Foreword

THIS BOOK IS WELCOME RELIEF to those many of us who invest for the long term and value a healthy society and environment, as well as sound economic returns. Socially responsible investors approach their assets and portfolios with this broader vision and use criteria including environmental impact, labor relations, product safety, human rights, corporate citizenship and community reinvestment. As it turns out, such investments now account for $2.1 trillion of capital invested in the United States alone, with over sixty mutual funds offering such products for individual investors, 401(k)s, and other pension and trust funds. Returns are comparable or often higher than with conventional funds, and the Domini Social 400 Index has consistently outperformed the Standard & Poor’s Index for over five years.

Such investors will resonate, as I did, with Thornton Parker’s experience and deep wisdom on the nature of Wall Street today. As of mid-year 2000, there has been a healthy correction from the unsustainable “bubble” that greeted the new millennium. Yet, aspects of our nation’s financial markets are still troubling: the focus on short-term returns and capital appreciation, momentum day trading, playing to the analysts with “creative” accounting, and the premature initial public offerings (IPOs), not to mention the Internet revolution’s continual restructuring of securities markets themselves. All of these sweeping changes are now covered in real time by the plethora of new TV channels, Web sites, and news sources such as Reuters, Bridge, Bloomberg, and others—all amplifying the casino atmosphere.

Adding to the general concern, the drive to please Wall Street analysts leads to a mad dash to hype stocks and the rush to “bulk up” with me-too mergers and acquisitions. Analysts themselves join in the frenzy by giving information to big investors ahead of small ones, and only some 1 percent recommend selling the stocks they cover. Even the big accounting firms are accused of conflicts of interest, such as owning the stocks of companies they audit, while some are being sued for bad, incompetent consulting advice. The major stock exchanges have been the targets of SEC investigations for anticompetitive practices. Even the Mafia has infiltrated Wall Street.

Even if and when all these problems are addressed, there remains the instability of globalizing financial markets, which led to the Asian meltdown and the Russian default crisis that rocked the world’s markets in 1997 and 1998. Earnest calls by the world’s central bankers and finance ministers for a new international financial architecture have led to little in the way of concrete change. Currency markets now trade $2 trillion per day, some 90 percent of which is speculation unrelated to trade. This unregulated global currency trading is rife with “bear raiders” who attack weak currencies with herd behavior, driving these currencies down so as to buy them back at the bottom. Such speculative attacks make it difficult for even the smartest, most democratically elected governments to manage their domestic economies and retain their social safety nets. This means that interest rates must be hiked, causing bankruptcies, unemployment, and loss of savings—all of which affect the poor and the vulnerable, who are mostly women and children.

The good news is that there is no dearth of remedies for all this—at the international, the national, and the corporate level—not to mention at the level of individual investors. And as Thornton Parker points out, if we don’t begin making some of these needed changes—right on Wall Street and in our own U.S. capital markets, the great expectations of baby boomers to sell their stocks and realize their gains for a comfortable retirement may simply evaporate.

At least the debate has begun, started perhaps by Alan Greenspan’s famous phrase about Wall Street’s “irrational exuberance.” Now the title of a serious book published in 2000, author Robert J. Shiller warns of the growing stock market bubble and the unrealistic expectations driving investors. I have written my own warnings—as has archcapitalist George Soros, who also identifies the problem of “herd behavior,” where investors bid stocks up and then all panic at the same time. This has at last dented the unrealistic economic theories of “perfect markets” that efficiently allocate capital to the most productive uses. In reality, such mathematical economists have been proven wrong, particularly the two Nobel Prize-winning “rocket scientists” who lost millions in the near-collapse of the Long-Term Capital Management hedge fund in 1998. A red-faced Nobel committee awarded the 1998 prize in economics to Amartya Sen, who studies poverty. After such debacles and the Asian meltdown, ordinary people and small investors have learned the phrase “moral hazard,” as hosts of speculators were bailed out by taxpayers.

Just as being a socially responsible investor can be prudent in the long run, so can the reforms in financial markets advocated by Thornton Parker in this book make these markets sounder and protect retirement incomes. You will come to appreciate the inner workings of our current markets and the hidden fragility that many “new economy” boosters ignore. Such advocates highlight the new equity economy typical of Silicon Valley, where many start-up companies often “buy” their office space, equipment, and outsourced services with stock and options rather than cash—in the same way they compensate their employees. All this is fine while these companies’ stocks are inflating, even allowing the huge acquisition sprees of companies such as Amazon.com and America Online. But these new stock certificate “currencies” inflate the money supply, as does the ballooning credit card debt, leaving central bankers even less in control of the nation’s monetary policy. And when dot-com stocks tumble, employees’ stock options become worthless and venture capitalists remain the few winners—if they have managed to float these stocks in previous IPOs.

A surprising effect of all this and the inroads being made by the Internet sector (which is for real and still growing) is that money is becoming less important—just at the time when it appeared to have conquered all other values. Billions of dollars were thrown at Internet start-ups, which grew on debt and further infusions of cash in the pie-in-the-sky hopes of growing by simply capturing customers, even at a loss. To date, even the benchmark of the dotcom sector, Amazon.com, has yet to earn a profit. In their 1999 book Internet Bubble, Anthony B. Perkins and Michael C. Perkins, the editors of Red Herring, exposed the underside of Silicon Valley’s “vulture capitalists” and cut-throat, money-crazed, adolescent culture, and explained how it would lead to the shake-out that finally began to occur in May 2000. Their Appendix, “Calculating the Bubble,” convinced me. “The average Internet company in our set of 133 publicly traded companies (as of June 11, 1999) with equity market capitalizations greater than $100 million will need to generate revenue growth of approximately 80 percent every year for the next five years—in other words, revenues will need to increase by a factor of over 18 times by the first quarter of 2004.”

Today, even with so many burned investors, money still pours into Wall Street from all those individual retirement accounts (IRAs), 401(k)s, and company pension plans. Many Wall Street-related interest groups have joined with conservative think tanks and worried young voters in urging that Social Security be partially privatized, adding to the billions of pension dollars pouring into the coffers of Wall Street’s money managers. This book will shed light on the fundamental issues underlying the crucial debate over Social Security. From my perspective, there is already too much cash chasing too few really intelligent companies and business plans.

Meanwhile, important new enterprises in the budding twenty-first century economy remain underfunded because they are off the radar screen of conventional investors, asset managers, and financial media. These are in the promising new clean energy sector: solar, wind, tidal power, fuel cells, flywheels, and the shift from fossil fuels to hydrogen and renewable sources. Other opportunities await in holistic health, organic foods, the Internet, and media sectors to link concerned “global citizens” in sharing new approaches to their local economies and community challenges, and thereby becoming a part of the great global transition to more sustainable economies for our human future.

The good news is in exploring all the dammed-up inventions, innovations, creativity, and entrepreneurship searching for highly conscious investors, angels, and venture funding. Many of the Internet sector’s best and brightest are now exploring all these new investment opportunities in restoring and enhancing our environment. These offer a much richer legacy for their children than money and more mindless consumption. Many, including Bill Gates, Robert Glaser, and Joe Firmage, have started nonprofits focused on health, alternative clean energy, environmental protection, and quality-of-life indicators, similar to the Calvert-Henderson Quality of Life Indicators, which I co-created with the Calvert Group, Inc. family of mutual funds. Others, including James Fierro, founder of Vancouver-based Venture Resources, are incubating companies that are breaking new ground in cyberspace. James and I are both investors in wetv.com, the Internet partner of WETV, Canada’s global, public access TV network, which will be its platform for ecological commerce, socially responsible business, and investing for a TV series I have developed for WETV called “The Ethical Marketplace.” Another innovation is Barter.com, which will provide money-free, electronic barter for all those 2 billion people left out of the world’s banking and money systems.

The spiritual aspect of the current situation can be seen precisely in the amount of money being thrown into human expectations, ideas, and even half-baked business models. This is the evidence that capitalism has morphed into a new form so that money now follows information and ideas—if not yet wisdom. Intellectual capital is now arguably a company’s most important asset, and accountants are now grappling with proper ways of measuring knowledge. The highest human values—wisdom, love, and spiritual striving—cannot be captured by accountants or money-coefficients, any more than humans can evaluate fully Nature’s role. But we can move toward much greater understanding and certainly beyond our current practice of setting the value of such priceless aspects of our existence at zero—as in our Gross Domestic Product national accounts. Knowledge is the newest factor of production to enter economic theory and it resides not in land or factories, but in the heads of employees. Thus, shifts continue occurring in the way enterprises are structured, toward partnerships, cooperating and sharing with all stakeholders—not only stockholders. As I wrote in my first book, Creating Alternative Futures (1978, 1996), there is no “divine right of capital,” just as King John learned in Britain in 1215 that kings did not possess such a right.

So conscious investors, employees, and citizens are changing the rules of the market game and raising the ethical floor under the global “playing field,” and many concerned Wall Street insiders are joining them. Some investors and entrepreneurs, myself among them, are now so cognizant of Wall Street’s current dysfunctionality that they are vowing not to go public. Who wants an IPO that throws their socially visionary young company into shark-infested waters? Instead, they are forming private networks, based on the pioneering Social Venture Network and similar groups it helped catalyze. Instead of losing control of their higher purpose and mission to today’s greed-based financial casinos, they are extending their relationships into cyberspace via electronic barter and information-based trading systems, providing their own pools of socially conscious “liquidity.”

When you have read this book, you will better appreciate this enormous shift now quietly occurring in our capital markets. Using Thornton Parker’s research and suggestions for enabling this healthy evolution of capitalism, you can become a participant in these shifts toward economic and ecological sustainability. This will be an investment in your own future and even more in the futures of your children and grandchildren. Today, the move toward corporate codes of conduct and a more ethical marketplace are becoming a pragmatic necessity. On a small, interdependent planet, all our self-interests turn out in the long run to be identical: survival and a more humane future.

Hazel Henderson