Craig Martin of Winnipeg is an assistant
professor of business and co-ordinates the
MBA program in the Redekop School of Business
at Canadian Mennonite University. Find more
of these columns at www.faithtoday.ca/
Should Christians refrain from investing in industries uch as tobacco, pornog- raphy, military equipment,
weapons, fossil fuels and other activities we may find objectionable?
Proposals to sell off a current investment for moral reasons make
the news when they involve large
amounts of money at endowments,
pension funds, universities, not-for-profits and church organizations.
Currently at least 11 universities
including Dalhousie, McGill, UBC
and Canadian Mennonite University
(where I work), as well as several
churches including the United
Church of Canada and Mennonite
Church Canada have seen stakeholders calling for such divestments.
Many people, especially Christians, understand our ethics and
morals inform our decisions in all
areas of life, including our investments. But even though divestment
is appealing and has noble, Christ-honouring motives, it is not as effective as many people think.
Divestment can take various
forms, each having different effects.
Direct divestment is easy to carry out
by either selling or not purchasing
stocks and bonds issued by particular
companies. But it gets more complicated when people say they don’t
want a single cent coming directly or
indirectly from an entire industry.
This means not investing in any
company that supplies any goods or
services to the industry, or to its
suppliers’ suppliers, and so on to
infinity. This infinite series is the
fundamental problem. Consider
this story of a business I know.
The business is a small manufac-
turer. The owners discovered some
of their products had been used to
produce military equipment after a
military manufacturer came look-
ing for replacement parts. The
problem was that the owners are
They were distressed to learn
their product had passed through
several different companies before
reaching the military equipment
manufacturer. It was impossible
to foresee this and almost impossible to stop it without stopping
But stopping production would
have a negative impact on others
who used the product for nonmili-tary purposes. It turned out less
than one per cent of their annual
sales was going to military use. They
decided to continue production.
If you were a shareholder in this
company, would you divest? If you
wanted nothing to do with the
military, then you would have to.
Unfortunately, this example is
closer to the norm than the exception in a modern economy, as no
sector can be completely isolated
from any other. This makes perfect
Another divestment complication has to do with intentions.
What is the intended effect of divestment and how do you measure
While helping the investor to feel
morally at peace might be sufficient
to justify the divestment action, in
most cases there is a desire to effect
change in the industry. If so, who
are we trying to affect?
If the target is other shareholders,
the problem is that divestment does
almost nothing to make a company
a less profitable investment. A major
divestment might lower share
prices, but shareholders can defend
against this by purchasing more
shares at the lower price, averaging
out their investment cost and in-
creasing their return.
Or perhaps the target is to affect
the companies themselves by re-
ducing their capital. This would be
misguided, as it would have no
significant result except perhaps
when a company is issuing new
shares in a public offering.
Another possible target group is
executives, but divestment would
only affect them financially if they
rely on stock options as bonuses.
And, frankly, a company can cir-
cumvent this attempt either by
issuing the option at a lower strike
price, structuring the bonuses on
something other than stock price,
or remunerating executives with
something other than shares.
Overall, from a financial point of
view, divestment is limited in its
effectiveness as long as the target
industry remains profitable, which
is more affected by revenues than
Is a divestment a success if the
only result is we are reassured we
are living out our ethics and morals
in our investments? Perhaps. But if
we truly desire to seek the good of
the world where God has placed us,
we need to be realistic about how
much we can divest ourselves from
an industry and how much we can
effect change by doing so. It can be
a highly visible public gesture, but
it needs to be accompanied by
other actions to bring real change
in the marketplace. /FT
It gets more
a single cent
Divestment in a modern economy
Christians who want to effect change by not investing in certain industries need to think carefully