Socially Responsible Investing: Shareholder Resolutions

By Siri Yellamraju, Spring 2016 Student Intern

The second strategy for Socially Responsible Investment is Shareholder Resolutions. In publicly traded companies, shareholders can introduce proposals to the board of directors pertaining to company policies and procedures. These policies can pertain to labor practices, environmental practices, corporate governance or ethics. The resolution will pass if there is a majority vote or management is persuaded to adopt it because the resolution was favored by a significant number of shareholders.

ESG issues are hard to pass as a shareholder, but can achieve an impact. Investors should research a company to determine whether past shareholder resolutions have been adopted by the board. In an article from the Atlantic Monthly called The Conscientious Investor, the author states, “The next major category of SRI, shareholder activism, is more promising than any form of screening, at least for big institutional investors.” About one third of investors seek to influence corporate policies and procedures through formal proxy votes or talks with the board of directors. Apparently, threats of proxy wars and shareholder activism are enough to force change. Continue reading

Socially Responsible Investing: Community Investing

By Siri Yellamraju, Spring 2016 Student Intern

Community investing involves investing money in underserved communities in order to provide resources they do not have access to otherwise. There many community investment opportunities available. Examples include community development banks, credit unions, fixed income and private equity products. Community investing involves improving communities by offering banking services and small loans to fund businesses, non profit groups and housing initiatives to help bolster an underserved community. Investors can purchase CDs from community development banks or but offerings through community development loan funds and venture funds.

In 2005 community investment efforts accounted for only 1% of SRI funds. These efforts helped Native Americans buy back ancestral lands, start businesses, restore salmon and trout to Chinook watershed in Washington state, improve housing and access to high schools in Boston, provided microfinancing in Bangladesh, and many many more. As of 2012, money managers and community investing institutions held $1.41 trillion in ESG assets under management. This reflects significant growth in popularity of community investing.

Investing in communities is extremely rewarding, but can present many risks. Community investing is literally investing in the world. The funds provide individuals with the means to improve their quality of life and sustain their families. It’s a way to ensure the health of our economy on a large scale, and feel the satisfaction of touching a life. Retail investors or individual investors are less tolerant to financial losses but can still participate in community investing. Individual investors can place capital directly with a local community development bank, credit unit, loan fund or affordable housing developer. Individual investors may not be able to manage the money through a firm itself. Fixed-income or bonds are the most likely course of investment for individual investors.

Investors should visit to learn more about investing in underserved communities.

Socially Responsible Investing: What is ESG?

By Siri Yellamraju, Spring 2016 Student Intern

There are two major strategies involved in SRIs. The first strategy is incorporating Environmental, Community and other societal and corporate governance (ESG) criteria in making portfolios and investment analysis. ESG integration has jumped from $614 billion in 2012 to $4.7 trillion in 2014. ESG criteria is a set of standards that a corporation uses that SRI investors can use to screen investments. The environmental criteria analysis the measures the steps a company takes to proactively protect the environment and comply with existing regulations. The social criteria covers how a company manages labor relationships, relationships with suppliers, customers and communities it is tied to. Governance deals with a company’s directors, leaders, executive pay, audits and shareholder rights. Governance also includes compliance with accounting standards, properly following conflict of interest procedures and functioning in the best interest of the company.

ESG criteria is extremely subjective, and as said in a previous blog post, is not reported on the company’s financial statements. There are very few metrics and many of these factors are self-reported by the company. The ESG criteria analyze the impact the fund has on the environment, market and community. The UN Principles for Responsible Investment details best practices in ESG Investing. It has been signed by nearly 700 investment managers and over 250 asset owners in the world. This includes big names like Blackrock, Fidelity, KKR and CALPERS. Continue reading

Socially Responsible Investing: The Pitfalls of Socially Responsible Investing

siri1By Siri Yellamraju, Spring 2016 Student Intern

In theory, the goal of Socially Responsible Investing (SRI) is noble and practical. Who wouldn’t want to pioneer a movement towards investing in only the “good companies” and help the world? Unfortunately, many of the best companies that have generated the best returns and bolstered our economy are also some of the worst culprits in violating human rights laws, environmental regulations and general corporate governance rules. Continue reading

Socially Responsible Investing: Put your money where your mouth is

siri1By Siri Yellamraju, Spring 2016 Student Intern

Investors usually indicate income or growth as their investment objective when filling out an account application form. Another growing investment objective is socially responsible investing. Although investors won’t be able to check off a box that says “socially conscious investing” as an investment objective, they will be able to use certain techniques to make sure they are investing in socially responsible products. Continue reading

Clinic Provides Opportunities Unique in Law School

By Siri Yellamraju, Spring 2016 Student Intern

Like most 24-year-olds, I have very little to no experience with investments. The most investment experience I have is saving my beanie babies from the 90s in hopes that they’d appreciate in value. Other than two corporate finance classes, I really did not have exposure to the stock market and did not understand how it worked in real life. For those reasons, I never applied to the Investor Advocacy Clinic. Maybe it was the blues and spur of the moment decision-making from realizing this was my last semester before graduating law school, but I found myself applying for the Investor Advocacy Clinic the night the application was due. I spent a lot of time on the application, so I was really excited that I had been chosen for the clinic. I was apprehensive about working in an Investor Advocacy Clinic when I had no investing experience and had never taken a Securities law class. I quickly realized, however, that this was not a problem.

One of the great things about the Investor Advocacy Clinic is that even though the subject matter is confusing, the applicable law is pretty easy to digest. In fact, it is really interesting. The law is not built around the confusing technicalities of the products, but instead is built around the way people interact with the products. One of the main claims that the Investor Advocacy Clinic brings against Investment Advisers and Brokers is “suitability.” Brokers and Investment Advisers are required to suggest products that are suitable for the investor based on their age, investment experience, background, personality, wealth, etc. Although this does relate to the technicalities of the products, as long as you understand the basic risk profile of the product it is easy to do a suitability analysis. Surprisingly, the risk profile is easy to understand in comparison to weighing the personality and background facts of the client.

Working in a clinic is a great experience that can’t be matched by even the most “practical” of classes. The homework and problems presented in practical classes is all fake. The problems are in a controlled environment where variables can’t throw the entire process off track. There’s no way a class can reflect the feeling you get when a client visibly becomes nervous and emotional while you’re in a meeting with them. There’s no way a class can teach you what to do when your client refuses to send you documents you’ve asked for 2-3 times. Group projects are a staple in school, but working as a team on a real life problem is different than working as a team on a problem that was tailored for group work. The clinic provides opportunities that cannot be recreated in any class.

I am extremely happy with my decision to participate in the Investor Advocacy Clinic. I really enjoyed the work, making new friends, and exploring a new area of law. I am leaving with tangible skills I know my future employers will appreciate. Working in the Investor Advocacy Clinic is a great investment of a semester of law school. I am hoping that one day, when my beanie babies are finally worth millions, I will still carry these skills and knowledge.

2015 FINRA Dispute Resolution Statistics

By Siri Yellamraju, Spring 2016 Student Intern

When an investor has claims against their broker, one way to resolve it is to file a claim with the Financial Industry Regulatory Authority (FINRA) through their dispute resolution forum.

A total of $14,208,626 in litigation costs was saved last year by people who voluntarily engaged in Alternative Dispute Resolution, according to the Department of Justice. That’s 20,686 days of attorney time and 2,108 months of litigation avoided. The court system is notorious for being slow and having massive amounts of case back up. People often wait years before they get their money back through the courts, and this is one reason Alternative Dispute Resolution has become more and more popular recently.

FINRA released statistics through December 2015 regarding dispute resolution in its forum. In 2015: 3,434 cases were filed and 3,489 cases were closed. One of the interesting insights provided by the report is the statistics regarding how arbitration cases close — 19% after hearing, 5% after review of documents, 50% via direct settlement by parties, 9% settled via mediation, 9% withdrawn, and 8% other.

To someone who has studied law, the fact that 50% of these FINRA cases were directly settled by the parties comes as no surprise. Between the long interviews, production of documents and let’s face it- dealing with lawyers- people are driven to resolving the dispute. Our contracts professor told us a story our first year of law school that has really stuck with me. He was working on a case for months when he finally turned to the client and said, “What is it that you really want from the guy you’re suing?” The client responded, “An apology.” Our professor got him just that, and they were able to settle pretty quickly.

I think studying the law makes you realize that your job isn’t to avenge people or be someone’s superhero. Your job is to help your client sort out a mess that happened and “have their back.” These statistics reflect that people are just looking to get their money back, resolve the dispute and go about their lives. Arbitration (and mediation) is a great way to do just that.