Ask the Readers: What to Do When Money and Ethics Clash?

Here's a personal finance truism: if your employer offers a 401(k), be sure to take advantage of any matching funds. That's a terrific idea, but what if doing so presents an ethical dilemma? Eric wrote looking for advice on a sticky situation:

My employer is moving our 401(k) accounts from one investment firm to another. The new investment house is condemned by human rights groups because their investments facilitate the genocide in Darfur.

What am I to do? I feel very strongly about human rights issues, and my knee-jerk reaction is to reject the (generous) 401(k) plan completely. I understand this will cost me dearly, but I must be able to face myself in the mirror. Surely other people are faced with the same dilemma. What have others done in situations like this?

I've been thinking about Eric's situation for days, but I haven't been able to arrive at a good answer. There's only one compromise that makes sense to me:

  • Contribute to the 401(k) in order to take advantage of the full employer match.
  • Route all other retirement savings through alternative accounts, such as an IRA.
  • Make a large contribution to an organization working to help the people in Darfur.

Have any of you faced this kind of decision before? How did you resolve it? How do you think you would handle the situation if you did face it?

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Sammy Larbi
Sammy Larbi

Perhaps his company isn’t aware of the situation.

Has he made decision-makers aware of the ethical implications of having this company manage their retirement accounts?

If not, that might be a good place to start!

Brandon Barkley
Brandon Barkley

Maybe I am lacking in the morals, but I would still invest as I would otherwise. 🙁

That said, I am curious how exactly the investment house’s investments faciliate genocide in Darfur, at least the ones relevant to the 401k. I mean, you probably will be investing in mutual funds for US companies, not some sort of African investment of any sort.

Unless I can get some more details to understand what the investment house is doing wrong, I see no moral qualm with investing in the 401k as long as you stick to domestic and European options.

J.D.
J.D.

Here’s a bit that didn’t make the final cut for the post… The latest issue (December 2007) of Kiplinger’s features a similar problem, though it’s not couched in terms of ethics: Jim Murphy’s employer…switched to a new 401(k) provider last year, and Murphy isn’t happy. The new plan includes mutual funds with higher expenses and poorer performance records than the Vanguard funds he held before. He wants to know if he can ask his boss to let him invest his 401(k) money elsewhere. Unfortunately, he can’t. Unless your 401(k) gives you the option to invest through a brokerage, you’re stuck… Read more »

Traciatim
Traciatim

I agree with Brandon. You probably have some options and can avoid your funds being diverted incorrectly. Even if they offer a simple money market US account and then when you can transfer the funds away from the offending party. Also, make sure every single day you e-mail your department than handles the 401K as well as send an e-mail to the company to change their investing ways. Also, get other people to do the same. I’m not quite sure how an investing firm would be linked to genocide, but I’m sure you have your info. You need to look… Read more »

Nate
Nate

I cannot think of a single instance where money would trump a personal ethical dilemma. As Sammy suggest, it is best to approach the decision makers about the situation, and before you do that, discuss with your coworkers and approach in numbers…chances are that others have a problem with it too.

The Financial Philosopher
The Financial Philosopher

Before starting my own firm, I managed assets for a regional 401k investment firm. More details are needed to answer your question directly but, in general, you need to find out how the new investment firm is paid… If the new firm is paid by commissions or “revenue sharing” then find out which investments pays the firm the most. For example, you may consider placing all of your 401k money in a cash account (money market, stable value) just to get the match. You won’t earn as much in returns but you’ll receive the match and your conscience will be… Read more »

Dave
Dave

Well, my fave financial guru is Dave Ramsey, and I know he doesn’t recommend “values-based investing,” as he feels very few of these types of “ethical funds” have long histories of strong rates of return and are therefore really really poor investment decisions. Ramsey also points out how values-based investing can drive you batshit — he talks about how if you were to no longer invest in funds that might invest in a company that supports abortion, then to be consistent, you’d have to stop shopping at a grocery store that sells pornography. He also points out you’d have to… Read more »

Fecundity
Fecundity

I agree with what the commentators above have said. 1) Ensure that your information is correct. Is the investment firm legitimately tied to genocide/abuses or to indirectly encouraging them, or is the human rights organization mistaken? I have a lot of respect for most human rights groups, but sometimes they don’t do all the research they should before calling in the hounds. 2) Make sure your employer knows about the link. They need to consider the ethical costs and possible publicity harm due to association which such a firm, and not just what I assume is an increase in immediate… Read more »

Brandon Barkley
Brandon Barkley

I didn’t know the United Way supports Planned Parenthood. I guess I don’t feel guilty about not contributing when they were drumming up money this fall at work.

Skip Frizzell
Skip Frizzell

Buy conscience offsets.

Sign up for the 401k and use that as “fiscal authority” to demand a change in the companies policies.

Ask yourself: would you have ever acted upon this issue if you weren’t concerned about having blood on your hands (money)?

I disagree with a lot of the things my government does. That doesn’t mean that I should/must/will leave my country. Instead, I work to change my country for the better.

Demand change, but diminishing your family’s future won’t save a life in Darfur.

sarah
sarah

Eric, my husband and I struggle with this issue all the time and it isn’t just with issues abroad. Our investment choices in our various retirement plans always include shares in big oil, big energy, tobacco, alcohol, and firms like Caterpillar which makes the machinery that destroys settlements in the West Bank. Unfortunately, we decided investing isn’t that black and white. Even the socially responsible choices in investing have pretty paltry screening for the companies they invest in. So we have decided to invest fully in our retirement plans through our employment but work toward investing in the most socially… Read more »

Peachy
Peachy

What investment house is this? I’m also curious as to how you found out about it. I have no idea what my investment houses faicilitate, if anything at all. Guess I better get on the research train.

icup
icup

I sent a link but it got eaten by the comments. The firm in question is probably invested in Petrochina, which alot of human rights group link with darfur for some reason unbeknownst to me.

Oh, and good luck finding one that doesn’t have a connection to Petrochina.

handworn
handworn

Genuine moments where the money invested is what controls whether the bad thing occurs or not are rare. But this kind of thing is the thing about money and its use that people have been wrestling with the longest. In the 1850s, some few Quaker families would only buy “free cotton”– that not made using slave labor. It didn’t make a perceptible difference; its effect was purely to make the people doing it feel like their hands were cleaner. The people with dirty hands– who dealt in business with its inevitable moral compromises and then donated to anti-slavery societies and… Read more »

roadshow
roadshow

The 401k is just a label that tells the IRS how to treat your money. Stick your money in any number of great performing mutual funds and sleep better at night… Diversity is keep top investing success,you may not get matching funds but, you do get the pre-tax benefits just the same, besides who remembers Eron? Anybody? Bueller? Bueller?

J.D.
J.D.

Roadshow, I think Eric knows that a 401k is just a label. That’s not the problem. The problem is that the company handling the 401k, processing the transactions, etc., is one he does not want to support. It’s not a matter of finding something else to invest in because all the money goes through this one company before reaching its destination.

Sam
Sam

I think, sadly, its almost impossible to invest in the stock market in general and not in some way support various industries or industry practices that I disagree with. Human rights, worker’s rights, child labor, union busting, womens’ rights, the environment…. all of these issues are somehow implicated in consumer choices and investment choices. Even clothes ‘made in the USA’ can come from exploted workers – see No. Mariana Islands. http://en.wikipedia.org/wiki/Saipan

Jenny
Jenny

http://www.sudandivestment.org/screener.asp You can look up funds in the link above to see a report of their Sudan investments. There are a number of companies on the Sudan Divestment Task Force’s Targeted Divestment List, and the link checks whether the fund has any holdings in these companies. The administrator of my 401k had several funds that included such companies, and several funds that did not. I chose to invest within the 401k, but only within funds that didn’t hold any of those companies. You would have to decide whether this is a strategy that works for you or not.

Zook
Zook

There are many good theories and some good pie in the sky ideas. That and $1.85 will get you a grande coffee at Starbucks. Oh yeah, and a one way ticket to the poor-house. First, I would love to hear more about this 401k company and where this information was found? Are there others like this? This is big news IMHO, that a 401k company has DIRECT involvement of the killing in Dafur. We all walk a fine line with these types of decisions. We all invest in funds that have oil and tobacco companies. It’s impossible to weed them… Read more »

Pippin
Pippin

there will always be someone to invest in ‘dirty business’, and it’s pretty good odds there’s some money to be made from it. the question will always be what your own peronal tipping point is- where the consequences of your choices start impacting on the quality of your life. You might *like* starting a crusade to get your 401 ethical, and the awareness raising would be doing good too, but if that’s not how you want to live, that investment will cost you more than money. The quakers with their free cotton might have paid more, and not made a… Read more »

Enough Wealth
Enough Wealth

I doubt that those doing the genocide in dafur are stockholders of the investment company, so any ‘facilitation’ of the genocide would have to be extremely indirect – probably by investing in companies that do business in the country, and therefore have some economic link the those that are doing the genocide (eg. via paying fees or taxes). So the ‘human rights’ groups are probably pushing for economic boycotts or sanctions in order to pressure the regime. Unfortunately economic sancations generally hurt to civilian population more than those running the country, so the whole concept is flawed. I’d just ignore… Read more »

Ryan
Ryan

I don’t know the details, but both Vanguard and Fidelity (two of the largest, highest returning, most accountable firms in the financial world) have both turned down offers to divest from Darfur. Warren Buffett is in the same boat. Mostly, this is through stakes in one company: PetroChina. Values-based investing is awfully sticky. As Sarah said, the investment world is not black and white. Neither is the world in general. People should try not to have knee-jerk reactions to commpanies “involved” in X, Y, or Z. (Such as, “They support Planned Parenthood = bad and evil” without mention of the… Read more »

Money Blue Book
Money Blue Book

I think it’s nearly impossible to find a company to invest in that is not oppressing someone in some way or another. That is just the nature of business competition. If they are not being competitive or cost driven or causing misfortune in someone or something else, the company likely will not succeed financially..it is a sobering reality. I always think it’s ridiculous when I hear people trying to boycott products from human rights questionable countries like China. It’s impossible to boycott a country that has a hand in making nearly everything we use. Prices for everything would double or… Read more »

Laura
Laura

Sorry to rehash what others are saying, but since this is a valid problem I wanted to share my feelings. Please get all the facts regarding the 401(k) and its connection to Darfur’s genocide. Contact HR and explain to them your concerns.

If it is connected to this genocide, I’d pass on this. I’d notify all my co-workers of the connection and see if a coaliation can be built to get an alternative.

Johan Ericsson
Johan Ericsson

I haven’t seen this suggestion. Why not contribute enough for the company match and then immediately remove the money. Usually the company match easily covers the 10% penalty for early withdrawal…

Eric
Eric

Hello,

I am the person that originally asked the question that GRS responded to. The main source of information I used is found here:

http://www.savedarfur.org/page/content/other_resources

According to documents on this site, the investment house is investing $1.5 Billion in PetroChina on the Hong Kong stock market. I have a real problem with that. PetroChina props up the Sudanese government, which facilitates the genocide.

mph
mph

I would like to point out that a company that holds shares of PTR cannot divest without selling those shares to someone else. So if you don’t want Company X to own those shares, you should be able to say who you do want to own them. (I guess you could call this principle “Conservation of Evil”. All you can do is move it around.)

Zook
Zook

Eric…

If you have a real problem with that [which is completely fair], you got a real problem with just about everything a mutual fund touches. Don’t just hang this up on your 401k provider.

Where does it end? Say your 401k provider didn’t have dealings with PetroChina, but a 5% interest that owned the 401k provider did?

Dafur is highly publicized, but there are 100’s if not 1,000’s of companies that invest or are someway related to something bad. It wouldn’t end.

Elaine
Elaine

@Brandon Barkley: “I didn’t know the United Way supports Planned Parenthood. I guess I don’t feel guilty about not contributing when they were drumming up money this fall at work.” Just as an aside, I spent 3 years as an admin asst at a United Way in the last 90s. Each United Way distributes funds independently to nonprofits in their area. This may or may not include Planned Parenthood — it all depends on your particular United Way. Feel guilty or not (I don’t contribute now) but don’t use that as your particular rationale, unless it happens to be true… Read more »

My Dollar Plan
My Dollar Plan

In addition to what Johan said, sometimes 401k plans have provisions to take regular withdrawals in-service as long as you roll it over to an IRA. This does not have a penalty.
Take a look at your summary plan description. You might be able to put the money in and immediately roll it out. You would still be using the investment company, but it would be minimal and only to get your match and get out.

tony
tony

For me, the connection between the investment and the genocide is too nebulous to be a problem. The ‘ethical dilemna’ is essentially that one should boycott all economic activity related to Sudan. If the investment involved supplying weapons, or corruptly paying the government to clear villagers from land, that would be a problem. However the so-called ‘support of genocide’ here is just paying taxes to the government – this is normal conduct that is part of doing legit business anywhere. Point is, that economic activity will continue and sudanese taxes paid whether you have the 401K or not. So the… Read more »

Aaron Pinkston
Aaron Pinkston

Eric, you might want to do some leg work over a few months to help your employer find a new 401k provider. Depending on the size of your overall plan, saving your boss tons of money in operating costs and getting it into the hands of slightly more scrupulous people should not be difficult.

You look like the hero telling them what your original intent was, but a positive side effect is unbundling the plan and saving them on their gross fees. Whoever heads up HR will hate you though.

Jordan
Jordan

Maybe I am just heartless, but unless this investment firm is handing cash to the people committing the genocide, then I don’t think you should worry. One of the other posters above mentioned questioned supporting CAT because they make equipment that is used to destroy areas of the west bank… are you kidding me? Maybe you should boycott oxygen because it allows the “bad guys” to kill all those good guys. What about all the great stuff CAT equipment assists with? There is being socially responsible, and then there is being extreme. Without more detail (like the actual relationship between… Read more »

Brandon Barkley
Brandon Barkley

Thanks for the extra info Elaine. I probably would not donate to UW either way. Any extra money I have, I would give to my church instead.

Sam
Sam

And not to get way off topic, but I support my local United Way and Planned Parenthood (both of which do great work in my community).

JACK
JACK

The answer isn’t to figure out how to still take advantage of the match. The answer is to figure out what is the right thing to do and then do it. It is as simple as that. Of course, figuring out the right thing to do can be challenging and is incredibly fact-driven, which is why I rarely give recommendations of what that might be based on a paragraph. But if your starting point is “looking for a compromise that makes sense” you have already decided not to pursue the ethical route. You may happen to do something ethical, but… Read more »

Jeremy
Jeremy

Frankly, if you’re going to start down this road, you’re going to have to stop investing at all, and keep all your money in cash in your house. Petrochina doesn’t do business in Sudan; it’s parent company does. All the non-Chinese investors in the world, including Warren Buffet, don’t hold enough Petrochina stock to have the slightest influence over its parent company’s actions or its government’s policies. It is silly to blame Petrochina for the genocide in the first place, and it’s silly to think that even if every investor in all the world divested themselves of Petrochina that it… Read more »

Meg
Meg

If you’re really concerned about the ethics of the company administering the 401k as opposed to the companies you’re actually investing in, then I wouldn’t worry about it. YOU are not hiring or supporting the investment firm–your EMPLOYER is. YOU are not paying admin fees, maintenance fees or any other direct fees that will benefit this firm. Your EMPLOYER is. And the employer will be doing it whether or not you contribute to the plan. The actual fees you personally pays that end up benefitting the investment firm which manages your 401k are very very minimal, especially if we’re assuming… Read more »

mickie
mickie

I’m totally on the other side of the fence and think that derivatives are to be ethically avoided over all. But then I have issues with fiat money, and support a return to a gold standard. About the only unethical (IMO) thing I do with my money is pay my income tax protection money to keep Leviathan off my back. I pay the government its full demanded cut without setting up the various accounts for “pre tax expenses” nor do I itemize expenses. I’d just as soon be hung as a sheep as a lamb. Yes, I know its money… Read more »

Alison
Alison

I’m surprised at how many people are unconcerned at their investments’ connection to a genocide. The attitude that it’s only the person who pulls the trigger’s fault when the gun fires is a very simplistic one. Wars need to be financed somehow. The argument that “there are probably lots of other bad things that you’re supported somehow or another” is not very convincing either. This is the reason why the genocide in Darfur continues. The rest of the world just considering it someone else’s problem. The idea is to try to live your life in such a way that you… Read more »

Minimum Wage
Minimum Wage

What “right” does the public have to have enough information to make informed decisions as consumers (B2C or B2B) or job applicants?

I wouldn’t want to do business (e.g. buy products made or sold by) such an employer. Shouldn’t consumers have this information also?

Jeff
Jeff

I strongly agree with Dave Ramsey and the people who have quoted him in these comments. These things will drive you crazy — and there is a TON of misinformation out there about what companies do what bad things.

My reaction is always the same: save your conscience for the voting booth.

Stephanie
Stephanie

There’s also a site that helps you screen funds to learn if they are “socially responsible” or not. There are similar screenings and listings on other parts of that site, too.

It is hard sometimes to figure out if you can ever be completely good in every way…don’t hurt anyone or anything ever with your investments and actions. Sometimes you waste half a sandwich, or take a slightly longer shower…just try not to do it again, I guess?

Tired
Tired

I am quite surprised at the number of people who think it’s okay to willingly contribute to a company that is supporting genocide. Would people feel the same if it were terrorism, I wonder? Is making a few extra dollars worth the possibility of destroying people’s lives? I heartily agree with the person who asked this question — and I applaud you for asking it in the first place! Where our money goes is our responsibility, and just saying that “everyone does it, it can’t be helped” is a terrible cop-out. And yes, I think it is heartless to say… Read more »

marian linden
marian linden

Well, fidelity invests in PetroChina. Altho its dumped all its investment in China that’s on the NYSE it still invests in PetroChina on the Chinese stock exchange. What does this have to do with Darfur? Well China is the biggest purchaser of Sudanese oil. And the tribes that are being ethnically cleansed are those of non-arab descent who live in oil-rich areas. I think a lot of values investing is tricky. I don’t think this issue is. My husband and I dumped the $9,000 we had in Fidelity and now earning 13% on something else instead of the 22% on… Read more »

MoneyChangesThings
MoneyChangesThings

Eric’s dilemma is a principled position and I very much applaud his feeling conflicted. I have many investments through Fidelity, though none of the funds we own are invested in Petrochina. You might check on that. However when I learned about the divestment movement, I sent Fidelity a long letter of protest about their Sudan holdings, and continue to lobby them. It is useful to do this AS AN INVESTOR, so there is an argument to be made for going ahead with the 401 through the employer. Here is a comprehensive site. Warren Buffet has completely divested his holdings, by… Read more »

Scot Longyear
Scot Longyear

Always value ethics above money. Somehow the money always seems to come back better. And if not, you can always sleep better knowing you did the right thing. If we are putting money ahead of ethics, are we not doing the same as the companies that we are questioning?

Glad that you brought up the dilemma. Makes us all think.

David Carroll, Amarillo TX
David Carroll, Amarillo TX

If you put your money in a cookie jar to avoid it being used for something unethical you have effectively moved the money out of the economy. This serves to boost the overall value of the American dollar. Since the American dollar is used by most Americans to invest in mutual funds, and those mutual funds generally include everything but penny stocks at some point. Therefore your cookie jar savings is tantamount to buying bullets to kill children in whatever country you would like to throw a dart at on the map! Seriously though. If you don’t like the 401k… Read more »

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