The Christian Science Monitor

Coke is just slaking thirst?

Dodson: Maybe it's slaking thirst. [But] people could choose plain water or something healthier ... and sometimes they go into the developing world. They take away sales from a nutritional drink, which is usually fruit-based. So it's not a positive impact on society.

Jane, how did you become involved in social investing?

“We have ethics professors that [study companies]. With Enron, WorldCom, Dynergy, and Tyco, each of them was shorted on a different value that these professors [found was lacking].” – Jane Siebels REBECCA SWILLER

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Siebels: The catalyst for this was, unfortunately, the death of my father, who was of "the Greatest Generation" and a grain dealer. He never asked me how much money I made when I came home to Iowa, but he would always ask me if I was treating my customers fairly, if I was honest, and all that. So I sat down and said, "What can I do to incorporate this into my Green Cay's philosophy?" I thought the best way to do that was not only to have socially responsible consultants look at the companies, but also have ethics professors look at the companies, people who are concentrating on these values. So that's what we do.

We have some ethics professors who receive our list [of companies that Green Cay might short] and then we'll rate them according to values. Some of the professors specialize in corporate boards, some are specializing in management and management compensation. They all have their different strengths and their way of looking at things. That was the interesting thing. With Enron, WorldCom, Dynergy, and Tyco, each of them was shorted on a different value.

You were shorting Enron while everybody else was buying?

Siebels: Enron was ranked very highly for bad values by the socially responsible consultant because what was going on in India with a plan that would never be economically viable. One of the ethics professors who really concentrates on accounting, on things like class action suits, legislation, also picked up Enron, but that was because of what they were doing in California. They were lobbied to build a plant, received permission, then sold the rights, which, according to their balance sheet, didn't make sense. So he said, "there's something wrong here."

And WorldCom?

Siebels: Worldcom was a board issue. A different ethics professor in that case pointed out that, basically, the board didn't have very good knowledge of telecommunications and there were all kinds of questions. So that was the trigger.

You also invest in foreign countries that have far fewer environmental and labor protections than the US. Is that ethical?

Siebels: One of my big pet peeves is people saying, for example, "You should not invest in Colombia, because they are all drug lords." Whoa! Yes, there are drug lords in Colombia, but if we don't invest there, they won't even have an alternative. We found a company in Colombia, Carrulla, which was a family-owned supermarket chain. It took more than 10 percent of its pretax profits and put it in a foundation to provide scholarships for the employees. And we're talking the grocery packers and the checkout women. It rose to such an extent that 80 percent of the children of the workers of Carrulla were going to college on Carrulla scholarships. That's a Colombian company. Now, I'm not supposed to invest in that?

Ed, you pick people instead of stocks?

Easterling: People make a difference. And so I stepped back and said, "How do we get a people edge since we're based in Texas?" There are well over 200 hedge funds now in Texas. So if our objective was to find a dozen or 15 blue-chip quality funds, why not stay in our backyard and identify funds by referral, not by scanning a database?

So we're picking people who have the respect of others, whether investors or managers. You not only spend more time with them, but also without ever asking for a reference, you can talk to other managers, other investors, to understand who they are, beyond being investors. When we talk to them we can find out: Who goes to church together? Who carpools with whose kids? Who knows each other personally?

Sometimes churchgoers and big donors to charity turn out to be frauds. How do you avoid them?

Easterling: Sometimes these blowups occur because people make mistakes, or because they didn't appreciate the risks inside their portfolio. It's not enough just to have a personal value side, to have a company that has great values but poor fundamentals. The key is the combination of the two. That gives you the powerful force.

Are you socially responsible?

Siebels: To be labeled as a socially responsible investor in the hedge-fund community is the kiss of death. (Laughter.) So it has really been tough for us. We actually use "values investing."

Easterling: I guess I'd use the same term that Jane was using.

Dodson: Ethical investing or values-based investing? It really doesn't matter to me as long as you're taking a viewpoint that the companies you invest in have a positive social impact.

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