I am sometimes asked by investors, “Since there’s no such thing as a perfect company, why should I care about the companies I’m invested in?”
I’ve answered this question enough times to suggest that perhaps many investors have this question.
The question often comes as an objection to the idea that investors should be thoughtful about the companies they are invested in, that we ought to seek to invest in companies creating some greater good in the world through the way they operate and the products or services they provide.
And the simple answer is no, there aren’t any perfect companies.
But why would that keep us from trying to pursue progress or, to fix what’s broken in the world?
This line of reasoning would be akin to saying “Well, I’m going to die someday anyway” as a rationale to forego healthy eating, exercise, or wearing a seatbelt. Yes, you are going to die someday, but while you’re living, I would guess that you would like to live the healthiest, most purposeful life you can.
The reality is that we aren’t caught in this binary “perfect vs. horrible” situation with companies (or people for that matter).
We all carry with us some level of imperfection. And the same is true of the companies in our investments.
So, rather than trying to bucket companies into good/evil categories, it may be more appropriate to view the companies in the investable universe along a spectrum.
Let me explain.
Companies exist on a spectrum
On one end of the spectrum, let’s imagine a world defined by exploitation. In this (thankfully) fictional world, every person is out for their own gain. Companies exploit their workers with the lowest wages and the lowest investment possible, and they exploit their customers by providing products that are harmful or addictive. Or, perhaps they under-deliver on the value promised to customers.
On the other end of this spectrum, let’s imagine a world defined by “human flourishing.” In this theoretical world, every person is operating with others in mind, thoughtful to balance the pursuit of progress with the understanding of the implications of innovation. At the level of corporations, companies seek to create value for their customers, creating value through fair pricing. They seek to care for their employees and see them as whole humans with complex personal lives, with the knowledge that happy employees tend to stay in their roles longer, do better work, and promote the company to their friends.
While the world we live in is neither of these two imaginary worlds, it is easy to picture companies we are considering for our investment portfolios on a spectrum between these two extremes.
Where a company is on the spectrum makes a difference
For example, one can imagine that a company delivering a life-saving medication would be closer to the creating-value-for-others end of the continuum than a company providing cigarettes, which will ultimately take the life of many long-term users.
Inversely, a company knowingly using supplies produced through forced labor would be further along the continuum toward the world of exploitation than a company praised for offering their employees competitive salaries, great benefits, and career growth opportunities.
Finally, one can imagine that a company with multiple fines and outstanding litigation related to environmental pollution would be further along the continuum toward exploitation, while a company seeking to provide clean water to populations plagued by waterborne disease would be further toward the value-creation-for-others end.
Seeing companies along the continuum–instead of as perfect or horrible–shows us that our role as investors isn’t irrelevant.
In fact, it’s quite powerful.
Capital fuels companies
Whether we engage as investors by investing in stocks, purchasing bonds, or even investing in funds that hold stocks or bonds, we are pushing capital toward companies, enabling their operations with the potential to share in their profits.
As we push capital toward any given company on the continuum, we promote a world that looks more like the products and activities of that company. As we push capital toward companies providing waste services, we are pushing forward a cleaner, safer world. As we push capital toward companies in the solar energy space that are fighting for transparency in their own supply chains, we are advancing a world that is free of forced labor, where our own demand for energy doesn’t come at the abuse of our global neighbors. As we push capital toward companies leading in cybersecurity, we bring forward an online world that is safer for both our children and our aging loved ones. And as we push capital toward companies that are on the leading edge of Alzheimer’s or cancer research, we are pursuing a world where the devastation of these diseases is eliminated.
I find it compelling to see that my goal as an investor is to push toward a world where that is defined by human flourishing, even while acknowledging that I may never see it fully achieved in my lifetime. I believe that we have each been given the resources we have for a reason. Why not use them for the greatest impact possible given our time and place in history?–this is what values-based investing enables.
So, no, there are not any perfect companies, and yes, our investments are making a difference in the world.