August 05, 2003
The Needmor Fund Utilizes a Muscular Definition of Fiduciary Responsibility
by William Baue and Mark Thomsen
Susan Stranahan, treasurer of the Needmor Fund, discusses socially responsible investing as a
fiduciary duty and tier A money managers who have a social mission.
Institutional investors account for the bulk of the $2 trillion in socially responsible investments
(SRI) in the United States. One such institution is the Needmor Fund, a Boulder, Colorado-based
foundation that encourages people to work together to change the social, economic, or political
conditions that bar their access to participation in a democratic society. Needmor, which has
about $22 million in assets, made almost 70 grants ranging from $12,000 to
$120,000 in 2002. SocialFunds.com spoke with Susan Stranahan, Needmor's treasurer, earlier this
SRI: Why does Needmor engage in SRI?
Sarah Stranahan: Because we are
a charitable foundation. Our grantmaking mission is community organizing in low-income
communities, for political and economic justice. Our commitment to mission-related investing comes
out of an interpretation of our fiduciary responsibility that all the funds we receive are
charitable dollars with tax benefits, and therefore the funds need to work for the public good as a
whole. We have "muscular" definition of fiduciary responsibility.
SRI: What aspects of
SRI does Needmor practice?
SS: Needmor does screening, shareholder activism, and some
SRI: What's the history behind Needmor's involvement in SRI?
SS: It was gradual transition process that took 15 years. We have been screening since 1987.
We started with a small portion of our investment because we had skeptics on our board. We put
some money into an SRI manager and watched that manager for a couple of years. That manager
performed competitively with our other managers, and with benchmarks, so we put more money with
this manager. Finally, in 1993, we established a rule that all new managers would screen. We
pulled out of our last non-screened portfolio in 1998 or 1999. So we've been fully screened for
about 5 years.
SRI: How has your involvement with SRI affected financial performance?
SS: Over the last 5 years, our managers have outperformed the market benchmarks. However, we
were under our internal targets earlier this year (we made 8 percent, but our target was 10
percent.) Our performance is not caused by our commitment to SRI but our commitment to
equities--we have an aggressive allocation of 80 percent of our portfolio in equities. We also
have screened bond portfolios. If we had had a higher allocation to bonds, we would have done
better through the bear market.
SRI: What screens do you employ?
SS: We have a
set of screens that we developed internally--negative screens around the military, nuclear power,
as well as AFL-CIO labor issues, human rights, and strong screens around emerging markets.
SRI: What kinds of shareholder activism do you practice?
We do a lot of co-filing on
shareholder resolutions. We have worked with our managers to find resolutions where we can take a
leadership role in co-filing in addition to voting our proxies. We co-filed about 15 resolutions
SRI: What's more important, screening or shareholder activism?
That's a false dichotomy. At Needmor, we take the position that they are both really beneficial
and valid forms of mission-related investing. The community of SRI managers that do screening,
such as Domini, Walden, Trillium, and Pax World, also provide a lot of research and support for
shareholder activism. We see it as an interdependent universe.
SRI: What are your
criteria for choosing money managers?
SS: We have a commitment to invest in what we call
tier A socially responsible investment managers. Tier A social investment managers screen, conduct
dialogue with companies about corporate responsibility and how to improve social and financial
performance, and are also active in proxy voting and in lobbying, for example on SEC regulations
and NYSE rules. We look for managers who do their own research, who are committed to shareholder
activism, who see their social mission as a core part of their management--managers that have
internalized their social mission.
SRI: How do you identify tier A managers?
We have an asset consultant advisor who we trained to research for SRI managers. The Asset Consulting Group in St. Louis, Missouri,
developed a database and search capacity and benchmarking tools to run really good comparative
evaluations between SRI asset managers.
SRI: Why aren't more foundations such as Needmor
SS: My sense is that lot of people feel that SRI invests in a hippy-dippy,
loosey-goosey way that's emotion-driven and not discipline-driven. But that's not the way it has
to be. We take a very disciplined, professional approach.