Ethical investment can be defined as the integration of personal values with investment decisions1. The principle of shareholders wealth maximization relates, to the role of companies as agents of shareholders to maximize the returns for shareholders, in doing so there are incentives available for some companies to minimize cost (Negative), at the expense of social and ethical considerations. Others will work towards better and newer innovations (Positive), to boost the shareholders wealth in conjunction with an active and ethical role within the community.
The principles of ethics can be both in conflict with and not in conflict with profit maximization depending on the viewpoints of the company. This statement can be confirmed through the analysis of issues such as, environment, human rights, workplace practices and animal welfare, through different companies focusing on distinct positive and negative issues aspects.
The Body Shop International is a manufacturer and retailer of skin and hair care and cosmetic products. This company is well known for its high level of ethical standards that it sets, on various issues and it’s success in maximizing shareholder’s wealth:
* On Environment the body shop has set as it’s mission to act in a way which would protect the environment, both locally and globally. Searching for long term sustainable resources, minimizing the use of raw material as much as possible, including water and energy, also controlling pollution levels through the implementation of control procedures and regular compliance monitoring.
* On the human rights front, the body shop works with Amnesty International, to educate customers, of the importance of human rights. With specific campaigns such as “Make your mark for human rights” a thumbprint petition, over 1400 stores.
* Work place practices is another issue taken up on by the body shop, the body shop attempts to minimize risk on all aspects of operations, from ensuring the quality and safety of the products, to protecting the communities in with the operate in.
* Animal welfare, the body shop bans all testing of their products on animals, it actively seeks to protect the welfare of animals by using it’s purchasing power, based upon it’s purchasing rules nothing will be purchased from the supplier if animals were used in tests of any kind.
Body shop’s retail sales figure vs. Comparable store sales, in 53 weeks ended march 3 2001
Total Retail Sales Comparable Store Sales
UK & Republic of Ireland + 4% – 2%
Americas + 7% + 5%
Europe & Middle East + 9% + 2%
Asia Pacific + 8% + 0%
Total + 7% + 1%
The body shop opened in 1976, and now it has expanded to 1841 shops over 243 countries, and with sales increased by 7% or 691.4 pounds in 20002, clearly showing that the company is maximizing shareholder’s wealth, without any major conflicts with ethics, as they are willing to come up with new and innovative ideas.
Ben and Jerry’s is an ice cream production company, set setup in 1978, it differed from other ice cream companies, in that it was established to make a difference in addressing environmental and social problems.
* On the issue of environment, Ben and Jerry (BJ) accept that by definition, the manufacturing of products creates waste. However they strive to minimize the negative impact on the environment. By focusing on the guidelines of reduce, reuse and recycle, through this the plants not only were environmentally friendly it also made profits of $10000 US dollars.
* BJ has strong beliefs in human rights that is why, they pay wages, which are 3 to 10 times higher than normal labour income to native people in Brazilian rainforest who supply nuts for their “Rain forest crunch”. Not only that, BJ donates 7.5% of pre tax profit away to the community.
* Due to the natural of the business BJ also cares for the well-beings of the farm animals. They are willing to pay farmers premium price in exchange for their pledge not to use recombinant bovine growth hormone, as it has an impact on not only the dairy cows but, consumers and farmers also.