* Insider ownership between 5% and 50% of outstanding shares (showing a management team that’s committed to the company but doesn’t necessarily control the company).
* Limited to no takeover defense provisions such as poison pills that protect entrenched management.
* Limited shareholder dilution over time (indicating a respect for the company’s owners).
* Either good returns on invested capital or a common stock dividend (evidence that the company thoughtfully allocates capital).

But I sense that you are sniffing a little at moral investing. Does it seem a little namby pamby to you?

Yeah, I can see that. But I also think there are two practical reasons to invest in companies with good character.

1) There is no honor among thieves…if they’re out to screw the world, they’re out to screw the shareholder.

2) Immoral organizations may be less operationally efficient. If you get sued often, you’re spending a lot on lawyers (even if you win). If you don’t get sued, but you’re worried about getting sued, you’re paying a bunch of lawyers to sit around and consume your working capital. And if your organization is full of crooks, you’ve got to have lots of people minding the till (or just managing people, rather than the business).

More and more, I’m beginning to think that the character of an organization’s management team is the single driver of future returns. Honesty may very well be a competitive advantage.

How does one reliably quantify honesty? Is honesty really what you’re trying to identify and measure here? Or are you in fact after something more broad like “transparent integrity” or “honorable stewardship”? Either way, standard definitions of moral terms and precise measures of same are hard to come by. Social sciences are considered “soft” (read: less-reliable) because they derive statistical data from fuzzy sources (like polls of individuals’ personal assessments) and then treat them as if they were culled from ruler & scale.
You are in a way making a timely and timeless argument for buying companies that do good because their demonstrated moral virtue will result in them and us doing well.

Jesus expelled the money changers from the temple – charging interest on money lent is damned as usury by most religions – Martin Sheen’s speech in the final scene of Wall Street chastised Bud
Fox and us to “make something instead of living off the buying and selling of others”.

$ and morality are hard to reconcile because $ is about competitive self-interest, while morality is all about altruism. $ rewards shrewd savvy while M honors innocence and its consequent poverty. $ icons have nicknames like “The Grave Dancer” (Sam Zell) while Nuns have names like Prudence and Constance. Their respective views tools and armor are “out of element” when used in the other field.

“Honesty Index” draws the same skepticism as does “Quality Index” (click link above to read the article) when quality is defined in moral terms (constancy, honesty, integrity etc.) vs. $ terms.

The creator of the proposed quality index said: “I wasn’t necessarily looking for quality operators as measured by profit margins or ROIC, but rather honest companies that seemed to treat shareholders, employees, and customers right.”

Lovely thought – but he’s singing to the wrong choir.

It’s at http://investingforthesoul.com/

Best wishes, Ron Robins