Elfenworks Foundation
In Harmony With
Saint Marys College of California

Saint Mary's College of California is a Lasallian liberal arts college with a strong commitment to service and social justice. CILSA, Catholic Institute for Lasallian Social Action, promotes, organizes, and supports service on behalf of social justice by members of the Saint Mary's community. This past year, over a thousand students contributed over forty five thousand hours of service in the local community, at the state level, and internationally. In addition, 21 SMC graduates signed on for year-long commitments to the Peace Corps, AmeriCorps, Capuchin Franciscan Volunteers, and Lasallian Volunteers. The Saint Mary's High Potential Program is a leader in educating inner-city minority students, and the college has received national recognition for its Katrina relief efforts. "We promote a culture of service at Saint Mary's College and are proud of our students for the many hours they devoted to helping the people of New Orleans," said Brother President Ronald Gallagher. The college has signed the California Energy Pledge for energy conservation and is in the process of adopting principles of campus sustainability. The Elfenworks Foundation We recently completed a website look-and-feel update for the college's Office of Mission and Ministry Meditation website, brothercamillus.com and we are particularly excited about the ideas eminating from their Elfenworks Center for the Study of Fiduciary Capitalism, which holds that institutional investors such as pension funds can also promote a more socially responsible agenda. Imagine an institutional investor saying to a company "stop that bad (e.g., poverty-inducing) act, it's bad for my portfolio" - that's capitalism at its brilliant best, and we love it!

The Elfenworks Center for the Study of Fiduciary Capitalism [visit the center website]

The Elfenworks Center for the Study of Fiduciary Capitalism at Saint Mary's College of California endeavors to assist the principals at the Center in spreading their message; it is our hope that the concept of fiduciary capitalism will be taken up by fiduciaries far and wide as institutional investors such as pension funds (which now control nearly 60% of all publicly traded equity) recognize that it's in their best interests in the long-term to promote a more socially responsible agenda. The reason is that these behemoth investors, by virtue of owning large portions of the global economy and having a long-term investment outlook, have to eat the costs of doing business and, as a result, are motivated to reduce those costs or externalities.

An externality is the portion —positive or negative— of the costs and benefits of production that are not borne by the producer or buyer, but by society at large. From an insurer's point of view, the return of an insured person to productivity (as a tax paying member of the workforce) after state-of-the-art restorative surgery would be an example of a positive externality because it isn't felt by the insurer and doesn't offset the costs associated with covering rather than denying the claim. A coal-burning power plant with outdated equipment is an example of a company benefiting from a negative externality, shifting to its neighbors the true costs of staying in business. Likewise, business practices that result in more poverty also create an externality, as management pays little of the external costs of its actions while adding to the burdens on government-funded healthcare and social services and exposing more children to the hardening and hopelessness that flourishes in poor and dysfunctional homes, schools, and neighborhoods. In these scenarios, the externalities cost the business managers and shareholders virtually nothing, but the costs are real, the bill will come due, and it only grows bigger the longer we run the tab. We all reap the benefits when harmful these practices are changed, whether through responsible investment or any other method which internalizes these costs and benefits, causing the decision maker to fully weigh the results of their actions.

Fiduciaries who manage today's huge pension and mutual funds recognize that negative environmental, social and corporate governance externalities will, over time, adversely impact the fund's portfolio. Their response is to eliminate the negative externalities in their portfolio. That translates into more socially responsible investment policies and corporate governance. The fiduciary capitalism model also calls for a process of engagement with corporate managers rather than divestiture as the means to change corporate governance. It's an idea so powerful that, in 2006, the United Nations used it to develop their six "Principles for Responsible Investment," which provides institutional investors with a much-needed framework for their investment decision-making. The New York Stock Exchange has signed on to those principles, and we're thrilled.

From Brother Ronald Gallagher, FSC, Ph.D.
President of Saint Mary's College

I am delighted that the Elfenworks Foundation has named the Center and elected to be a guardian in our efforts to study ethics and social justice in the corporate world and within capitalism itself. The 'fiduciary capitalism' of large institutional investors and other 'universal owners' plays an increasingly important role in the world, and we look forward to how this role responds to pressing social issues such as poverty, inequality, and climate change, among others. There is no doubt that your gift will advance the mission of Saint Mary's College and the Elfenworks Foundation. The Elfenworks Center for the Study of Fiduciary Capitalism at Saint Mary's College is uniquely placed to make a positive difference in the business community and in the field of higher education. --Brother Ronald Gallagher