrella, providing a firm foundation on which the Elfenworks Center for Responsible Business can build and grow.
About Saint Mary’s College of California
Saint Mary’s College of California is a Lasallian liberal arts college with a strong commitment to service and social justice. For example, CILSA, Catholic Institute for Lasallian Social Action, promotes, organizes, and supports service on behalf of social justice by members of the SMC community. The college intentionally fosters a strong culture of service and social justice. For example, in 2009, over a thousand students contributed over forty five thousand hours of service in the local community, at the state level, and internationally. In addition, 21 SMC graduates signed on for year-long commitments to the Peace Corps, AmeriCorps, Capuchin Franciscan Volunteers, and Lasallian Volunteers. The Saint Mary’s High Potential Program is a leader in educating inner-city minority students, and the college has received national recognition for its Katrina relief efforts. The college has signed the California Energy Pledge for energy conservation and is in the process of adopting principles of campus sustainability. Saint Mary’s College’s own Brother Camillus Chavez, FSC PhD, who teaches meditation and whose website (brothercamillus.com) we helped implement, has been supportive of Elfenworks’ Breathing Butterfly project. Contact: www.stmarys-ca.edu ~ 1928 Saint Mary’s Road, Moraga, CA 94575