People invest in the stock market to grow wealth — that’s common to all investors. Many just leave it at that — they’re in the game strictly for financial motives. But others question how their investment in certain companies will reflect on their personal values, not just their financial ones.
The question comes down to ethics. Most public companies evolve with changing attitudes and revise outdated or controversial practices that fall out of favor. That’s partly a business decision; no company survives if they’re stuck in the past. Other companies also view this as a humanitarian choice and aggressively pursue change from a social perspective.
But some don’t. They’re either slow or resistant to amend their standards and practices. Perhaps their business may involve products or services that many people consider to be unfavorable, unhealthy, or dangerous. Still others may have engaged in practices that are questionable at best and illegal or unethical at worst.
Let’s be clear: Badly behaving companies tend to get found out. Investors from all sides of the sociological spectrum tend to ditch them when they do. Enron is a not-so-shining example of this. But with other companies, it’s not always clear when they’re running afoul of social standards or the law. Even if they’re not, it can be hard to determine whether their business aims and models align with the consciences of their investors.
What does this mean for you, the common investor? Does your investment indicate support for a company’s values? Does buying stock help a company to justify some of its more uncouth practices?
What the Stock Market Is
Here’s one truth about the stock market that won’t sit well with some people: It is an amoral construct. That’s not to say that it’s immoral. It’s just to say that morality doesn’t have anything to do with its core function. It’s strictly a financial exchange.
For that same reason, the stock market is also apolitical, gender-neutral, and internationalist. Or at least it’s supposed to be.
That neutrality, unfortunately, opens the doors for certain companies whose practices may be unsavory to many people. It’s been that way since the creation of the stock market concept back in the 17th century. For hundreds of years afterwards, the stock exchange was dotted with companies whose practices may have been perfectly acceptable to past societies but are unthinkable today.
But the stock market has to be apolitical and amoral, as well. Being so is a hallmark of free enterprise. Financial structures that are merely outgrowths of a single ideology — whether liberal or conservative — aren’t truly free in a business sense. While that philosophy permits the inclusion of companies that don’t correspond to all investors’ ethics, it’s also the only way the marketplace can grow and evolve.
While the stock market can’t dictate political beliefs or ethical practices, its investors are free to choose the companies they fund. Does handing a company money indicate that you believe in everything that company espouses? What should you do if you disagree?
Does Buying Stock Help a Company? What Your Investment Means to Them
Before digging into your values as they relate to investing, let’s talk about what your stock means to a company and what it does.
On a large scale, public companies rely heavily on their investors. That reliance is almost entirely financial in nature. Businesses need a continuing influx of capital to maintain operations and to expand. That’s why they go public in the first place. If they can’t generate enough cash privately to fulfill their business objectives, they go public and raise capital through their shareholders.
In return, companies do feel that they have to answer to their investors. Again, the responsibility is largely driven by financial concerns. If a company’s stock price keeps falling, investors may revolt — especially those with outsized or majority interests or groups of investors aligned to meet common goals.
However, a company’s responsibility to its corporation supersedes that of its shareholders. This is a tenet that’s been tried in the U.S. court system, and traditionally, the courts have decided in favor of the corporation’s interest. So while public shareholders can effect change through proxy votes at annual meetings, company executives are beholden to their corporate business objectives first.
Now, there have been a limited number of shareholder actions springing from ethical concerns that have shaken up major companies, including one that happened very recently. A small group of activist investors in Exxon Mobil voted to replace two board members with candidates who pledged to push the company toward cleaner energy sources and away from gas and oil. This may have huge implications for the energy industry.
But it remains an extremely rare event, almost never happening unless there’s a sizable coalition of shareholders supporting change. In the Exxon Mobil situation, the change was driven by a hedge fund manager. Otherwise, it would have been very hard to get a majority of Exxon Mobil’s shareholders to affect the vote.
So from the company’s perspective, your investment is appreciated. However, as a single investor, your personal influence over their direction is rather minuscule. What you can do is decide where to put your money. You can use whatever reasoning you see fit to make that decision.
Does Buying Stock Help a Company? About Ethical Investing
As an investor, you’ve no doubt heard about risk tolerance. That’s a measure of how much risk you’re willing to tolerate in your financial holdings. You may have the stomach to pursue riskier stocks with the hope of bigger profits. Or you may be less willing to endure that risk and would rather invest in dependable, long-term companies.
It’s worth applying that philosophy in another sense — ethical tolerance. How much can you withstand the possibility of investing in companies with ethics or principles that diverge from your own?
From our perspective, there’s no right or wrong answer to this question. That might not be what you want to hear, but we’re not in a position to dictate any investor’s motives.
We understand and appreciate those who only want to invest in companies that adhere to their moral or ethical codes — that’s completely fair. We also understand those who strictly want to consider their portfolios with financial objectives in mind.
But to you, there likely is a right and wrong answer. And it’s probably a good idea to ask this question of yourself, just like it’s good to take the occasional look inside and determine what your values are.
Ethical investing is certainly a movement that’s happening. If it’s especially important to you, then it’s something you’re entitled to pursue. But keep in mind you don’t have to forego all the other, profit-centered objectives of stock investing and follow ethical considerations alone.
The reality is that your individual investment in a company isn’t a massive, ethics-driven influence on their bottom line. But it’s important to you. In as apolitical a way as possible, here are a few ideas about how to consider your investments in the context of your ethics and personal values.
Elements to Consider
Does buying a stock help a company? Here are a few ways to think about ethical issues that may inform your investment decisions, along with an idea for execution.
Read Up on the Issues
Regardless of where you fall on the contemporary issues you’re concerned about, learn as much as you can about them. We strongly encourage reading because that’s the best source of exhaustive knowledge that’s out there. Search for sources that are objective or at least ones that strive to get input from as many sides as they can. Keep in mind that biased or sensationalized media sources aren’t always helpful in this regard.
Research Your Companies
If business ethics are a major concern for you, learn as much as you can about a prospective company’s history. This is something you should do anyway from a financial perspective.
But if you’re worried about the kind of business your companies engage in, or if they’ve managed to skirt legal or regulatory measures, there’s a Google News search in your future.
Consider Cause-Driven Exchange-Traded Funds
One way that modern investors are speaking with their dollars is to invest in exchange-traded funds (ETFs). Like mutual funds, these are financial instruments that let investors buy into several companies under one umbrella.
Some ETFs are organized around certain causes. They fund companies that are making contributions or efforts to address current issues, whether through deeds or words. There may be one or two that correspond to values you believe in. Use an ETF screener — like ETF.com or US News & World Report — to browse those that do.
Gorilla Trades: Success in the Modern-Day Stock Market
Gorilla Trades won’t advise you on ethics or personal values, but we do take our responsibility to our clients seriously. We provide information-based stock picks from companies with a promising future, and we help you maximize your profit potential by executing on those picks at the right time. To find out more, start a free trial and get daily alerts.