Dateline: January 9, 2007, Chicago
The Bill and Melinda Gates Foundation might want to think seriously about using a very small sliver of the foundation’s earnings to educate journalists or would-be-journalists on proper journalist ethics and standards. A delicious idea: Fund these efforts with the dividends the Gates Foundation receives from ExxonMobil or Royal Dutch Shell.
We decided to re read the L.A. Times series on the Gates Foundation’s investment practices (and our post yesterday regarding the series). This series evidences seriously...
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flawed journalism. In reviewing the online articles today, we noticed that they were posted under the caption box “National News.” An objective article about the Gates Foundation’s investment practices might be news, but the Times series about the Gates Foundation’s investment practices belongs on its op-ed page.
If there is one line in this very biased article that pulls the curtains back on Times's thinly veiled agenda, it is this one:
The Times found that the Gates Foundation has holdings in many companies that have failed tests of social responsibility because of environmental lapses, employment discrimination, disregard for worker rights, or unethical practices.
Since when is the definition of social responsibility so clear and absolute? We suspect if asked to put together a list of socially responsible investments, the Heritage Foundation’s list would be quite different from the list assembled by the Brookings Institution.
Moreover, how do you measure employment discrimination? Virtually every employer of even medium size has been sued for employment practices. Is every one of these companies socially irresponsible? Even if they settle a case, that does not necessariy mean that they concede that they discriminated. They may be making a rationale business decision in deciding to settle a case, taking into account the cost and risk of litigation. So by what standards do we separate those companies who engage in discrimination and those that don't?
We have to admit, the anecdotes selected by the Times were very compelling. Anyone would have to be sympathetic to Felix, the 56-year old retired solider who is HIV-positive. The effort he has to go to keep his medicine refrigerated is eye opening. That, however, doesn’t mean that the pharmaceutical company that developed the medicine in question must provide it free of charge. Nor does it mean that those who invested in that company must forego profit.
If the Times wants to play this game, we offer the following hypothetical anecdote which we suspect has some basis in reality: Following the 2004 tsunamis, 12-year old Joe clung to life in a field hospital in Banda Aceh, Indonesia. He was his family’s only survivor. What kept Joe alive? A U.S. pharmaceutical company had developed a new medicine to fight dysentery and had donated 100,000 doses to the tsunamis relief effort. Joe was one of the lucky recipients. And guess what, the Gates Foundation had invested $125 million of its vast endowment in that pharmaceutical company. Now the Gates Foundation doesn't look so bad, does it?
Speaking of $125 million, we have to note the naive belief that the Gates Foundation is even in a position to influence the behavior of these companies. Specifically, the Times writes:
The Times found, it has invested $423 million in Eni, Royal Dutch Shell, Exxon Mobil Corp., Chevron Corp. and Total of France — the companies responsible for most of the flares blanketing the delta with pollution, beyond anything permitted in the United States or Europe.
Hey, $423 million is a lot of money by just about anybody's standards, particularly a reporter's. However, let's not lose sight of the size of the sandbox that we are playing in. Exxon Mobil has a market cap of $422 billion and Chevron has a market cap of $155 billion. The Gates Foundation may be a gigantic foundation, but its $423 million combined investment in 6 oil companies isn't going to buy it much influence at the board table. Moreover, if the Gates Foundation were to begin to hire the staff necessary to argue with the boards of all the companies it invests in over policies, its "proxy" staff would soon dwarf its "grants" staff. It would undoubtedly come under criticism for high admininstrative expenses.
We next note that the Times didn’t quote even one person defending the Gates Foundation-- a Ford Foundation representative did point out the screening for social invests is a slippery slope, but then asserted foundations could affect companies through proxies. That hardly strikes us as a balanced discussion. The Times leads the article discussing socially responsible investing with a summary acknowledgement that there are some critics, but the remainder of the article focuses only on those who argue that there is essentially no difference in returns between socially responsible portfolios and other ones. There are no quotes or statistics from the critics. To the Times, the issue isn't even debatable.
The Times cites a study by economists at Maastricht University in the Netherlands regarding returns on socially responsbile investing. Nothing against our friends in the Netherlands, but why does the Times need to go oversees to find statistics for its position? The United States is generally recognized to have the finest investment and finance professionals and theorists in the world? We would like to know what the finance people at the University of Chicago or the Wharton School at the University of Pennsylvania have to say about returns from socially responsible investing.
The Times points to the KLD Research & Analytics' Global Climate 100 Index, which has outperformed the MSCI World Index, a general index, over the last 18 months. If oil prices continue their decline, will this index continue to outperform the MSCI World Index? Eighteen months is not an appropriate measurement period because it is too short. In fairness, the Times does point to the performance of the Domini 400 Social Index, which did outperform the S & P 500 over a 16-year period, but that is only one index. Why didn't the Times put together a comprehensive table comparing a variety of socially responsible funds and standard metrics? Like its stories, its statistics are much too ancedotal.
And Madame, you doth protest too much. The Times series even contains an article asserting that the Times relied on objective services and thousands of pages of documentation. Finding thousands of pages of documentation is not as hard to do as the Times would like it readers to believe. The 2002 Gates Foundation Form 990-PF is 1847 pages. The Times claims,
Information was used from four leading services that provide guidance for investors regarding corporate performance: Calvert Group Ltd., Innovest Strategic Value Advisors, KLD Research & Analytics Inc. and Oekom Research. None of the companies was directly involved in The Times' assessment of the Gates Foundation portfolio; they have taken no position on The Times' conclusions.
In reviewing the Web sites of these companies, it is clear that each has a significant interest in socially responsible funds. The Times should know better: If you ask only advocates for one position, you will get answers that support that position. We would have preferred to see data assembled by a firm like Ibbotson Associates, a firm that specializes in straight invest research and statistical data. This is not to fault the four companies mentioned by the Times. They do what they do. It is to fault the logic underlying the methodology used by the Times.
And in the glass houses department: If the Times wants to do an article on the appropriateness of foundation investments, why doesn’t it start with The Robert R. McCormick Tribune Foundation and the Cantigny Foundation. According to an article in the Chicago Tribune, 75% of the McCormick Tribune Foundation’s assets are invested in the Tribune Company, owner of the Los Angeles Times. Michael Oneal, Charities Seek Out Advice on Tribune: McCormick, Cantigny Foundations Hire Firm to Protect Stake, Chicago Tribune, Jan. 4, 2007. Before it addresses socially responsible investing, maybe the Times would like to focus on diversification. Even a socially responsbile investment portfolio should be diversified.
In sum, the Times should get off King Kong's back. He really isn't a bad fellow.
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