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
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."
SRIstudies.org 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
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 SocialFunds.com.
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."
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.