This study investigates the pattern of institutional shareholding in the U.K. and its relationship with socially responsible behavior by companies within a sample of over 500 UK companies. We estimate a set of ownership models that distinguish between long- and short-term investors and their largest components and which incorporate both aggregated and disaggregated measures of corporate social performance (CSP). The results suggest that long-term institutional investment is positively related to CSP providing further support for earlier studies by Johnson and Greening (...) (1999, Academy of Management Journal 42, 564–576) and Graves and Waddock (1994, Academy of Management Journal 37, 1034–1046). Disaggregation of CSP into its constituent components suggests that the pattern of institutional investment is also related to the form which CSP takes. Investigation of the impact of investment screens on the selection of stocks suggests that long-term institutional investors select primarily through exclusion, rejecting those firms which have the worst CSP. (shrink)

Socially responsible investment is a rapidly emerging phenomenon within the field of personal investment. However, the factors that lead investors to choose socially responsible investment products are not well understood, especially in an Australian context. This study provides a comparative examination of conventional and socially responsible investors, with the aim of identifying such factors. A total of 55 conventional investors and 54 ethical investors participated in the study by completing mailed questionnaires about their investment and general behaviour and their attitudes (...) and beliefs. Results indicated some important differences between socially responsible and conventional investors in their beliefs of the importance of ethical issues, their investment decision-making style, and their perceptions of moral intensity. These results support the notion that socially responsible investors differ in critical ways to conventional investors, and are discussed in terms of theoretical and practical implications. (shrink)

This paper reviews the development of socially responsible investment (SRI) over recent years and highlights the prospects for an increasingly strong connection with the practice of corporate social responsibility. The paper argues that not only has SRI grown significantly, it has also matured. In particular, it has become an investment philosophy adopted by a growing proportion of large investment institutions. This shift in SRI from margin to mainstream and the position in which institutional investors find themselves is leading to a (...) new form of SRI shareholder pressure. Although this bears some resemblance to lobbying campaigns which might take advantage of shareholder rights, we seek to distinguish it as an important phenomenon in its own right — one to which corporate executives are likely to be paying increasing attention in the years to come. We further argue that this approach potentially meets some of the earlier ethical criticisms of certain forms of SRI but, ironically, probably owes its existence to those pioneering approaches. We conclude with some suggestions for further research to inform discussion of the issues highlighted in the paper. (shrink)

This article examines the implications of the escalation in institutional inves power and heterogeneity for two dominant theories of corporate governanceagency theory and stakeholder theory. From this analysis, a new view of the agency relationship between institutional investors and their portfolio firms emerges, which recognizes the institutions’ market power, complex role as financial intermediaries, and possible involvement in simultaneous and opposing agency contracts. We also conclude that stakeholder theorists should reconsider these newly empowered shareholders’moral standing in relation to their portfolio (...) firms, and they should reexamine the identities and goals of these modern investors. To that end, we demonstrate that a novel, intragroup application of Mitchell, Agle, and Wood’s stakeholder framework to heterogeneous institutional investors illuminates their varying levels of stakeholder salience. (shrink)

Objectives of socially responsible investment (SRI) are discussed with reference to the two main mechanisms of the SRI ‘movement’: shareholder advocacy and managed investments. We argue that in their current forms, both mechanisms lack the power to create significant corporate change. Shareholder advocacy has been largely unsuccessful to date. Even if resolutions were successful, shareholder advocacy may still be ineffective if underlying economic opportunities remain. Marketing material and investment prospectuses issued by socially responsible mutual funds (SRI funds) commonly contain the (...) claim that, by affecting corporations' access to capital funding, SRI funds can change corporate practices. This paper makes a contribution by presenting the market share of SRI funds in the regions where they are most developed, being Europe, the U.S. and Australia, to show that this claim is unlikely to eventuate. SRI funds also commonly claim that they will outperform conventional active mutual funds. That the economic performances of both are similar might be explained by their similar portfolio compositions. The paper makes an innovation in the SRI literature by adopting a legitimacy framework to explain the continued presence of SRI funds. To achieve desired social and environmental outcomes, SRI funds are urged to address issues at a more systemic level. A suggested mechanism is the collective lobbying of corporations and, especially, governments. (shrink)

This research applies the notion of sustainability (Barney, 1991; Braa, Monteiro, & Sahay, 2004) to the mechanisms used by socially responsible investment(SRI) firms with respect to their stakeholders (investors and target firms). A contrast is developed between US and UK SRI firms. It is noted that screens, while maintaining a strong investor base, are less sustainable from the perspective of the firms targeted by SRI funds, whereas advocacy has stronger elements of sustainability with respect to the relations with corporations.