Ethics and the Stock Market

Everybody wants to do the right thing. At least on paper. Of course, it sounds so much better to say “I contribute to saving the world” instead of “I contribute to spreading cancer”. Right? With this idea in mind, there is a large movement among banks and financial institutions who like to put some ethics on their website as a leading principle, and thus to promote “green” investments, “sustainable” companies and socially engaged institutions and individuals.

However, more than often, this is nothing but a farce, a concept lost in translation somewhere between blurry definitions, bureaucratic approach, lack of real oversight and purely financial motives.

You don’t support any company when you trade its shares

Let’s make this clear from the beginning. You don’t really support any company when you but its shares – unless it happens during the actual public offering, the IPO. The IPO is the only real point in time when you can show whether you support a company or not, by purchasing its first shares (and thus giving your money directly to the company) or letting the opportunity pass, thus keeping your money for yourself.

After the IPO, all publicly traded shares are being traded among the investors. The company itself doesn’t see a penny from the shares after that. Unless, of course, it’s trading its own shares as well.

This doesn’t mean that there is no indirect support. A higher stock price might make it easier for the company to get loans or to convince new business partners to work with them. But this is something you have very little influence on. But saying that, let’s say, you would support tobacco companies because you bought some shares of a tobacco company is, in my opinion, pure bogus.

You get voting rights and the opportunity to express your opinion

On the other hand, once you purchase some shares and the annual general meeting of the company shareholders takes place, you will get a proportional vote on certain company policies and decisions. So if you think that the company you invested in has a generally solid business model but you would like to express your idea of having some things being done a little differently, you get a say.

From where I stand it’s like democracy. You can abstain and not vote, thus undermining the democratic process. Or you can join in and get a say. Of course, if you are just one in a million (or billion) it won’t count for much. But if there are others who share your concerns, then at least you get a shot to support changing things for the better.

Do your own research, don’t rely on analysts

I am seeing this over and over again. Companies are receiving countless awards for their sustainable practices, their carbon footprint, their ethics… whatever. But forget the awards, forget the analysts who praise whoever is paying them. Do your own research.

Sustainability and ethics are such broad terms, and there are really not many companies that truly get what it means. So I prefer to just take a look at the basics and I usually start my research within a company itself. How are the employees being treated?

Ethics and sustainability go hand in hand with taking care of company stakeholders, and no other stakeholder is more important than a corporation’s own teams. Are they paid sufficiently so they can live on their wage and support their families? Do they get health-care plans, provident funds, and a healthy work-life balance?

The easiest way to do such checks? Talking to people who work there, or reading what they say. Less than 20 minutes of online research will quickly reveal whether a company is what it promises or not and whether you will get what you expect.

The stock market is about profits

Reality is that business, in all forms, is about profits. Like it or not, a company and its share price won’t grow if their business doesn’t make money. So the only true support or rejection of a business comes from the consumers. Not from people trading shares.

And some people who don’t understand this principle might see it as some kind of evil plot, but it really is not. True, most investors have very little morals, but also very little loyalty. They will always support a successful business. If a company is bad and does bad things, people should make conscious decisions on whether they support and buy these company’s products or not. If a clear trend emerges that will show rising profits and rising market demand for a “good” company, then investors will follow this trend. So it really is about who is doing the better job.

Unfortunately, in reality, many people still don’t care enough. How else would one explain that some of the largest companies in the world can do the worst things to humanity and yet being still massively supported by its consumer base? I am specifically referring to a popular e-commerce giant who is almost daily in the press for neverending revelations about abusing and underpaying its employees, and a social media giant who is actively contributing to misleading, if not to brainwash people into mindless puppets following fake news and disinformation campaigns. And no, this has nothing to do with free speech.

Having said all that, it’s really up to you how you define your idea of supporting or not supporting a company. Trading shares has very little real impact, but personally and emotionally it can play an important role. And the financial industry knows it. So, don’t get played by them by blindly following some awards, but invest just a little time to do your research, adjust your own habits (like i.e. where you buy which products) and to support the right thing in the right way.