Stock options: holding corporations accountable.

When a federal judge granted class-action status to a sex-discrimination lawsuit against Wal-Mart last June, few could have been less surprised than Sr. Barbara Aires. Treasurer of the Sisters of Charity of St. Elizabeth in Convent Station, New Jersey, Aires had advocated since 1990 for better employment practices at the retail behemoth, including increased attention to providing equal opportunity for women and minorities.

"As I said to the company two years ago, I knew the litigation was coming. They should have listened to us back in 1990," said Aires, whose congregation owns Wal-Mart stock in its pension fund. "And '91, and '92, and '93 ..." She trailed off, her frustration apparent in her sigh.

Aires, a thirty-year veteran of the shareholder activist movement, has been joined in recent years by a growing number of like-minded investors who have agitated for corporate reform by initiating dialogue on issues like corporate governance, the environment, and human rights. According to Social Investment Forum, a nonprofit group that promotes shareholder activism, shareholder-advocacy activity increased 15 percent from 2001 to 2003.

Perhaps more important, the average percentage of shareholders voting in favor of shareholder resolutions--proposals from stock owners that can appear on a company's yearly proxy statement--also grew, from 8.7 to 11.4. Shareholder resolutions are the most effective way for activists to make their voice known within a company, and while these numbers may seem low, just a 5-percent vote can force a company to take notice, if not action.

The boom in shareholder advocacy, prompted in part by recent corporate scandals such as those at Enron and World-Com, can be traced to its predecessor, socially responsible investing. That umbrella term covers investments made according to certain criteria, such as a refusal to purchase shares in tobacco companies or defense contractors.

Religiously motivated investing is also becoming more popular, especially among individual investors, according to Frank Coleman, executive vice president of Christian Brothers Investment Services, which manages $3.5 billion for more than one thousand Catholic institutions and handles proxy voting for the United States Conference of Catholic Bishops. "People are trying to connect with their values," he said.

The concept of socially responsible investing goes back to the Quakers, who refused to contribute to industries that supported war or the slave trade. But socially responsible investing really gained prominence in the Vietnam era and during the anti-apartheid movement. Several Christian denominations--the Episcopal, Methodist, and Catholic churches, among others--as well as Jewish congregations and Muslims have contributed to the movement's growing popularity. Pope John Paul II's 1991 encyclical Centesimus annus reminded Catholics that "profitability is not the only indicator of a firm's condition," and in November 2003, the U.S. bishops released revamped guidelines on investing, with expanded focus on stem-cell research, the environment, and access to pharmaceuticals.

New York's Interfaith Center on Corporate Responsibility (ICCR) is probably the most respected player in the field. Founded in 1971, the coalition counts 275 Christian and Jewish institutional investors, about two-thirds of which are Catholic. Through resolutions and dialogue with companies, members promote initiatives to end predatory lending, to effect sound environmental and labor practices, and to establish ethical criteria for military contracts.

Since ICCR deals exclusively with institutions, it cannot help individuals seeking to invest according to their beliefs or to raise issues with companies in which they hold stock. Two groups of Catholic funds have appeared in recent years that do cater to both institutions and individuals: Ave Maria Mutual Funds, based in Bloomfield Hills, Michigan, and the Catholic Equity Fund, in Milwaukee. The two firms illustrate divergent approaches. The Ave Maria fund screens out companies whose practices it considers unethical. The Catholic Equity Fund takes a more activist approach, seeking to change a company from within by proposing resolutions against practices to which it objects, or in favor of actions it thinks a corporation should take.

"We started as a screening fund but came to the conclusion that that was not the way to go," says Catholic Equity Fund chairman Dan Steininger. "Fellow CEOs said 'we love it when you don't own our stock.'" The Catholic Equity Fund currently screens out five companies that directly participate in abortion, but otherwise the list of companies it invests in mirrors the S & P 500, an index of leading companies. As an associate member of ICCR, the fund has filed resolutions to limit executive compensation with corporations like Alcoa, Bristol-Myers Squibb, and Coca-Cola. The fund is beginning to expand its efforts into other issues too: it successfully negotiated with Federated Department Stores to eliminate the use of child labor in rug production.

The setup works perfectly for people like Tom Van Himbergen, director of finance and administration at St. Francis Seminary outside Milwaukee, who tried to avoid certain stocks on his own but found the research needed to make responsible choices overwhelming. "They can be my voice in the boardroom," he said.

Ave Maria has quadrupled its assets since it was founded in 2001. It has consistently beaten the S & P 500's performance and received the highest rating from the research and tracking firm Morningstar. The brainchild of former baseball commissioner Bowie Kuhn and Domino's Pizza founder Thomas Monaghan, Ave Maria now offers three funds, overseen by a Catholic Advisory Board that includes Kuhn, Monaghan, conservative icon Phyllis Schlafly, and Michael Novak, who has written extensively on capitalism as a Christian activity.

The board screens the funds' holdings for four categories: participation in abortion and contraception, contributions to Planned Parenthood, benefits to nonmarried partners, and pornography. Some of Ave Maria's investors and potential clients regularly ask Chairman George Schwartz why Ave Maria doesn't expand the list of companies it screens to include groups like defense contractors. To which Schwartz responds, "Thank you, this fund's not for you."

According to Schwartz, if any companies in the Ave Maria portfolio "become offenders"--that is, adopt any of the prohibited practices--they are sold immediately. Ave Maria believes that this approach, known as divestment, is preferable to shareholder activism. "We want to spend time and resources finding good investments for our shareholders, not picketing or trying to change the policy of a company," says Schwartz. Last year, Ave Maria sold its shares in pharmaceutical manufacturer Eli Lilly and Co. when it decided to offer benefits to nonspousal partners of employees.

Aires argues passionately in favor of the opposite tack: "Some would say we must get rid of [certain pharmaceutical companies] because they are antithetical to our beliefs. But we believe there are many other things they're engaged in that require another perspective on ethics. When you sell your stock, you have no voice."

The Sisters of Charity, members of ICCR, have spoken loudly in the health-care arena. They filed a resolution with Abbott Laboratories asking for a report on the company's efforts to increase access to and affordability of prescription drugs. They also lobbied Merck and Co., another pharmaceutical company Ave Maria excludes, for a review of the economic impact AIDS could have on the company, pointing out the need to improve access to medication in developing countries.

So far, the activist approach has proved to be fairly successful. Last year, Ford Motor Company agreed to prepare a report on its workplace HIV-intervention efforts after ICCR sponsored a resolution on the topic. ICCR was less successful with its resolution seeking a reduction of greenhouse-gas emissions: Ford management voted against the resolution, but a company spokesman said the dialogue remained respectful. "Religious groups are a lot more well-behaved, more open to working collaboratively," he said, comparing ICCR to some environmental activists.

Not surprisingly, the activist approach espoused by ICCR and the Catholic Equity Fund reflects the political concerns of its investors. Both groups attract progressive Christians who want to use their investing power to promote social change. Ave Maria, on the other hand, tends to cater to conservatives who worry about the deleterious effects of pornography and gay marriage. Their approach to investing is no doubt quite attractive to those looking to take a resolute stand against objectionable corporate practice. Still, one wonders how effective it will prove. By shutting the door on dialogue and retreating to a moral high ground, groups like Ave Maria surrender any chance to promote change from within a company. On the surface, the activist approach may seem much more tedious and mundane; investors file resolutions year after year, marking progress in tiny increments and endless conversations with company representatives. But, in the end, such tactics may be the ones that make a difference.

Benedicta Cipolla, a former correspondent for the Catholic News Service, is a freelance writer in New York.