Investors vs. Consumers: Misaligned Interests?

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While the two are partly linked, the current system seems to result in an excessive number of doctor visits and medical tests and the use of higher-priced drugs where lower-priced generics might work just as well, he says.

To improve the system, the incentives given to consumers and providers need to change, and that will require a lot of education of consumers, many of whom are resistant to the so-called socialized approach to medicine taken in Europe and Canada, says Bailey.

While the Interfaith Center on Corporate Responsibility (ICCR) has yet to draft any concrete resolutions directed at the health-care companies whose shares its members own, the organization does have a set of reform principles that Regier at MMA Praxis believes will help point toward solutions in the future.

Evaluating Trade-offs

Those principles grow out of such questions as whether it's better for health-care companies to make a lot of money off a limited number of very sick people or to look for business models that allow them to serve a broader population of healthier people with greater access to insurance, says Regier.

That issue has spurred such companies as Wal-Mart (WMT) to embrace the need for health-care reform, since the company sees a path toward better management of expenses that would allow it to trim costs associated with employee absenteeism and the adverse effects of poor health on work sites, says Regier.

"This is where I think the institutional investor role is so important. We have portfolios that we intend to be around 30 to 40 years from now," he says. That long horizon gives institutions an incentive to push for more sustainable business practices at the companies in which they invest. "As institutional investors, let's set our horizon a little further out," Regier says.

Ideally, there should be some confluence of interests between consumers and investors who want their companies to sell a quality product that meets legitimate consumer needs, that doesn't harm them, and that enhances their well-being and standard of living, says Robert Weissman, director of Economic Action, a not-for-profit organization that advocates for improved corporate accountability.

Government Efforts

"At the same time, there is a core conflict: Investors have a simultaneous interest in price-gouging consumers, or selling them something they don't need or something of questionable quality," he says. "If those practices enhance the bottom line, generally investors applaud them."

The U.S. government is also taking a more proactive stance in trying to bring corporate, investor, and consumer interests into closer alignment, reversing a trend that for many years allowed corporations to define their relationship with consumers. Those efforts include a push for mortgage modifications that would protect service organizations from investor lawsuits and legislation that would give the Food & Drug Administration authority to approve follow-on biologic drugs—cheaper alternatives to brand-name drugs made from living tissues and microorganisms—and provide a cost-effective way to bring them to market that's also favorable to distributors and pharmacy benefit managers.

It's not only investors who may need to adjust the time horizon of their goals. From a different standpoint, allowing delinquent homeowners to modify their mortgages—whether within or outside the Chapter 13 bankruptcy process—may serve their short-term interests without helping them improve their financial behavior over the long run.

"I'm coming around to the idea that people need to make a really big down payment like 20% in order to buy a home," says Green at USC. "And to do that, we need to encourage the use of default savings mechanisms to spur a higher savings rate." Those mechanisms, when incorporated into 401(k) plans, have proven to result in higher savings than retirement plans that require employees to opt in to be enrolled, he says. "When companies structure a plan so that employees have to opt out if they don't want to be enrolled, people don't opt out."

Bogoslaw is a reporter for BusinessWeek's Investing channel.

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