July 12, 2002
Faith-Friendly Investing a Challenge in Current Scandal Climate
by Matt Young
Religion News Service
WASHINGTON -- While President Bush stressed this week (July 9) that most business workers "do not cut ethical corners," several religion-based mutual fund executives claim the current haze of corporate scandal makes it harder to know which companies are ethically sound for their investments.
"`How do you see into the soul of a company?" asked Mark Regier, stewardship investing services manager for MMA Praxis Funds, which adhere to peace-friendly Mennonite principles. "It's a very confusing time in our books. ... It's harder for us to know that we have picked good companies."
In order to remain true to Mennonite ideals, managers of the MMA Praxis Funds have refrained from investing in what they see as unethical corporations, including companies that engage in heavy animal testing and military contractors because many Mennonites are pacifists.
Other religious funds avoid companies that sell such products as pornography and birth control.
But Regier, who screens companies for ethical behavior, said: "We don't just need to know what are the window dressings of social responsibility. What lies at the heart and what kinds of practices are being encouraged" at corporations?
Jerry Gray, internal wholesaler for the funds, said the company is trying to steer clear of the next Enron by performing background checks on board members. "Are they honest people?" is a key question to ask, Gray said.
For instance, Chad Horning, co-manager of MMA Praxis Core Stock Fund, is interested in investing in Automatic Data Processing Inc., but is troubled by the biography of board member Laurence Tisch, including his controversial reign at CBS.
According to The Museum of Broadcast Communications, as former chief executive of CBS, Tisch "manipulated (the company), looking to cash in with an eventual sale of the property."
Walter Miller, executive director of Catholic Values Investment Trust, said he also has been more careful investing in today's corporate climate.
Miller's fund avoids companies that contradict Roman Catholic teachings -- including those that sell pornography and abortion services. But figuring out a company's ethical values and practices is more difficult, he said, particularly in determining whether accounting misdeeds by a handful of executives make the entire company unethical. Still, he said, "If we do find out (about misrepresentation), we obviously take action."
George Schwartz, president of Ave Maria Catholic Values Fund, suggested that "you never know for sure" whether a company is ethical. But he said his fund is safe because "we're interested in solid value companies."
"We're buying companies that haven't engaged in ridiculous practices," Schwarz said. "That's why I'm so optimistic about our style of investing."
Still, Ave Maria is holding the stock of Kimberly-Clark Corp., which the SEC says illegally overstated restructuring charges by $354 million when it merged with Scott Paper Co., resulting in an increase in earnings between 1996 and 1998. Kimberly-Clark agreed to restate its financial statements for these matters in 1999.
"Were they too aggressive? It's possible," Schwartz said. "But it's not a case of a $4 billion fraud," he said, referring to WorldCom's admission last month that it improperly padded earnings by $3.8 billion.
Tom Strobhar, president of Pro Vita Advisors, screens companies for the Christian values-based Noah Fund to make sure the firms' profits do not derive from abortions or other acts that Noah's investors would consider morally wrong. But the aggressive accounting now under investigation by Congress and the SEC is hard to protect against. "I don't know how you would know until after the fact" whether a corporation has engaged in such practices, he said.
While perfect screening may not be possible, at least the Noah Fund and other religion-based funds provide some ethical screening, Strobhar said. "Ninety-eight percent of mutual funds have no ethical screens whatsoever," he said.
Bill Van Allen, chief executive of the Noah Fund, was confident about his fund's portfolio.
"If Jesus were doing the investing," Van Allen said, "he would invest the way we do."
