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Simone de Colle and Jeff York University of Virginia yorkj05@darden.virginia

Why Wine is not Glue? The Unresolved Problem of SRI. SBE August 4 th , 2008, Anaheim. Simone de Colle and Jeff York University of Virginia yorkj05@darden.virginia.edu. Why Wine is not Glue?. Did you know that….

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Simone de Colle and Jeff York University of Virginia yorkj05@darden.virginia

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  1. Why Wine is not Glue? The Unresolved Problem of SRI SBE August 4th, 2008, Anaheim Simone de Colle and Jeff YorkUniversity of Virginiayorkj05@darden.virginia.edu

  2. Why Wine is not Glue? Did you know that… • Alcohol and Gambling, two traditional “sin” stock categories, are negativescreensused by more than half of all socially screened funds. • Alcohol is a screening criterion in the management of 121 funds with more than $134 billion in total net assets, affecting 75 % of all assets in socially screened mutual funds. Most Prevalent Mutual Fund Social Screens 2005 Assets(in Billions) 1. Tobacco___________$159 2. Alcohol $135 3. Gambling___________$41 4. Defense/Weapons_____$34 5. Community Relations__$32 Source: Social Investment Forum Foundation The next 15 minutes before discussion… unless otherwise! 1of 10: SRI - The sin stocks 2

  3. Why Wine is not Glue? SRI - Some issues 2 of 10: SRI - issues Hawken’s(2004) “Socially Responsible Investing: How the SRI industry has failed to respond to people who want to invest with conscience and what can be done to change it”argues that: SRI criteria are too broad to be meaningful SRI marketing and advertising languageis vague and deceptive; SRI is not not effective inchanging corporate practices. THEREFORE he recommends to change screening criteria: “The single most important criterion for a company is whether its products or services should exist at all” Social Investment Forum replies: Hawken misunderstands and misrepresents what SRI is! • SRI does not certify companies as “socially responsible.” • SRI is series of strategies to improve corporate citizenship and quality of life for all. 3

  4. Why Wine is not Glue? The problem with negative screening BUT the use of negative screening implicitly assumes, in our view, that some companies have no virtues based on their industry. 3 of 10: SRI - Our View Both Hawken and SIF accept the idea of negative screening: Hawken would even increase the number of products to be excluded from SRI! SIF states that “there are no companies with no problems”… THEREFORE, looking again at the PURPOSE of SRI, the problem with negative screening in our view is the following one: • How can you engage with corporations to improve their policies and practices, IF you exclude, a-priori, an entire industry? 4

  5. Why Wine is not Glue Wine-Making: from local Art to global business? Some world-famous wines and wine makers: • Boisset, Burgundy, France - euro 269m annual revenues in 2006 • Mouton-Rotschild (Bordeaux), France - 30m of bottles, $250m of annual revenues • Masi (Valpolicella, Amarone), Verona, Italy • Frescoibaldi (Chianti), Tuscany, Italy - $50m annual revenues -875 years in the wine making business • Mondavi, Napa, CA - 120m bottles, $500m annual revenues • Staglin, CA, $200m annual revenues • Opus One, joint-venture Rotschild-Mondavi, Napa, CA” 4 of 10: Wine-making- The industry today The next 15 minutes before discussion… unless otherwise! 5

  6. Why Wine is not Glue Wine-Making: A socially responsibleor a sin business? • “Wine is Culture… …now Wine is commerce” • “The idea to create an homogeneous global taste, is like when the Christian missionaries tried to convert the chinese confucians…it’s ridiculous.” “The wine has been for millennia the expression of a special relation between humanity and the environment (the TERRITOIR, the sun, the water). You need to respect the environment to produce a great wine”. “Behind the cultivation there is an ethical stance…a savoir-vivre” • “Where there is a vineyard, there is civilizations” • Quotes from Mondovino (www.mondovinofilm.com) • Overall there is a causal relationship between alcohol consumption and more than 60 types of disease and injury. • Alcohol is estimated to cause about 20–30% of liver cancer and cirrhosis of the liver, homicide, epileptic seizures, and motor vehicle accidents worldwide. • In Europe alcohol consumption was responsible for over 55,000 deaths among young people aged 15–29 years in 1999. • Alcohol has been shown to be a significant risk factor for family violence. Source: WHO, Global Status Report on Alcohol 2004 5 of 10: Wine making - The tradition The next 15 minutes before discussion… unless otherwise! 6

  7. Why Wine is not Glue Beer: A Force for Good? New Belgian Brewing Company of Fort Collins, CO: • Let’s look at their website….. 6 of 10: Sure, wine is nice, but other alcohol is clearly bad The next 15 minutes before discussion… unless otherwise! 7

  8. Why Wine is not Glue Beer: A Force for Good? New Belgian Brewing Company of Fort Collins, CO: • The terrible content they’re protecting children from.... • $1.00 for every barrel sold goes to philanthropy ($2M since inception) • Employee-owned (stock granted at one year employment) • World’s 1st 100% wind-powered brewery (since 1999) • LEED Certified operations • “Sustainability Goddess” on staff • Use ¼ the water of similar sized breweries 6 of 10: Sure, wine is nice, but other alcohol is clearly bad The next 15 minutes before discussion… unless otherwise! 10

  9. Why Wine is not Glue HB Fuller’glue…and the ‘Resistoleros’ • In Honduras, children sniffResistol, a popular glue produced by H.B Fuller, potentially causing serious brain damages. • H. B. Fuller's board declared in 1992 that "the company will discontinue production of solvent adhesives where they are known to be abused” • Following the Fuller Board's resolution, the company received widespread praise from not only U.S. media but also the socially responsible investment movement; • When NBC News reviewed the situation one year later, however, it found that the company's announcement had resulted in only minimal removal of small cans from hardware stores in two countries-Guatemala and Honduras-an insignificant fraction of Fuller's sales, according to later reports to shareholders. • In May 1993, Fuller public relations representative Bill Belknap told the Miami Herald's Tim Johnson that the company's July 1992 announcement of withdrawal may have included "an unfortunate choice of wording on our part.” The next 15 minutes before discussion… unless otherwise! 7 of 10: About glue 11

  10. Why Wine is not Glue What does this mean for SRI? • IT IS NOT USEFUL TO DEFINE WHAT IS “SOCIALLY RESPONIBLE” ACCORDING TO ANY A-PRIORI PRODUCT-BASE CRITERION (GLUE IS IN, WINE IS OUT) • “The attitude of looking away from first things, principles, ‘categories,’ supposed necessities; and of looking towards last thing, fruits, consequences, facts.” – James, 1907 • There is no “truth” to these a-priori criteria and categories: • These criteria are based on easy assumptions that industries are “sinful” • Instead, let us look to the (unforseen, unforseeable) consequences generated by the USE of the product, in light of the identities of the stakeholders affected, and the particular characteristic of the contingent environment The next 15 minutes before discussion… unless otherwise! 8 of 10: SRI and CSR 12

  11. Pro.CE.ST - A pragmatic perspective on SRI • To engage in a useful conversation, we should ask what SR means in relation to three key elements: the company’s PRODUCT IMPACT its CONTINGENT ENVIRONMENT and its STAKEHOLDERS PRODUCT IMPACT 9 of 10!: A pragmatic perspective on SRI CORPORATE SOCIAL RESPONSIBILITY SRI CRITERIA STAKEHOLDERS CONTINGENT ENVIRONMENT • Therefore, we suggest that the SRI methodologies should be re-calibrated to embrace a pragmatic perspective with SCREENING CRITERIA as the ex-post and intersubjective assessment of the relevant characteristics of the product, the identification of the stakeholders relationships and the understanding of the contingent environmental conditions in which a company operates

  12. Why Wine is not Glue? So, in conclusion… Wine is not Glue for existing SRI criteria - this is, in our view, nonsensical But Wine should not be treated like Glue, because in our perspective, the Social Responsibility of a business is based on three different aspects: • Product Impact • Contingent Environment • Stakeholders Therefore, the material social responsibility issues that alcohol and glue industries have to face are different 10 of 10: Discussion on ways forward Why Wine Is Not Glue? 14

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