Creative Commons, Simon Brass.

Investors and the Prison Problem

How we can fight the incarceration cycle

Last week at the Rockefeller Family Fund, Zevin Asset Management joined a meeting of activists, policy experts, and foundations committed to reforming America’s unfair criminal justice system. Our president Sonia Kowal spoke about how we view that work as stock investors, and I’m pleased to provide this update.

The scale of incarceration in America is staggering: 2.2 million people sit in our prisons and jails. One in every 31 people is under some form of “correctional control” (prison, jail, probation, or parole) at any given time, and nearly one-quarter of Americans have a record, numbers that are strongly concentrated in communities of color because of systemic racism in the criminal justice system.

Incarceration rates among founding NATO members via Prison Policy Institute.

The people who are caught up in this system — mostly poor, black, and underserved by education and public services — have been close to invisible. Unfortunately, at the close of the Obama era, the school-to-prison pipeline, the abuse and neglect of incarcerated people, and the obstacles of life after prison were only just beginning to come to the fore.

Now, at the beginning of a divisive, law-and-order administration, how can we keep the spotlight on mass incarceration, cure the worst abuses, and shrink the prison population?

Investors must be part of this ongoing fight. As criminal justice reformers have shown and the Prison Policy Institute re-confirmed last month in its report “Following the Money of Mass Incarceration,” much of America’s criminal justice system remains privatized, contracted out, and mixed up in a $180 billion “treatment-industrial complex” profiting from punishment.

As documented by the American Friends Service Committee, that big market spans a range of private players — from small contractors and healthcare providers to pure-play prison companies, but also larger firms that use prison labor. Many more firms systematically avoid candidates who have criminal records. All of these companies (many of which are supported by large investors and people’s 401k plans) keep the status quo of over-incarceration financially viable.

Zevin Asset Management has spent years examining the private sector role in mass incarceration.

As a socially responsible investor which avoids companies with persistent human rights issues, we do not invest in for-profit prison owners and operators like GEO Group and CoreCivic. However, we have engaged with other publicly-held companies from the retail sector to the electronics industry to identify the ways that firms affect and are affected by mass incarceration. Then, on behalf of our clients, we use dialogue and shareholder activism to push companies to improve.

A prison in California, Wikimedia Commons.

We started by reaching out to experts and affected communities, analyzing the risks that arise when companies (or their suppliers) intersect with the prison problem:

• Legal/operational risk — For-profit prison operators face the starkest operational risks. Reports show a pattern of human rights issues in private prisons, including the physical and sexual abuse of inmates, wrongful deaths, and increased violence among inmates in understaffed facilities. These conditions can lead to riots, which interrupt operations, and endanger prison employees. More often, operational risks simply create more misery for inmates and conditions that doom them to failure on the outside. And, in rare but notable circumstances, they can lead to lawsuits.
• Reputational risk — Firms outside the prison industry, especially those with consumer-facing brands, should beware of damage to their reputations from even the smallest involvement with prison labor. A classic example would be a large retailer or manufacturer with a sprawling network of suppliers. It takes only one supplier using ultra-low-wage prison labor to harm the firm’s reputation, as Whole Foods learned when the grocer was criticized in 2015 for sourcing tilapia and goat cheese from vendors that use prison labor.
• Policy risk — The election of a president who talked tough about crime and pledged to build a border wall was greeted with relief in the prison industry. Prison company stock prices have more than recovered since August when the Obama Justice Department’s decision to stop letting for-profit firms run federal prisons caused their stocks to plummet. But the above risks remain, and growing attention to the prison problem could cause future swings.

Analyzing our clients’ portfolios against the above risks, we found two key groups of companies to approach about their role in the prison crisis.

Prison labor

The first group includes listed companies in a range of sectors that might use prison labor or (more likely) source inputs produced by suppliers using prison labor. Despite the high reputational risks, most companies — even those with a solid approach to monitoring global supply chains for worker abuses — simply don’t know if their suppliers are using prison labor. So, the first question Zevin asks is: Will you check? Then follows a long and often productive exchange in which we probe additional questions, urging the company to monitor its supply chain for prison labor, investigate the working conditions in prison labor facilities if the company or its suppliers are involved, and change internal labor codes and supply chain management policies to include prison labor.

Creative Commons, Quinn Dombrowski.

Ahead of a nation-wide prison labor strike last September, Zevin met with PepsiCo and Target and pushed for details on their use of prison labor in the supply chain. And last year, we convinced Intel to inspect its U.S. vendors for prison labor. This year, we will work with executives there to examine ethical risks and push the chip maker to develop a policy on this issue.

Fair chance hiring

The second group implicated in the prison crisis includes companies that enable the cycle of incarceration by refusing to hire people with arrest and conviction records. Every week 10,000 people are released from prison and jails across the country — the best way to integrate them back into communities is to get them working. Zevin partners with allies such as the National Employment Law Project (NELP) and the Interfaith Council on Corporate Responsibility (ICCR) to advocate for “Ban The Box” laws which prevent employers from taking a candidate’s criminal record into account before reviewing their qualifications. And we are pushing companies to go further and retool their hiring policies: only con­sid­er­ing con­vic­tions and pend­ing cases, reviewing the nature and age of an offense, and giv­ing people a chance to be heard before their applications are discarded. We have asked portfolio com­pa­nies for their poli­cies and shown them how they com­pare to best prac­tice standards.

Creative Commons, Kathryn Decker.

Failing to follow those basic standards can not only narrow a company’s pool of prospective talent but also create legal risk. Last year, we pressed several big employers, including Starbucks on hiring. And we wrote to Amazon.com with our concerns when dozens of its contracted delivery drivers — mostly people of color with long records of service — were summarily fired after a criminal background check. The drivers have since sued Amazon for discrimination, and we have co-sponsored a shareholder proposal challenging the company to report on its hiring practices and how it can improve. But, as NELP reminds us, companies can’t stop there. Firms should show how they are affirmatively seeking and hiring candidates from communities that receive hundreds of thousands of returning citizens each year.

Private capital is enabling mass incarceration, but we have tools to help stop the cycle.

In addition to the above, investors might consider:

• Divesting from firms that profit from mass incarceration — similar to the fossil fuel divestment campaign, the aim here is to delegitimize their business models
• Understanding and challenging institutional racism in company practices
• Urging companies to pay a living wage
• Urging companies to open facilities and provide good jobs in low income communities
• Considering social impact bonds that target recidivism
• Supporting worker-​owned coops and other social enterprises that employ people with records

Mass incarceration is a stubborn social crisis with no quick fix. Investor attention and action, however, can help keep America’s prison problem from becoming invisible again.

Thanks for reading and sharing. Write me for more information about these activities and Zevin’s broader advocacy efforts.

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