Bulletin
Investor Alert

New York Markets After Hours

Outside the Box Archives | Email alerts

June 30, 2020, 4:34 p.m. EDT

It’s time for investors to dump shares of companies that profit from mass incarceration and prison labor

Your stocks and mutual funds could be making money from the prison industry. Here’s what you can do

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    GEO Group Inc. (GEO)
  • X
    CoreCivic Inc. (CXW)
  • X
    BlackRock Inc. (BLK)

or Cancel Already have a watchlist? Log In

By Tanay Tatum-Edwards


Getty Images

From exploiting unpaid or cheap prison labor to price gouging basic necessities — companies continue to profit as incarceration rates increase.

In the wake of the murders of George Floyd, Breonna Taylor and Ahmaud Arbery, and the resulting widespread calls to defund police, investors are scrambling to figure out how to create portfolios that support racial equity.

For example, Calvert Research & Management, an industry leader in ESG (Environmental, Social, and Governance) investing, recently made a commitment to push companies to disclose racial diversity data . This is a great first step, but more must be done. Investors cannot have a conversation about racial equity without talking about mass incarceration and the U.S. prison industrial complex.

The U.S. has 20% of the world’s incarcerated population — but less than 5% of its citizens. The mass incarceration crisis disproportionately impacts Black Americans — there’s a reason it’s called the “ new Jim Crow .” Many companies have a direct financial incentive to keep this unjust system in place. From exploiting unpaid or cheap prison labor to price gouging basic necessities — companies continue to profit as incarceration rates increase. This is not a small problem; more than 4,000 companies have benefitted from this injustice.

Read: How America perfected the ‘art of demonizing Black men’

Investors can help dismantle the prison industrial complex — and given the profits many shareholders already have made off of this system, they have a responsibility to do so. Our team at FreeCap helps investors move their money out of prisons and into companies with solutions to mass incarceration. Here are steps we recommend investors can take to reduce the harm caused by mass incarceration:

Divest from the prison industrial complex: For starters, it is time to completely divest from private prisons. Geo Group /zigman2/quotes/209855552/composite GEO +1.71%   and CoreCivic /zigman2/quotes/200590180/composite CXW +8.08%  , the two U.S. based publicly traded private prison companies, explicitly identify a reduction in incarceration rates as a material risk in their annual reports. Any company whose financial model is built on the exploitation of Black and Brown communities is not worth saving. Shareholders of these two stocks, including the two largest — mutual-fund and exchange-traded fund providers Vanguard Group and BlackRock — /zigman2/quotes/207946232/composite BLK +0.61%  should divest from these companies.

Thanks to mobilization efforts by groups including  Dream Defenders  and the   Families Belong Together coalition, many Wall Street banks are in fact ending financing arrangements with the private prison industry, including CoreCivic and Geo Group. JP Morgan Chase /zigman2/quotes/205971034/composite JPM -0.85%  , Wells Fargo /zigman2/quotes/203790192/composite WFC -0.51%  , Bank of America /zigman2/quotes/200894270/composite BAC -0.71%  , SunTrust Banks , BNP Paribas /zigman2/quotes/203020019/delayed XE:BNP +0.88%   and Barclays /zigman2/quotes/202212151/delayed XE:BCY -0.29%  have all agreed to cut ties .

Some banks still have previously existing lending agreements in place that they have committed to not renewing. For example, Bank of America made its commitment weeks after signing a  $90 million deal that goes through 2024 . It is time for banks that lend to CoreCivic and Geo Group — namely Regions Financial /zigman2/quotes/202396577/composite RF -0.08%  , Citizens Financial Group /zigman2/quotes/205410375/composite CFG -0.60%   Pinnacle Bank /zigman2/quotes/206544847/composite PNFP -1.02%  , First Horizon Bank and Synovus Financial /zigman2/quotes/209053698/composite SNV -0.94%  — to do the same.

But the prison industrial complex is much larger than just private prisons. Other publicly traded companies’ revenue growth depends on increasing incarceration. For example, Fairfax Financial Holding /zigman2/quotes/202682690/composite FRFHF +0.52%  and Tokio Marine Holdings /zigman2/quotes/208992593/composite TKOMY +2.68%   own two of the largest bail bond insurers in the U.S. Meanwhile, Aramark /zigman2/quotes/204468030/composite ARMK +0.08%   provides food vending services to prisons — and is cited widely for its poor services and use of prison labor . Keefe Group, iCare (a subsidiary of Aramark), and Securus Technologies have secured monopoly vending contracts with corrections departments — and charge predatory prices to incarcerated people and their loved ones for basic necessities, such as telephone calls, toiletries and care packages. Many of these companies are unreceptive to shareholder engagement or advocacy and also warrant divestment. 

Divestment is a helpful first step — but it cannot stop there:  For the vast majority of companies engaged in the prison industrial complex, revenue from prisons is a small percentage of their overall revenue stream (though their involvement plays a big role in fueling the system). So with the right mix of shareholder engagement and alignment from investors committed to ESG principles, investors can pressure these companies to cease doing business with the prison industrial complex and implement policies to help end mass incarceration. Coalitions including the Interfaith Center on Corporate Social Responsibility (ICCR ), and advisors including Candide Group , North Star Asset Management and Zevin Asset Management , are leading the charge in this area.

What investors can do

Here are three ways investors can push companies to do better:

1. Monitor supply chains for prison labor: Enabled by the prison-labor carve-out to the Thirteenth Amendment’s ban on slavery, there are companies using prison labor and paying incarcerated workers pennies per hour of work.

Investors should be concerned with the long-term reputational risk this practice poses to their portfolio. In the 1990’s, both Starbucks /zigman2/quotes/207508890/composite SBUX +0.53%    and Victoria’s Secret (now owned by L Brands /zigman2/quotes/202062875/composite LB +0.26%  ) employed prison labor through third-party contractors. Nearly three decades later, the companies have yet to shake the negative reputational consequences; both are still named in lists of companies that use or have used prison labor . In 2015, “Orange is the New Black” — the Emmy award-winning Netflix series about a women’s prison — included prisoners sewing lingerie for Victoria’s Secret as a storyline . And Starbucks had to issue a statement disclaiming its reliance on prison labor. As public opinion continues to shift, the reputational risk to companies using prison labor will only continue to grow. Companies must ban unpaid and below-market-rate prison labor in their supply chain and hire an external auditor to ensure compliance.

Formerly incarcerated job seekers make better employees.

2. Become a leader in fair chance hiring: Many companies that use prison labor in their supply chain frequently deny those same people quality employment opportunities when they are freed. Almost 75% of formerly incarcerated individuals are still unemployed a year after release. The private sector has a responsibility to solve this crisis. Beyond the moral obligation, it makes good business sense. A recent report by the ACLU makes it clear that formerly incarcerated job seekers make better employees. Private companies such as Total Wine & More, Dave’s Killer Bread and Butterball Farms are leading the way in this area through hiring policies that reduce discrimination. Plus, organizations including R3 Score and the Center for Employment Opportunities are making it easier for employers to implement fair chance hiring practices. 

3. Use corporate social responsibility to reduce recidivism: Employment is one of the most crucial components of reducing recidivism, and companies can put their corporate social responsibility dollars to work in this area. Slack Technologies /zigman2/quotes/212180539/composite WORK +0.87% , for example,  collaborated with The Last Mile to create The Next Chapter — an initiative that teaches coding in prisons with the goal of transitioning students to full-time employment opportunities when returning home. More initiatives like this are needed.

If companies’ recent public expressions of solidarity with Black liberation are genuine, then there is an unprecedented opportunity for investors to use their influence to help them get it right. Ending the influence of the prison industrial complex is mission-critical to racial justice, and asset owners are uniquely situated to make sure this moment sparks a movement for lasting change.

Tanay Tatum-Edwards is the founder and CEO of FreeCap Financial, a financial data provider of socially responsible investing criteria to help investors divest from the prison industry and adopt alternatives to mass incarceration.

More:  America’s prison business thrives as pandemic ravages economy

Plus: Black tech workers hope nationwide protests will force industry to be more inclusive

/zigman2/quotes/209855552/composite
US : U.S.: NYSE
$ 11.28
+0.19 +1.71%
Volume: 1.06M
Aug. 12, 2020 4:00p
P/E Ratio
9.25
Dividend Yield
17.02%
Market Cap
$1.35 billion
Rev. per Employee
$105,972
loading...
/zigman2/quotes/200590180/composite
US : U.S.: NYSE
$ 9.90
+0.74 +8.08%
Volume: 5.89M
Aug. 12, 2020 4:00p
P/E Ratio
8.13
Dividend Yield
0.00%
Market Cap
$1.10 billion
Rev. per Employee
$132,165
loading...
/zigman2/quotes/207946232/composite
US : U.S.: NYSE
$ 590.24
+3.60 +0.61%
Volume: 612,168
Aug. 12, 2020 4:00p
P/E Ratio
20.75
Dividend Yield
2.46%
Market Cap
$89.45 billion
Rev. per Employee
$952,953
loading...
/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 102.94
-0.88 -0.85%
Volume: 19.24M
Aug. 12, 2020 4:00p
P/E Ratio
13.87
Dividend Yield
3.50%
Market Cap
$316.40 billion
Rev. per Employee
$497,647
loading...
/zigman2/quotes/203790192/composite
US : U.S.: NYSE
$ 25.19
-0.13 -0.51%
Volume: 42.83M
Aug. 12, 2020 4:04p
P/E Ratio
28.79
Dividend Yield
1.59%
Market Cap
$104.32 billion
Rev. per Employee
$392,114
loading...
/zigman2/quotes/200894270/composite
US : U.S.: NYSE
$ 26.73
-0.19 -0.71%
Volume: 61.94M
Aug. 12, 2020 4:00p
P/E Ratio
12.84
Dividend Yield
2.69%
Market Cap
$233.24 billion
Rev. per Employee
$543,289
loading...
/zigman2/quotes/203020019/delayed
XE : Germany: Xetra
37.88
+0.33 +0.88%
Volume: 5,135
Aug. 12, 2020 6:30p
P/E Ratio
6.83
Dividend Yield
0.00%
Market Cap
€46.78 billion
Rev. per Employee
€456,254
loading...
/zigman2/quotes/202212151/delayed
XE : Germany: Xetra
1.24
-0.0036 -0.29%
Volume: 4,000
Aug. 12, 2020 6:30p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
€21.55 billion
Rev. per Employee
€388,465
loading...
/zigman2/quotes/202396577/composite
US : U.S.: NYSE
$ 11.92
-0.01 -0.08%
Volume: 11.64M
Aug. 12, 2020 4:00p
P/E Ratio
17.94
Dividend Yield
5.20%
Market Cap
$11.45 billion
Rev. per Employee
$320,096
loading...
/zigman2/quotes/205410375/composite
US : U.S.: NYSE
$ 26.49
-0.16 -0.60%
Volume: 3.26M
Aug. 12, 2020 4:00p
P/E Ratio
10.60
Dividend Yield
5.78%
Market Cap
$11.37 billion
Rev. per Employee
$395,083
loading...
/zigman2/quotes/206544847/composite
US : U.S.: Nasdaq
$ 44.02
-0.46 -1.02%
Volume: 301,480
Aug. 12, 2020 4:00p
P/E Ratio
11.28
Dividend Yield
1.45%
Market Cap
$3.37 billion
Rev. per Employee
$476,094
loading...
/zigman2/quotes/209053698/composite
US : U.S.: NYSE
$ 22.08
-0.21 -0.94%
Volume: 1.25M
Aug. 12, 2020 4:00p
P/E Ratio
8.59
Dividend Yield
5.98%
Market Cap
$3.28 billion
Rev. per Employee
$350,431
loading...
/zigman2/quotes/202682690/composite
US : U.S.: OTC
$ 313.56
+1.63 +0.52%
Volume: 5,952
Aug. 12, 2020 3:59p
P/E Ratio
N/A
Dividend Yield
3.19%
Market Cap
$8.84 billion
Rev. per Employee
$465,031
loading...
/zigman2/quotes/208992593/composite
US : U.S.: OTC
$ 46.61
+1.22 +2.68%
Volume: 20,618
Aug. 12, 2020 3:54p
P/E Ratio
14.35
Dividend Yield
3.67%
Market Cap
$31.62 billion
Rev. per Employee
$1.22M
loading...
/zigman2/quotes/204468030/composite
US : U.S.: NYSE
$ 25.28
+0.02 +0.08%
Volume: 2.99M
Aug. 12, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
1.74%
Market Cap
$6.39 billion
Rev. per Employee
$58,637
loading...
/zigman2/quotes/207508890/composite
US : U.S.: Nasdaq
$ 79.29
+0.42 +0.53%
Volume: 5.37M
Aug. 12, 2020 4:00p
P/E Ratio
71.61
Dividend Yield
2.07%
Market Cap
$92.20 billion
Rev. per Employee
$86,863
loading...
/zigman2/quotes/202062875/composite
US : U.S.: NYSE
$ 27.00
+0.07 +0.26%
Volume: 9.83M
Aug. 12, 2020 4:03p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$7.48 billion
Rev. per Employee
$148,898
loading...
/zigman2/quotes/212180539/composite
US : U.S.: NYSE
$ 27.85
+0.24 +0.87%
Volume: 9.55M
Aug. 12, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$15.56 billion
Rev. per Employee
N/A
loading...

This Story has 0 Comments
Be the first to comment
More News In
Economy & Politics

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.