My analysis of the minutes from East Sussex County Council Pension Fund Investment Panel from 1974 to 2007

See the questions that arise from these minutes here.

It has been difficult to get the minutes released of the secretive East Sussex County Council Pension Fund Investment Panel. I made one request for the minutes in 2006 but was only sent heavily censored versions of them. I even tried to attend one of the meetings of the Panel but was told that "the open session of the meeting usually only lasts for approximately 5 minutes at the start." Later, in 2008, after reading Your Right to Know - New Edition: A Citizen's Guide to the Freedom of Information Act by Heather Brooke I wrote a strong Freedom of Information request asking for all of the minutes since the Pension Fund began (see the websites WhatDoTheyKnow.com and Wikileaks.org for more info). As far as I know, this is the first time they have been released to the public. Some information has not been disclosed as the letter from the FOI officer shows however the majority of it has now been released.

Now that these minutes have been released it is easier to see what is and is not there. I am just not sure how to get the rest of it. I have written a list of questions after receiving the minutes which includes a list of information which is still missing.

I found it difficult to understand why the Pension Fund is not more transparent, especially because it is so large and affects so many people (on 30 September 2007 it was worth £1.773 billion). According to Chris Baker in 2002, the fund's members include "East Sussex County Council, Brighton and Hove City Council, the University of Brighton and all five district and borough councils in East Sussex. In all, there are 50 members, among them colleges, such as Brighton, Hove and Sussex Sixth Form College and City College Brighton and Hove, more than a dozen town and parish councils, Brighton and Hove Citizens' Advice Bureau, a handful of housing associations and public and voluntary sector organisations." At the very least, those who invest in this fund should have easy access to these minutes and the minute book and all other relevant information. This is not the case at the moment, although the release of these minutes is one step towards that.

It was interesting, although very dry, to read how the pension fund works and what factors affect investment and portfolio make-up. However, while reading it I was deeply disturbed to read how the Investment Panel is more concerned about inflation and interest rates, balance of payments positions, currency movements and the state of the world economy than the impacts of what they are investing their money in. Social Responsible Investment is barely mentioned in all of these minutes. It is something that is added on, and ultimately, the fund is much more focussed on fund performance.

This is not that surprising because, as stated on the 10th January 1975, the aim of investment policy is "to maximise available funds within an acceptable pattern of risk and within any statutory limitations imposed on specific investment areas."

This approach reminds me of Arendt's concept of the banality of evil. I know that the fund managers and councillors on the pension fund investment panel are just trying to do their jobs. They are just trying to "to maximise available funds within an acceptable pattern of risk." But what are the consequences of just trying to make as much money as possible for the pension fund? What are the real costs of such behaviour? How many people are killed or seriously injured because of these investments? How much of the earth is destroyed in the search for profits?

As Kate Morrison reported on the 8th February 2006, "In 2003 the fund had 46,800 shares in BAE - today it has 653,300. The arms manufacturer controversially sold Hawk aircraft to Indonesia and has done business with Saddam Hussein and ex-Chilean dictator Augusto Pinochet. Meanwhile British American Tobacco makes about 900 billion cigarettes a year, controlling 16 per cent of the global market."

As far as I know, the Pension Fund still has an 'active shareholder' approach to Socially Responsible Investment (SRI) (first endorsed on 31 July 1997). According to the minutes, it writes letters to corporations, votes at the their AGM meetings and monitors their environmental performance (the minutes do not tell us to what extent the pension fund does these things of if they have any impact).

However, I have to ask, how can you stop an arms company from making arms or a tobacco company from making tobacco? An 'active shareholder' approach will never change that. No matter how many letters you write or how much you monitor their performance, they will carry on doing that. If that is the case, why does the Pension fund insist on sticking with an 'active shareholder approach'? Why is the fund investing in arms companies, tobacco companies, etc when we know all too well what these corporations are doing?

This is a very personal issue to me. My family, especially over the last two generations, have been violently oppressed with the aid of various corporations. Many of my family on my mothers side were executed in concentration camps. Various corporations enabled the Nazis to do that.

For example:

"IBM - a company where "if your company needs help, you jump," according to Irving Wladawsky-Berger, vice President, technology and strategy - jumped when Hitler sought its technical assistance in running the Nazi extermination and slave-labor programs. IBM provided the Nazis with the Hollerith tabulation machines, early ancestors of computers that used punch cards to do their calculations. Edwin Black, author of IBM and the Holocaust, says, "The head office in New York had a complete understanding of everything that was going on in the third Reich with its machines...that their machines were in concentration camps generally, and they knew that Jews were being exterminated." IBM technicians serviced the machines, IBM engineers trained their users, and IBM supplied punch cards for the machines, according to Black, at least until 1941, when the United States declared war on Germany.

"IBM's motivation for working with the Nazis, says Black, "was never about Nazism...it was always about profit." (Bakan 2004: 88)

This is similar to today. Corporations know in detail what their products are being used for. Tobacco corporations know the health impacts of their tobacco. Arms corporations know who they are selling their arms to and what will be done with them. And yet these corporations carry on in the name of profit. They cannot sacrifice their own interests and those of its shareholder to realise environmental and social goals. This is because corporations are legally obliged to profit maximise on behalf of their shareholders at whatever cost:

"Corporate social responsibility is...illegal - at least when it is genuine.

"Corporate lawyer Robert Hinkley...[stated] "that the law, in its current form, actually inhibits executives and corporations from being socially responsible." As he puts it:

"[T]he corporate design contained in hundreds of corporate laws throughout the world is nearly identical...the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to being sued by shareholders. [The law] dedicates the corporation to the pursuit of its own self-interest (and equates corporate self-interest with shareholder self-interest). No mention is made of responsibility to the public interest...Corporate law thus casts ethical and social concerns as irrelevant, or as stumbling blocks to the corporation's fundamental mandate." (Bakan 2004: 37-38)

Nobel Laureate economist Milton Friedman goes even further than this. When Joel Bakan went to interview Milton Friedman on this subject, Friedman made his views very clear:

"Friedman thinks that corporations are good for society (and that too much government is bad). He recoils, however, at the idea that corporations should try to do good for society. "A corporation is the property of its stockholders," he told me. "Its interests are the interests of its stockholders. Now, beyond that should it spend the stockholders' money for purposes which it regards as socially responsible but which it cannot connect to its bottom line? The answer I would say is no." There is but one "social responsibility" for corporate executives, Friedman believes: they must make as much money as possible for their shareholders. This is a moral imperative. Executives who choose social and environmental goals over profits - who try to act morally - are, in fact, immoral.

"There is, however, one instance when corporate social responsibility can be tolerated, according to Friedman - when it is insincere. The executive who treats social and environmental values as means to maximize shareholders' wealth - not as ends in themselves - commits no wrong. It's like "putting a good-looking girl in front of an automobile to sell and automobile," he told me. "That's not in order to promote pulchritude. That's in order to sell cars." Good intentions, like good-looking girls, can sell goods. It's true, Friedman acknowledges, that this purely strategic view of social responsibility reduces lofty ideals to "hypocritical window dressing." But hypocrisy is virtuous when it serves the bottom line. Moral virtue is immoral when it does not." (Bakan 2004: 34)

So, bearing all this in mind, how will monitoring or writing letters to an arms corporation change its behaviour? The real answer is that it will not. Examples of the ineffectiveness of the 'active shareholder' approach litter history:

"Less than three weeks after the Nazi occupation of Czechoslovakia in March 1939, GM Chairman Alfred P. Sloan defended this strategy [GM not divesting its German assets] as sound business practice, given the fact that the company's German operations were 'highly profitable.'

"The internal politics of Nazi Germany 'should not be considered the business of the management of General Motors,' Sloan explained in a letter to a concerned shareholder dated April 6, 1939. 'We must conduct ourselves [in Germany] as a German organization...We have no right to shut down the plant.'" (Bakan 2004: 185)

It makes me deeply sad that the East Sussex Pension Fund has not learned these lessons from history. Because of their investments and 'active shareholder' approach, untold numbers of are being oppressed across the planet - much like my own family has been. Because of their investments an ever increasing amount of environmental damage is being caused.

This needs to change.

Solutions?

It is very easy to criticise but what solutions am I proposing?

Firstly, the pension funds needs to be much more transparent and open. It should not be up to me to put the minutes online. There could be a review of all the documents related to the Pension Fund and as much as possible could be put online for everyone to read.

Otherwise it all depends - as Jonathon Porritt states - on your attitudes to (investment) capitalism and sustainability (as well as what you mean by those two words).

If you believe that capitalism is compatible with sustainability then you may well believe in pursuing Socially Responsible Investment (SRI) within the capitalist system.

Rather than rehashing what many academics, journalists and activists have written about, I've made pages with links to useful papers and articles on SRI. The fund managers and councillors on the pension fund (as well as everyone else) could further educate themselves on SRI by reading them.

I'd especially recommend reading:

Socially Responsible Investment and International Development: Practice and Potential. This is a draft paper by Stephen Spratt and gives a very useful historical perspective from 1760 onwards on Socially Responsible Investment.

Social investment, corporate citizenship and development. This 4 page article by Stephen Spratt & Avinash Persaud gives a nice overview of SRI issues and outlines different negative and positive screening methods.

The Pension Fund could also organise (hopefully public) workshops with leading academics on SRI to deepen their knowledge of the issues.

Ultimately, under this approach, the pension fund would need to divest from certain corporations such as arms or oil corporations and invest in corporations that attempt to benefit the environment or community. There would need to be a review of all of the pension funds investments and positive and negative screening criteria need to be developed for all investment. Members of the Pension Fund as well as the general public could campaign for this.

Fund managers main complaint about SRI is that it limits their ability to maximise available funds. However, many SRI funds have as high, or sometimes even higher returns than non-SRI funds. The fund managers could investigate the potential returns of the SRI funds which currently exist before further dismissing it.

There is also precedent of having restrictions within the policy guidelines for investments. In the late eighties till the early nineties (see meetings on 5th Feb 87, 25th June 87, 27th Oct 93, 27th Jan 94) restrictions were in place on investments in South Africa (although I do not know what kind of restrictions - the minutes do not reveal that). It is very feasible that similar - but more comprehensive - restrictions be made for Socially Responsible Investment today.

If you believe that capitalism and sustainability are only compatible under certain conditions, then you may not think that SRI is enough of a change

SRI is not an ideal solution, especially because of the problems that the very structure of the corporation creates (read Joel Bakan's book The Corporation for more discussion on this). A pragmatist might say that in a climate where the pension fund has to invest its money somewhere, SRI is the best of a bad bunch of solutions.

However, if you believe that the structure of the corporation itself is the problem, then you wont believe that investing in any corporation will benefit the environment or community. Maybe you agree with Milton Friedman when he says that SRI is "hypocritical window dressing." Maybe you believe that the corporation itself needs to be severely regulated or even banned as it was in 1720 when Parliament passed the Bubble Act, which made it a criminal offence to create a company "presuming to be a corporate body," and to issue "transferable stocks without legal authority." (Bakan 2004)

If that is the case, then you might be interested in promoting workers' co-operatives. They intentionally do not allow external investors because they think that they take too much of the profits and too many decisions away from the workers.

Workers' co-operatives are organised to serve the needs of worker-owners and are focused on generating benefits - which may or may not be profits - for the worker owners rather than returns to (often) external investors/owners with capital. As capital is subordinated to labour in workers' co-operatives, many have seen them as "labor-ist" rather than "capital-ist". Many have argued that the profit maximisation model that conventional corporations are legally obliged to follow on behalf of their shareholders inevitably leads to extensive environmental destruction. Whereas the worker-driven orientation in workers' co-operatives makes them fundamentally different from corporations. Additional co-operative structural characteristics and guiding principles further distinguish them from other business models. For example, worker-owners may not believe that profit maximisation is the best, or only, goal for their co-operative or they may follow the Rochdale Principles. This means they often have a very different focus.

For more on this, read my paper on workers' co-operatives or the page on wikipedia.

If you believe that "capitalism, in whichever manifestation, is in its very essence inherently unsustainable, then one’s only morally consistent response is to devote one’s political activities to the overthrow of capitalism." (Porritt 2005: 87)

Many workers' co-operatives, albeit in a more democratic and egalitarian way, produce goods which we do not need and cause untold damage to the environment and our communities. Workers' co-operatives are still geared up to production.

Some believe that we not only need to consume less but we need less work/production and much more redistribution of existing resources. All of this frenetic work and production is not only very alienating and tiring for many workers but also very energy intensive (for more on the economics of this see here e.g. "If Americans worked as few hours as western Europeans, it would lower our energy consumption by 20%")

However, our entire economy is geared to economic growth and production and those with power not only have control of the means of production but have a real interest in the system carrying on as it is so they can pocket the profits from it. The corporate media, owned by people like Rupert Murdoch, also have a real interest in the economic system carrying on more or less as it is and so very rarely publish serious and wide ranging critiques of it, which narrows the frame of the debate. Even workers' co-operatives want the system to carry on more or less as it is because they ultimately want to sell their products.

If you believe in this critique of productionism and growth, then maybe think about how you could go about pursuing the overthrow of capitalism as well as what alternatives could replace it.

You could start by reading my blog post on Real alternatives to capitalism?

There are many alternatives to capitalism which have been proposed over the years, such as Participatory Economics, anarchism, socialism, Eco-socialism, Guild socialism, Libertarian socialism, Co-operativism, Freeganism, primitivism, Mutualism, Syndicalism, Autonomism, Georgism and reclaiming the commons.