Another issue that concerns ethical investors is how companies treat people, especially their workers. Many ethical investors base their definition of human rights on the UN Universal Declaration of Human Rights. The fundamental idea behind this declaration is that all people should be treated with dignity, and should enjoy the following freedoms and rights (to name just a few out of several dozen):
- Freedom of speech
- Freedom from fear
- Freedom from discrimination
- Right to life, liberty and personal security
- Freedom from slavery and freedom of movement
- Freedom from torture
- Right to recognition and equality before the law
- Right to property ownership
- Freedom of opinion and expression
- Right to peaceful assembly
- Freedom from compulsory association
- Right to work and to choose one's employer
- Right to equal pay for equal work and fair remuneration
- Right to rest and leisure
- Right to basic living standards sufficient to ensure health and well-being
An ethical investor would probably look unfavorably upon a company that made its workers feel fearful, used discrimination, slave labor or violated any of the other freedoms and rights listed above. Some companies might think it's necessary to rely on such tactics to make a profit, but wiser companies know that such behavior is shortsighted and will eventually bring the company problems.
The Business Case for Human Rights
A publication called "A Guide for Integrating Human Rights into Business Management," jointly produced by the Business Leaders Initiative on Human Rights, the United Nations Global Compact Office and the Office of the High Commissioner for Human Rights, instructs business managers on how to achieve human rights objectives while also meeting the company's financial objectives. The report identifies numerous business benefits that result from supporting human rights:
- Improved stakeholder relations
- Improved employee recruitment, retention and motivation
- Improved risk assessment and management
- Reduced risk of consumer protests
- Enhanced corporate reputation and brand image
- A more secure license to operate
- Strengthened shareholder confidence
- More sustainable business relationships with governments, business partners, trade unions, sub-contractors and suppliers
The same publication points out that a company can have an important role in human rights violations even if it doesn't commit them directly. If the company is aware that an entity it works with (like a supplier, subcontractor or government agency) abuses human rights, the company is complicit in the abuse if it allows, encourages, tolerates or ignores that entity's behavior.
The report outlines four primary ways a company can indirectly participate in human rights violations:
1. The company provides a government with products, services or information that it knows will be used abusively.
2. The company knows that a government it is working with is likely to commit human rights violations in order to execute an agreement.
3. The company benefits from violations committed by others.
4. The company is aware of ongoing rights violations but remains silent.
Businesses can assess their strengths and weaknesses regarding human rights, and choose to eliminate their weaknesses. A company that violates human rights subjects itself to numerous risks. (To learn how you can make a difference, see How Your Vote Can Change Corporate Policy.)
Major Areas of Concern
Here are a few common areas a company should be concerned with when considering its approach to human rights.
Health and Safety in Working Conditions
An employee's working conditions will have a major impact on their quality of life, health and longevity. Dangerous working conditions include those that are unsanitary, noisy, have high temperatures, aren't adequately ventilated, have insufficient lighting, involve dangerous chemicals, are in confined spaces, demand physical labor that exceeds the employee's capabilities and entail physical or psychological abuse from other employees or managers. Employees should also have sufficient break time and access to bathrooms, and should have the physical freedom to leave the job site.
Ethical investors should know that unsafe working conditions don't just happen in other countries. In the United States, for example, a 2009 article from "Gourmet" magazine reported that tomato pickers in Florida were being held as slaves, forced to live in cramped quarters without a toilet or running water, deprived of their paychecks, refused time off when ill and physically abused. In twelve years, more than 1,000 captive workers had been freed, and more were likely undiscovered.
Health and Safety for the Surrounding Community
The health and safety of the surrounding community will be a bigger issue for some businesses than others. A retail store might not have much to worry about at its actual store, but further up the supply chain, the companies that manufacture the goods sold in the retail store might have to be concerned with their use and disposal of chemicals, for example. Agricultural operations, meanwhile, must consider the impact of fertilizers and pesticides.
Wages and Benefits
Investors have a wide range of beliefs about what wages and benefits companies should provide to their employees. Some advocate a "living wage" that pays workers enough to live comfortably in the same communities where they work. Some believe that the federally mandated minimum wage is sufficient. Still, others believe companies should be allowed to pay anything, and workers should be allowed to accept jobs at any wage, even if that pay rate is below minimum wage. Some investors are concerned about the disparity between what the company's entry-level workers earn, and what its executives earn.
Some ethical investors want to see companies offer employees a wide range of benefits. The most basic benefits are health insurance, paid sick leave, paid holidays, paid vacation and retirement benefits. Other benefits, a company might offer, include life insurance, disability insurance, stock options, an employee stock purchase plan, training and advancement programs, tuition reimbursement and flexible work hours.
Chances are you can find a company to invest in that treats its workers the way you think they should be treated. One good source of information on companies, that treat their employees well, is annual surveys of best places to work. Finding out where employees are most satisfied, and why, can help guide investment decisions.
Almost as important as knowing which companies are good choices, is knowing which companies to avoid. Watchdog organizations such as the Institute for Global Labour & Human Rights can help investors weed out companies whose treatment of workers seems unacceptable.
Next, we'll learn about corporate governance - how companies manage themselves and their relationships with shareholders and stakeholders. (For more, check The Minimum Wage: Does It Matter?)
Ethical Investing: Corporate Governance
InsightsWhat is the difference between a standard of living and quality of life? Find out in this breakdown.
InsightsCountries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
Financial AdvisorAn investor’s total wealth consists of two parts – financial capital and human capital. The latter should not be overlooked in investment strategies and portfolio management.
InvestingTribune Publishing (NYSE: TPUB), parent company of the Los Angeles Times, recently agreed to buy Freedom Communications, the owner of the Orange County Register, for $56 million in cash. But ...
Small BusinessJust as companies must plan ahead to ensure a steady supply of raw materials, machinery and office space, they must also plan ahead to maintain a steady supply of quality employees. Human resource ...
InvestingGet an overview of Fidelity's Freedom Funds, with an explanation of the strategy and a brief summary of the Freedom 2005, 2030 and 2060 Funds.
InvestingLearn everything there is to know about ethical investing.
Personal FinanceLearn about the Chase Freedom card and how it earns 1% cash back on every purchase and up to 5% on purchases in quarterly categories.