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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