Naive Investor Chapter 5 Interlude: (My) Ethics, what are they?

There are many types of risk, low risk, high risk, popular risk, systemic risk, calculated risk, inflationary risks etc. There are different ways to calculate and estimate risks Gaussian vs. Mandelbrotian etc.

But this variety pales in comparison to the conflicting views on just what constitutes ethical behaviour. For example there are people in this world that think it is unethical not to fleece an unsuspecting stranger and espouce such timeless sayings as 'grab feathers when gooses fly by.' and 'a fool and his money are often parted.' etc. There are people who think it is unethical to eat an animal, or even use their hands on their teets to extract delicious creamy milk and say things like 'you can judge a society by the way it treets its animals' and 'cheese is rape'.

Thus thusly, I will offer an ethical evaluation of various types of securities along with a breakdown of Price, Earnings, P/E ratios, Risks, Time Payments etc. But lacking an objective consensus standard of ethics I'm just going to use my take which is generally consequentialist (I think) but not absolute, nor at times even ethical (I simply just don't care as is the reason I'm not a vegan, whilst rationally understand it is the ethical approach). Here though are the general thumb like rules I will apply for your understanding:

Opportunity

So generally I want any business activity I invest in to create more opportunities. This shouldn't be too controversial even for current economic theory (Neoclassical) which brought us the wunderkind [sarcasm] of GDP. Basically increasing the amount of choices people have as an output of the business activities. So a wheelchair manufacturer would be highly ethical as it increases the mobility, thus choices of an individual who has great arms but bad legs. Unless the aluminium used in the construction is produced unsustainably of land seized from poor Indian peasents burning brown coal polluting everyones air limiting the choices of future generations of landless impoverished indian children. I want no part of that. Now bamboo wheelchairs...
But on a fundamental level I believe that just putting all your ill-gotten gains away as an investor in cash under the mattress is unethical, because you aren't putting that money, that store of wealth out into the economy to help somebody do something. You have money and do nothing, an artist has no money and can do something. If you give the artist your money he can produce art, you take the risk (it's still your money) you get compensated for taking the risk from the artists proceeds and the artist gets the opportunity to work.

Sustainability

One of the most popular buzzwords of our era, what does it really mean? It depends on the context, an economist will tell you that Sustainable simply means that everything produced gets consumed.
Ethically I mean you take as long a term view as possible, and then you assign a term to the given activity 'are they producing or are they liquidating?'. For example, the resources sector may base its business around extracting ore/coal/oil/gas from the ground to be consummed for goods and services etc. Their concept of efficiency is to extract it as quickly and cheaply as possible and pass the savings onto their customers. This is liquidating in the same sense that an insolvent business has an administrator come in, sell off the boss's house, car (everything not in his wife's name) the artworks in the office, the furniture, the fleet, the plant, the equipment etc to settle the debts as quickly as possible and pocket some change in the process.
Whereas somebody who calculates they can cut down 10% of the bamboo crop a year and it will replenish itself by the next year (without destroying the soil due to overproduction, not replenishing nutrients the plants use etc.) then they are producers, and can produce bamboo wheelchairs.

Basic Human Decency

These are hopefully the easy ones, yet crop up surprisingly often. Things like 'Slavery is wrong' yet did you know the cacao industry (think Chocolate, think Cadbury) was traditionally based on slave labor (and could still be, I'm not up to date). Child exploitation, wage slavery, animal exploitation*, animal cruelty, totalitarian regimes, union busting and plain old criminal activity.
Particularly in an environment when corporations operate internationally these infractions can crop up everywhere. It's much cheaper to deal with a fascist dictatorship than a functional democracy (I'm not going to extrapolate on this, just think about it) so often corporations are obliged to encourage them in order to get better returns for their shareholders. You gotta watch these, but even 'plain old' property ownership can cause these infractions if the system is set up tyrannically.

Rent

They are called 'earnings' because they are 'earned'. Here I mean rent in the absolute economic terms. Rent-seeking-behaviour is basically any business operation that lends itself to pocketing unearned profits or monopoly powers. One example is an Abalone license, which effectively puts a quota on how much Abalone can be fished and subsequently how many people can actually hold those licenses. As such if you pay $1 million for the license you can buy into an uncompetitive market and pocket Bazillions because the government has taken out the competition for you. Which is just the lesser of two evils with Abalone since you can't increase competition the supply is endangered by the outstanding demand.
But it does effect businesses that hassle governments to put a quota on say imported cars, or number of Snake skin purses etc.

Sphere

'The Business of Business is Business' here I would probably depart from the consensus opinion. I follow Drucker (the former quote is from Alfred P Sloan) who says 'The only reason for a business to exist is to create a customer'. Basically I think/feel that this means that if a business needs lobbyists, subsidies, protectionism etc to survive then it's unethical, robbing peter to pay aul, or just plain old fashioned incompetent.
Obviously it doesn't work in isolation, basic human decency has to come in to the picture too. There might be a huge profit in child pornography for example, because you can create a customer for your goods doesn't mean you should do it.
But if you can't make people buy your cars at a premium because they are Australian made and employ Australians at Australian wages then you cant ethically ask the government to intervene and force the customers to pay the difference via tax funded subsidies.
For one it reduces opportunity because these Businesses operating out of the sphere of business eat up a lot of resources, labour and talent that could be used by an actually sustainable, profitable industry. Secondly it costs the taxpayer the next best infrastructure, education, health, etc investment their tax dollars could go to.
But basically I disregard any 'earnings' that are handed to a company (and subsequently shareholders) by a government free of charge, on the grounds they are unethical and I don't want the graft stinking up my pocket.

Diversity

This I take from the principles of Evolution, and as far as anything I have read on ethics, nothing offers a better explanation (at least of how complicated ethics are) as 'The Selfish Gene' by Richard Dawkins, who to us kids is more well known for 'The God Delusion' but honestly there's far more enlightenment in the selfish gene.
Anyway, I like mutations and mutants. Similar to Opportunity, I like diversity for trying to maximise the number of choices people have.
But I also feel it goes to how we spread the opportunity throughout society, and the greater biosphere. So if anything moves towards a monoculture (mono means one, and culture means culture) I don't like it. Whether it is modern farming practices or just that everyone is toting the same Lois Vitton bag. Increasing complexity!
The more baskets our eggs are in, the more chances we have of one of those eggs surviving a meteor shower style super catastrophe and going on to flourish and mutate.
This doesn't necessarily mean though that I would subscribe to diversifying your portfolio as an ethical thing to do, what I mean is that the activity invested in produces diversity, instead of monoculture.

Message

This is just havign a squiz at how the companies promote themselves, or strictly speaking 'communicate their value'. So usually it's looking at their marketing campaign. Some puffery is okay (these shoes make you run faster) but blatent lies (you need to be drunk to have a good time) or destructive negative messages (you are ugly, wear make-up!) shouldn't be invested in, even if everything else is above board and profitable.

In Summary

I want to invest in companies and other ventures that make the world a more interesting place, independently, at an honest profit by providing opportunites and creating genuine value. If they can do this without causing human suffering, making the world a more dull and boring place, with-holding opportunities to consolidate their power base, or only turning a profit because they spend a significant amount lobbying the government to bail them out on an ongoing basis.

A Caveat

Well, two. I'm just starting out at understanding the intimacies of auditing an investment on their ethical nature even by my own standards. Often I may just not know that their Banana powder comes from adding banana flavouring to ground up dried babies. In a world of increasing complexity it becomes harder, not easier.
The second caveat is that owner advocacy I think is a powerful way to change the world for the better. I would not hesitate to buy a company outright that was unethical and either A) shut it down (which if I was doing it with investors money I'm not sure they would be happy about) or B) moving it toward my ethical requirements.
Who knows, maybe one day I'll even turn them vegan. Which thirdly, this is by no means a comprehensive guide on even my take of what constitutes ethical behaviour.

*as above, I'm not exactly jesus on this front.