The Hindu Business Line : Are you a Blue CEO?

You can profit by investing and at the same time the world can be a better place, say Daniel de Faro Adamson and Joe Andrew in ‘The Blue Way’ ( www.landmarkonthenet.com). The book is about ‘an ethical business strategy’ that conscientious, value-based leaders adopt to achieve ‘a cleaner environment and more equal opportunity’ and also ‘greater innovation, prosperity, and success.’

Set in the context of the Republican-Democrat divide of the US, the authors’ appeal is for the use of ethical management principles and socially responsible investment to deliver shareholder value.

“The Blue Sector has remained unidentified for years,” they rue. “Blue CEOs have plenty of lessons for like-minded leaders in the non-profit and government spheres.”

A chapter titled ‘Painting Wall Street blue’ talks about ‘politically responsible shareholder activism.’ It cites a Harvard study about proxy contest between shareholders and management of companies; it found that the shareholders on an average enjoyed 8 per cent higher long-term return – no matter what the outcome of the contest.

The authors explain that the substance of the resolution mattered less than its unspoken message: “That shareholders were monitoring executives and were willing to hold them accountable.”

Another research found that ‘executives simply tend to behave more responsibly when they know they are being watched.’ Adamson and Andrew constructed a Blue Index to track the performance of socially responsible companies and find the companies in the index outperform the rest.

The final chapter considers the ‘blue’ aspect of the Tata Group. “Two-thirds of Tata Sons is owned by charitable trusts… and the firm is known for refusing to pay bribes.” Ratan Tata is quoted thus for his tilt towards fairness and doing the right thing: “I want to be able to go to bed at night and say that I haven’t hurt anybody.” To all those genuinely invested in ‘a vision of global justice, freedom, and sustainability, the Blue Way is the way forward, the book advocates.

Recommended for introspective investors.
Eight commandments for investors

Whatever the details of their strategies, successful investors have a few principles in common, says Andrew S. Clarke in ‘Wealth of Experience’ ( www.wiley.com ).

He lists these principles as ‘eight simple commandments’, beginning with ‘save’. Saving, the bedrock of a successful investment programme, is natural to some, but many have to work at it, explains Clarke. “Once the habit is ingrained in your budget (and mind), however, saving can be relatively painless.”

The second diktat is to plan. This can be stated in plain terms at the start and then refined, with time and experience. “Make a plan, and you’ll approach the task of investing with a sense of purpose and greater confidence,” the author coaxes.

Third, learning, which can be through study, experience or a trusted professional.

Next, ‘diversify and allocate’; a failure to diversify can cause the greatest of disappointments.

“Your mix of stocks, bonds, and cash determines both the returns you earn and the risks you experience. Successful investing means finding the right balance of risk and return.”

Commandment five counsels you to keep emotion in check. “Fear and greed are the culprits behind many of the worst investment decisions. The financial markets provoke strong emotional responses that can undermine a sensible, long-term investment plan.” Sixth, monitor. “You don’t need to obsess about your portfolio.

In fact, that kind of intense focus is usually counterproductive.” There are both simple and complex methods for monitoring your holdings, Clarke suggests. Using these you can “assess the progress of your investment programme and rebalance your holdings to match your target asset allocation.”

Seventh, keep your costs down. Why? Because “low costs are the most reliable predictor of high returns.” Elementary, this may be, but oft ignored; for, “everyone wants high returns. Fewer people pay attention to costs… Cost and return are inextricably linked, a fact that big institutional investors have long understood.”

Lastly, be smart about taxes. Explains Clarke: “Your goal should be to maximise your after-tax returns, not to minimise your taxes… It’s smarter to earn $10 and write a $4 check to the tax collectors than to earn $5 tax-free.”

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