Download The Jewish Basis for Shareholder Activism

The Jewish Basis
for Shareholder Activism
BY MORDECHAI LIEBLING
T
he Kossover rebbe taught that
we always need to be conscious
of the Divine. He was asked,
“Can we think of God when we are
engaged in buying and selling?” “Surely you can,” the rebbe answered, “If we
are able to think of business when we are
praying, we should be able to think of
praying when we are doing business.”
Multinational corporations are considered by many to be the most powerful institutions on the globe today.
Of the world’s 100 largest economies,
fifty-one belong to corporations with
revenues larger than many nation
states. Governments are frequently
powerless to change corporate behavior or, worse, are compelled to do their
bidding. More than sixty years ago,
Franklin Delano Roosevelt said that
modern corporations“had become a
kind of private government which is a
power unto itself.”1
Private Property of Shareholders
What is often overlooked is that
these corporations are the private property of shareholders. Publicly held corporations are technically democracies
— the shareholders are the voters.
Shareholder involvement has thus
emerged as one of the most effective ways
of holding corporations accountable.
Recently, an inside-the-Beltway lobbyist for a national environmental organization said to me, “Getting a multinational corporation to change its
policies is many times more important
than getting the Senate to pass a bill.”
As large corporations have assumed significant power in shaping the lives of
people and in affecting the health of
our eco-systems, working to change
corporate policies is an essential component of any effort to bring about a
healthier and more just world.
Most shareholders think of themselves as investors. In fact, and in law,
they are owners. They own a portion
of the corporation in which they hold
shares. Being an owner bestows the
power of the proxy vote, the power to
vote on shareholder resolutions. In Jewish tradition, being an owner has significant ramifications. There is a strong
basis to support shareholder activism,
derived both from basic principles
about wealth and economic resources
and from specific halakhot. The following is a brief summary of the relevant
principles.
Rabbi Mordechai Liebling is Director of the Torah of Money program at the
Shefa Fund.
The Reconstructionist
Spring 2005 • 31
Basic Principles
• The earth belongs to God, and all
wealth derives from God.
• Human beings are the stewards of
creation, and are responsible for taking care of each other.
• Judaism is a covenantal religion:
We are partners with God for the wellbeing of all creation.
• Owning private property is a legitimate human need; along with ownership
come rights and responsibilities.
A fundamental tenet of Judaism is
brit (covenant) — the belief that God
and humans are partners in the world’s
daily recreation and in striving toward
justice. Our partnership with God is
the basis for recognizing that economic
interdependence and community responsibility limit and balance the creation and accumulation of wealth.
Being true to the brit requires conscious
ethical behavior in work, consumption,
buying, selling, lending and giving. The
miracle of Sinai was of human beings
coming together to form a society based
on ethics and justice, and not on personal gain. This was reaffirmed within
the reward and punishment paradigm
of rabbinic Judaism. As the Talmud
says, “The first question you will be
asked in heaven will be, ‘How did you
conduct your business affairs?’” 2
Responsibilities of Ownership
Judaism understands the ownership
of private property as a legitimate human need. Ownership of property implies both rights and responsibilities.
Property owners do not have absolute
32 • Spring 2005
rights over their property; rights are circumscribed by the needs of the community, such as in the laws of peah (reserving the corners of the field for the
poor) and of leket (gleaning — leaving
the rest for the poor once a field has
been harvested). These laws require the
owner to share the means of production with the poor. Furthermore, property owners must act to prevent injury
to others on their property, as seen, for
example, in the biblical injunction to
put a fence around a roof. 3
In Judaism, an owner cannot escape
responsibility for the social and communal effects of wealth. The modern
corporation, however, separates the
shareholder from the corporation. The
principle of limited liability, that the
corporation and not the person is liable for damages, is fundamental to the
corporation. In fact, it is its raison d’etre:
Liability laws were a restraint on risky
ventures, and the corporation was created specifically for the purpose of limiting liability. This allows a transfer of
moral, as well as legal, responsibility,
with the result that shareholders often
feel that they have no responsibility for
illegal or unethical actions committed
by the corporation in which they are
shareholders. Jewish tradition, however, does not accept the separation of
ownership and liability so easily, affirming that a shareholder remains an
owner of the corporation.
Jewish Perspectives
What does Jewish tradition say are
the responsibilities of the owner? There
are direct principles that affect the ownThe Reconstructionist
ing of shares in a company:
• One is not allowed to earn a profit
from forbidden activities, such as, for
example: theft; not paying workers fair
salaries, using false weights and measures, creating pollution or endangering someone’s health.
• One should not allow one’s assets
to cause damage, and one is liable if
damages occur. The classical example
from the Talmud is about oxen. If ten
people hold shares in an ox and that
ox causes damage, each shareholder is
liable, proportionate to his/her holding — no matter how small and regardless of whether s/he was actively involved in handling the ox. One cannot
transfer responsibility for the action
caused by one’s assets.
• One may not assist or be a partner
to someone who assists another to do
an act that is forbidden, even when
there is no judicial fine or punishment.
Just the opposite: one must try to prevent another from committing a transgression. This is based on Leviticus
19:14, “One should not put a stumbling block before the blind” (lifnei iver
lo titen mikhshol). As examples: one
may not sell weapons to a known criminal, or to someone who is likely to commit a crime; one may not create a market for goods that are harmful, such as
tobacco. Neither an individual nor a representative can do these types of things.
Following these teachings, we see,
for example, that a corporation that
supplies arms to rogue political leaders
or despots, or to nations that use weapons against their own citizens to stay
in power, would be in violation of these
principles. We currently have several
The Reconstructionist
cities trying to sue gun manufacturers
for producing Saturday-night-specials.
We have the responsibility to make sure
that our property (assets) does no harm.
Halakhic Viewpoints
There is a long history of discussions
in the halakhic literature about the responsibility of shareholders.4 Given all
of the responsibilities of ownership,
halakhists have had to come to terms
with the duties of shareholders. Rabbi
D. B. Bressler, in his survey of the relevant literature concludes that
. . . while a diversity of views exists
concerning corporate shareholder responsibility, the consensus is that
only corporate directors and executives bear ownership accountability.
This would mean that according to
Jewish law, only such shareholders
would, because of their own ownership status, have the legal obligation
to examine ethical questions before
investing.5
This consensus is based on the premise that individual shareholders do not
have the power to change company
policy while directors and executives do
have that power.
The advent of shareholder activism
challenges this premise. A group of
shareholders, acting together, has the
power to change company policy.
There is now a thirty-year track record
of shareholder resolutions successfully
changing company policy. Some recent
examples: Home Depot agreed not to
buy old-growth lumber; Staples agreed
Spring 2005 • 33
to sell more recycled paper; pharmaceutical companies have provided
HIV/AIDS medicines to African countries free of charge or at significantly
reduced rates; and numerous companies have agreed to end discrimination
against gay and lesbian employees.
The possibility of collective action
having cumulative power leads to the
principle that Jewish shareholders have
the responsibility to act. Rabbi Bressler
concludes,
. . . if there is a shareholder movement attempting to pass resolutions
at the annual company meeting that
would prevent management from
implementing some business impropriety or harmful practice, it
would be incumbent upon shareholders to support such proposals.6
Collective Wealth
Estimates of the collective wealth of
Jewish institutions in endowments and
communal funds vary from 25 to 50
billion dollars.That is a significant
amount of assets, much of which is
invested in stock. Yet very few shareholders vote their proxies. Over the last
two years, through my work at the
Shefa Fund, I have organized the Jewish Shareholder Engagement Network,
to educate and organize Jewish institutions about the importance of voting their proxies. To date, the Network
has a dozen members, representing
more than $1.5 billion in equity.7
It should be noted that in mainline
Protestant denominations and Catholic orders, proxy voting is taken very
seriously. The Interfaith Center for
34 • Spring 2005
Corporate Responsibility, the source of
most social-justice shareholder resolutions, has 275 member institutions,
only three of which are Jewish.
One final teaching: A good deed
cannot be performed through assets
gained by not fulfilling other responsibilities of property ownership. In
other words, one cannot fulfill one
commandment by means of a transgression of another (mitzvah haba-ah
ba’aveirah).8 Saying “If I earn more
money I will give more tzedakah” does
not work, if in the process of making the
money one is causing, contributing to or
benefiting from injustice.
Jewish values about the responsibilities of ownership are clear and unambiguous — we need to take every reasonable
step to make sure that the things we own
do no harm. A first step in being a responsible shareholder would be to vote
proxies to fulfill those obligations.
1. Franklin Delano Roosevelt, Commonwealth Club Address, September 23, 1932.
2. Talmud, Shabbat 31A.
3. Deuteronomy 22:8.
4. For an excellent review of the material
see D. B. Bressler, “Ethical Investment: The
Responsibility of Ownership in Jewish Law”
in Jewish Business Ethics: The Firm and Its
Stakeholders edited by Aaron Levine and
Moses Pava, Jason Aronson, 1999.
5. Ibid. 185.
6. Ibid., 193.
7. The Reconstructionist Rabbinical College is a member, along with many of the
institutions of the Reform movement; the
Nathan Cummings Foundation is also a
member and has been the principal supporter of this project.
8. Talmud, Sukkah 30A.
The Reconstructionist