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April 28, 2005
Parnassus Workplace Fund Launches Today, Along With New Small- and Mid-Cap SRI Funds
    by William Baue

While many socially responsible investment funds assess workplace criteria, the Parnassus fund is the first to lead with this issue.

It stands to reason that the market will reward companies that prioritize treating their employees well, due to increased worker productivity and decreased reputational risks. However, the notion has not much been tested. Many socially responsible investment (SRI) funds have qualitative screens that address employment issues such as respecting and representation of diversity, but no SRI fund leads with workplace issues.

That changes today with the introduction by of the Parnassus Workplace Fund (PARWX) by San Francisco-based SRI fund firm Parnassus Investments.

"The concept behind our new fund is simple: Companies which treat their employees well can be expected to provide superior products and services to their customers," said Jerry Dodson, who founded Parnassus in 1984 and will serve as portfolio manager of the new fund. "They should, therefore, outperform competitors over time."

A number of surveys identify companies with best workplace practice, such as the Fortune magazine's "100 Best Companies to Work For," Working Mother magazine's "100 Best Companies for Working Mothers," and Diversity Inc. magazine's "Top 50 Companies for Diversity." Parnassus will draw on such lists, as well as its own research, to constitute the portfolio, which is launching with about 25 stocks and may eventually reach up to 50, according to Parnassus Chief Operating Officer Stephen Dodson.

"Academic studies have suggested that there is a strong correlation between good workplaces and good companies," said Milton Moskowitz, who works on both the Fortune and the Working Mother lists, and will also provide research assistance to Parnassus. "The Parnassus Workplace Fund will test that hypothesis by investing in companies which have been recognized as providing a supportive environment for their employees."

The website, maintained by SRI practitioner Lloyd Kurtz of Nelson Capital Management and a judge for the Social Investment Forum (SIF) Moskowitz Prize given annually to the best quantitative research on SRI, lists a number of academic studies correlating workplace best practice and strong financial performance. For example, "Porous, Pious, and Prosperous: The Curvilinear Relationship Between Social Responsibility and Financial Performance," a November 2003 paper by Michael Barnett and Robert Salomon of New York University, finds that equal employment screens have a statistically significant impact on returns.

Industry studies concur. For example, the Great Place to Work Institute (which helps select the Fortune list) and the Russell Investment Group released a study last month that found significant outperformance of the Fortune list compared to the Russell 3000 and the S&P 500. Reconstituting a portfolio annually between 1998 and 2004 to reflect changes in the Fortune list, the study found it generated cumulative returns of 176 percent compared to gains of 42 percent by the Russell 3000 and 39 percent of the S&P 500.

"Great workplaces have significant competitive advantages as a result of the high trust relationships between employees and management," said Dr. Amy Lyman, president and Co-founder of Great Place to Work Institute, the firm that selects companies for the Fortune list. "Trust can contribute to higher levels of cooperation, greater commitment, lower employee turnover, decreased use of sick time and improved customer support."

Of course the Parnassus portfolio will not exactly replicate the Fortune list nor any of the others.

"Some of the companies in these lists may be great places to work, but they're not socially responsible in other areas--like Philip Morris, for example," Mr. Dodson told

Parnassus will apply the same social screens it applies to its other funds.

"We have both positive for companies that respect the environment, encourage diversity, and other proactive practices, as well as the standard SRI exclusionary screens: no gambling, weapons, alcohol, tobacco, or nuclear power," Mr. Dodson said. The workplace-related screens will get closer scrutiny for this fund. "We will look closely at diversity in the workplace with particular attention to the board and management."

Also launching are two other funds: the Parnassus Small-Cap Fund (PARSX) and the Parnassus Mid-Cap Fund (PARMX). These contribute to filling a relative void in the SRI market, as most social funds cover large capitalization companies. The funds will similarly implement Parnassus' screens, and will likewise start at about 25 companies before working their way up to 50 or so. All three funds are seeded with several thousand dollars, according to Mr. Dodson.


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