These days, many consumers are also business owners through participation in equity investments, especially stock ownership.
In previous generations, this was true only indirectly in that individuals would place whatever savings they had in a bank account and the bank would invest those funds as it saw fit, or else individuals would participate in defined-benefit pension programs in which paid managers invested the funds and the participants in the plan were not directly involved in those decisions.
Today, however, an unprecedented number of individuals own stocks directly (either as part of a savings strategy or through employee stock ownership programs, mutual funds, or retirement investment programs), and are thus much more directly involved in issues pertaining to business ownership.
The result of these developments is that the clear distinction that once existed between the owners of a company and its customers no longer applies quite as it did in earlier times.
In today’s economy, a large percentage of the population, at least on paper, holds both roles simultaneously!
It is an interesting question to consider whether there are special ethical concerns involved in consumer equity investment.
One fundamental concern is whether Jewish ethics allows for such capital investment in the first place.
In general, the texts indicate a respect for the kind of capital investment that creates a free market system and allows the economy to grow to meet the needs of society.
However, such ownership comes with responsibility toward workers, consumers, and society as a whole.
It is a legitimate reading of Jewish values to say that as long as owners and investors act in accordance with such concerns, equity ownership by the masses is legitimate—and even desirable.
All the same, two basic issues stand out that differentiate equity (i.e., stock) investment from more traditional forms of consumer investment such as bank deposits:
- Shareholders are considered the “owners” of a company means that they are associated with the products and behavior of that company.
- There is a greater risk of financial loss involved in this type of investment.
Regarding the first issue, the ethical responsibilities for an average investor are likely quite limited.
Average shareholders do not have direct responsibility for the actions of a company, since their stake is too small to affect corporate policy, and those who own stock in a company through a mutual fund are even less directly responsible for that company’s activities.
Professor Aaron Levine, writing in his Case Studies in Jewish Business Ethics (Jersey City, NJ: KTAV, 1999, p. 370) notes that those who hold a five percent or higher stake in a public company may have greater ethical responsibility because of the rabbinic principle of marit ayin (“appearance”) that requires that a Jew strive not only always to behave ethically but also always to avoid even giving the impression of engaging in wrongdoing of any sort.
Because the government requires public disclosure of stakes of more than five percent, the name of the individual will inevitably be associated with the practices and policies of the company of which they are a significant owner.
Even here, the issue is not one of direct responsibility but rather one of secondary association with problematic behavior.
However, given the choices we have as investors, we may find that, as Jews, we want to hold ourselves to a high personal standard when it comes to investment, even if the written laws on investment are lax.
Levine uses Rabbi Joseph B. Soloveitchik’s “kibbush mandate,” which “amounts to a charge to self-actualize by realizing one’s Godlike potential as a creative human being.”
(The word kibbush, literally “conquest,” refers in this context to “conquering” one’s own baser instincts.) He says: “Illustrating a perversion of the kibbush mandate is the production and sale of cigarettes.
This judgment is not predicated on the ability of halakhah to establish a clear-cut prohibition against smoking. Suppose, for argument’s sake, that a clear-cut prohibition against smoking cannot be established.
Nonetheless, the causative links medical science has established between cigarette smoking and various dreadful diseases is undeniable. Far from advancing human dignity, the tobacco industry degrades human existence by causing disease, misery, and pain.
It’s very existence perverts the kibbush mandate” (Levine, Case Studies, p. 374).
It would, for example, therefore be morally indefensible to invest directly in certain companies.
Furthermore, individuals are encouraged to tailor their investments to avoid companies that specifically violate their own personal ethical sensibilities.
For example, if one feels strongly about animal rights, one’s investments should display concern for the welfare of animals.
This holds true on a direct investment basis, and is somewhat less applicable for small investments or those done through a secondary vehicle such as a mutual fund.
Nonetheless, ethically sensitive Jewish investors should shape their investment strategy to match their moral values and not rely on the letter of the law to permit themselves to own even minuscule parts of corporations that engage in activities or produce goods of which they do not approve ethically.
Investment and Gambling
Equity investment also generally involves a far greater risk factor than more traditional consumer savings vehicles such as savings accounts and defined-benefit pension plans.
The question from the point of view of the halakhah is whether this increased risk turns the investment itself into a form of gambling, and whether gambling is a serious enough ethical problem from a Jewish perspective for people not to engage in even as accepted a practice as high-risk investment for that reason.
There is not a simple answer to either question.
Rabbinic attitudes toward gambling are ambiguous.
Some sources are not critical of this practice.
For example the Rema, (in his gloss to Shulchan Arukh, Orach Chayim 338:5), prohibits gambling on Shabbat, not because gambling itself is prohibited, but because he considers it enough of a business transaction to constitute a transgression of the Shabbat laws.
However, Talmudic sources present a more ambivalent attitude.
The Mishnah at M Sanhedrin 3:3, for example, includes gamblers among those who are ineligible to serve as witnesses, but the Talmud cannot decide why exactly they are so prohibited.
The scholars posit at BT Sanhedrin 24b–25a alternately that the reasoning may be that serious gamblers engage in a form of robbery (that is, they engage in actual illegal behavior), or else merely because such people “are not engaged in the general welfare” of the community (that is, they have insufficient moral standing to serve as witnesses whose word will be believed).
According to modern commentary from the Committee on Jewish Law and Standards, the latter opinion is the dominant one.
(The CJLS opinion limits the prohibition regarding witnesses to “full-time” gamblers and not to individuals who pursue other professions and who occasionally gamble.)
These modern Conservative rabbis express grave concern regarding the practice of gambling and seek to discourage it, seeing it as problematic behavior that lowers the standards and standing of institutions or individuals engaged in it (see A Statement on Gambling from the CJLS).
Given these concerns, it is halakhically reasonable to ask whether ordinary investors can succeed in the equity markets through their own skill, or whether the risks of the market that cannot be controlled by the individual investor are so great as to push stock investment into the realm of gambling.
In particular, the sources cited seem most concerned about the effect of gambling on the gambler’s moral character.
Some investors are prone to become giddy with success when their investments flourish and respond by taking ever greater risks, thus becoming closer and closer to the status of true “gamblers.”
Others, when faced with the downswing of a market and facing tremendous losses (especially if those losses were “on margin” and need to be repaid), are prone to begin cutting corners and begin a downward ethical spiral.
High-risk investing should be undertaken with full cognizance of the wide range of moral and ethical pitfalls that face the investor both in times of success and failure.
Adapted with permission from The Observant Life.