This is a huge question and an important one. Many of us want to put our capital to good use whilst also reaping financial rewards along the way, and several voices in the financial world claim this is possible. Yet many people would argue that investing, by its nature, works against the cause of equality. Who is right?
At WMM, many of our clients have expressed a desire to know more about the relationship between investing and equality. As financial planners covering Oxford (a University city), we understand this subject is important to many people who live here; as well as across the UK. Here is our brief attempt to articulate our perspective.
Please note that this content is for information purposes only, and should not be taken as financial advice. To receive such advice please contact one of our independent financial planners here in Oxfordshire.
Of course, before we can judge whether investing broadly helps or hinders equality, we need to agree on what “equality” means. This is by no means an easy task; indeed, entire PhDs and academic careers have been built on answering this question!
For instance, does equality primarily refer to individual income equality, or equality of employee influence over strategic decisions in the workplace? Does it refer to gender equality in the company boardroom, or to ensuring that no single company can dominate a particular market and so prevent other companies from realistically getting a look-in (e.g. think of Google and the UK search engine market, where in 2019 no other business comes close)?
Moreover, does equality mainly refer to equality of outcome or equality of opportunity? The university debate is a classic example here. For instance, should everyone realistically have the same opportunity to go to university if they so choose, or should the decision be governed by academic ability or wealth?
Rather than try to answer all of this definitively, here we will be focusing primarily on investing regarding two main “equality of outcome” areas: income equality and gender equality.
Investing & Gender Equality
It’s worth noting at this point that some people will simply never see investing as compatible, or helpful, with regards to equality. For instance, Marxist thinking typically perceives investing as inherent to the capitalist system, which is fundamentally incapable of creating a fair society. We understand these views, but assume that if you are reading the thoughts of an Oxford financial adviser, then your political-economic views fall at least somewhere more towards the centre ground! Certainly, we at WMM believe that in many cases investing can be leveraged to achieve moral principles whilst providing a strong return for the individual investor.
Consider gender equality as an example. Broadly speaking, in 2019 company boards across the western world are still largely dominated by men. This is clearly an area where more progress needs to be made, at least in line with other spheres where women have climbed hierarchies to achieve top executive positions (e.g. media and entertainment). In fact, investment firms can be some of the worst performers here, with women comprising about 4% of the top jobs.
Yet there is strong evidence to show that gender diversity in the boardroom is strongly correlated with higher investment returns. This naturally puts internal pressure on such firms to bring more women into senior positions; after all, the more money investment firms can make for their clients, the more successful they’re likely to be! At the same time, clients of investment firms can apply moral pressure by demanding greater gender diversity from such companies.
Investing & Income Equality
This can be quite a complex and emotional topic, and on the surface it can seem like investing naturally creates large income disparities. After all, we’ve all seen the headlines about UK banker CEOs who earn as much as 120 times that of their average employee.
Of course, here we start to enter the classic debate: “Should such CEOs earn more than their employees due to their role and responsibilities, and if so, how much more is acceptable?” Most people we speak to seem to take a balanced view, which we would broadly agree with. People in higher positions who deliver more value should be paid more, but their employees should be paid a good living wage, and efforts should be made to close excessive, unnecessary income disparities between the “top and bottom” of the business (e.g. lavish, undeserved bonuses).
In this respect, investing can make a positive difference; moving companies towards income equality without achieving an unrealistic goal of complete income parity. Again, a big part of this change can come from clients of investment businesses, who can increasingly expect such companies to promote fair wages internally, to set an example regarding director bonuses, and bring employees more into the business as stakeholders (e.g. think of John Lewis’s “Employee Ownership” approach). Clients can also apply more pressure on these investment companies to prioritise investments into companies and funds which also take a similar approach to their internal structure, as well as to the businesses and individuals involved in their supply chains.
At this point you have likely noticed that this is a huge topic, and we’ve barely been able to scratch the surface here in this article! The good news is, individual investors can make a positive difference to address the numerous risks associated with inequality, and also benefit from the advantages of doing so.
If you are interested in finding out more about sustainable, ethical or environmental investing or would like to develop your portfolio, then we invite you to get in touch. At WMM, we can offer a free, no-obligation consultation to get to know each other, and bring some clarity to your financial situation and goals. You can reach us on 01869 331469