1 00:00:00,840 --> 00:00:04,080 Speaker 1: This is Bloomberg wool Street Week. What's the state of 2 00:00:04,120 --> 00:00:07,080 Speaker 1: corporate governance? Its deficit is a real issue. The US 3 00:00:07,120 --> 00:00:10,440 Speaker 1: economy continues to send mixed signals to the financial stories, 4 00:00:10,480 --> 00:00:13,400 Speaker 1: the cheap our world fed action to con concerns over 5 00:00:13,480 --> 00:00:16,960 Speaker 1: dollar liquidity, and encouraging China data. At the town's reaction 6 00:00:17,000 --> 00:00:18,959 Speaker 1: to news on Breakfast through the eyes of the most 7 00:00:19,040 --> 00:00:23,000 Speaker 1: influential voices, Larry Summers, the former Treasury Secretary, Star CEO, 8 00:00:23,079 --> 00:00:26,759 Speaker 1: Kevin Johnson, sec Chairman Jake Clayton. Bloomberg wool Street Week, 9 00:00:26,920 --> 00:00:31,280 Speaker 1: We've David Weston on Bloomberg Radio. Welcome to Wall Street 10 00:00:31,320 --> 00:00:34,760 Speaker 1: Week on Bloomberg Radio. I'm David Weston. Coming up this hour, 11 00:00:35,000 --> 00:00:38,720 Speaker 1: Black Rock commits to combating climate change, plus a look 12 00:00:38,760 --> 00:00:40,880 Speaker 1: at Phase one of the U. S. China trade deal. 13 00:00:41,320 --> 00:00:44,640 Speaker 1: But first, what a difference a decade makes. Just over 14 00:00:44,680 --> 00:00:48,199 Speaker 1: ten years ago, US banks seemed on death's door, and 15 00:00:48,280 --> 00:00:51,479 Speaker 1: this week all the majors beat expectations across the board, 16 00:00:51,840 --> 00:00:55,760 Speaker 1: despite all that complaining about how those nasty Washington regulators 17 00:00:55,760 --> 00:00:57,880 Speaker 1: have been holding them back. To take a look at 18 00:00:57,920 --> 00:01:00,680 Speaker 1: what the bank's performance may signal about the ACCO. To me, overall, 19 00:01:00,960 --> 00:01:03,880 Speaker 1: we welcome now our contributors for this installment of Wall 20 00:01:03,880 --> 00:01:07,800 Speaker 1: Street Week. We're joined by Asani bechelas Rock Creek Groups CEO, 21 00:01:08,319 --> 00:01:12,280 Speaker 1: and Sam Pomisano, the former CEO of IBM. Let's talk 22 00:01:12,319 --> 00:01:14,559 Speaker 1: about these bank earnings because they really sort of shot 23 00:01:14,600 --> 00:01:16,640 Speaker 1: the lights out this week. At the same time, as 24 00:01:16,640 --> 00:01:18,400 Speaker 1: a question what does it say about the banks as 25 00:01:18,400 --> 00:01:21,760 Speaker 1: opposed to the economy? President Trump thinks actually he could 26 00:01:21,800 --> 00:01:23,600 Speaker 1: deserves the credit for it. He was at the Whitest 27 00:01:23,640 --> 00:01:25,640 Speaker 1: this week and he said to Mary Urdos, the senior 28 00:01:25,640 --> 00:01:28,200 Speaker 1: executive JP Morgan, you should be thanking me Mary. This 29 00:01:28,240 --> 00:01:31,639 Speaker 1: is what he said, Mary Air, does JP Morgan Chase 30 00:01:31,720 --> 00:01:34,720 Speaker 1: They just announced earnings and they were incredible. Where where 31 00:01:34,720 --> 00:01:39,160 Speaker 1: are you? They were very substantial? Will you say thank you? Mr? President? 32 00:01:39,240 --> 00:01:43,720 Speaker 1: At least huh. I made a lot of bankers look 33 00:01:43,840 --> 00:01:46,520 Speaker 1: very good. So Sam doesn't have a point. I mean, 34 00:01:46,600 --> 00:01:48,960 Speaker 1: is this really the economy really going gangbusters? Well, first 35 00:01:49,000 --> 00:01:51,440 Speaker 1: of all, I mean if I had the best earnings 36 00:01:51,480 --> 00:01:53,320 Speaker 1: I've ever had in the history of the IBM company, 37 00:01:53,360 --> 00:01:57,680 Speaker 1: I would thank anybody. Let's be honest, that J. P. 38 00:01:57,800 --> 00:02:00,400 Speaker 1: Moore there than the phenomenal job, and I think hats 39 00:02:00,440 --> 00:02:03,880 Speaker 1: off to them. There's no doubt the economic environment is better, 40 00:02:04,000 --> 00:02:06,800 Speaker 1: the consumers engaged, and you see that showing up. I 41 00:02:06,840 --> 00:02:10,399 Speaker 1: believe our colleague knows more about that effecon our perspective, 42 00:02:10,400 --> 00:02:13,520 Speaker 1: and I do, so that's all positive. Note. The other 43 00:02:13,560 --> 00:02:16,720 Speaker 1: thing that interesting to me was that there's a lot 44 00:02:16,840 --> 00:02:20,040 Speaker 1: of growth and earnings in the investment bank, you know, 45 00:02:20,160 --> 00:02:23,560 Speaker 1: which is an indication of let's say, smart trading in 46 00:02:23,680 --> 00:02:26,360 Speaker 1: fiscal policy or monetary policy and those sorts of things, 47 00:02:26,760 --> 00:02:30,520 Speaker 1: not necessarily a correlations of the economy overall. So what 48 00:02:30,520 --> 00:02:33,560 Speaker 1: about the economy sunny? I think the interesting thing was 49 00:02:33,760 --> 00:02:39,000 Speaker 1: also the trading area contributed a huge amount to the 50 00:02:39,000 --> 00:02:42,520 Speaker 1: earnings reports this week, and the question is is that 51 00:02:42,600 --> 00:02:47,000 Speaker 1: really an indication about the long term economic forces or 52 00:02:47,120 --> 00:02:49,760 Speaker 1: is that sort of a short term phenomena related to 53 00:02:49,919 --> 00:02:51,960 Speaker 1: the issues we had on the report markets and people 54 00:02:52,000 --> 00:02:55,880 Speaker 1: trading a lot last year. So in terms of the economy, obviously, 55 00:02:55,960 --> 00:02:59,960 Speaker 1: the economy is doing better in many sectors. The retail 56 00:03:00,040 --> 00:03:02,560 Speaker 1: sector was very, very strong, and as you could see 57 00:03:02,680 --> 00:03:05,760 Speaker 1: within the bank's earnings areas that had to do with 58 00:03:05,840 --> 00:03:09,600 Speaker 1: consumer and those who do have cards seem to have 59 00:03:09,639 --> 00:03:11,880 Speaker 1: done a lot better as well. Well. You can say 60 00:03:11,919 --> 00:03:13,920 Speaker 1: that it's all about trading. But in fact it seems 61 00:03:13,960 --> 00:03:16,680 Speaker 1: like Goldman Sacks wants to become JP Morgan. They want 62 00:03:16,720 --> 00:03:18,840 Speaker 1: to do less trading and more retail banking. They want 63 00:03:18,840 --> 00:03:20,639 Speaker 1: to get into markets and things like that. I mean, 64 00:03:20,639 --> 00:03:23,200 Speaker 1: the banks seem to be going more in traditional banking areas. 65 00:03:23,600 --> 00:03:26,040 Speaker 1: I mean, from my point of having run a company 66 00:03:26,120 --> 00:03:28,720 Speaker 1: and trying to create your own value consistently is more 67 00:03:28,760 --> 00:03:32,200 Speaker 1: important than volatility. So if you can create a business 68 00:03:32,240 --> 00:03:35,040 Speaker 1: model with less volatility, I mean, trading operations, as we 69 00:03:35,080 --> 00:03:37,800 Speaker 1: all know, our market dependent, and you have huge quarters 70 00:03:37,800 --> 00:03:39,200 Speaker 1: and you have bank quarters, right, so you have a 71 00:03:39,200 --> 00:03:42,680 Speaker 1: lot of volatility and earnings and therefore your multiples aren't 72 00:03:42,680 --> 00:03:46,040 Speaker 1: as large as perhaps if you were consistently delivering earnings 73 00:03:46,040 --> 00:03:48,520 Speaker 1: growth over time. So I think it makes a lot 74 00:03:48,520 --> 00:03:50,440 Speaker 1: of sense for a lot of these institutions to begin 75 00:03:50,480 --> 00:03:53,200 Speaker 1: to diversify their income streams to get a little more 76 00:03:53,200 --> 00:03:56,840 Speaker 1: consistency within their business model. What happened to regulation? Regulation? 77 00:03:57,240 --> 00:03:59,200 Speaker 1: A lot of it has been taken off, but a 78 00:03:59,280 --> 00:04:01,680 Speaker 1: lot of it is early in place. So for example, 79 00:04:01,760 --> 00:04:04,160 Speaker 1: when we looked again at the earnings reports, we saw 80 00:04:04,400 --> 00:04:09,360 Speaker 1: Wells Fargo the issues related to litigation did affect them, 81 00:04:09,440 --> 00:04:12,760 Speaker 1: like you know, one point seven billion Goldman had issues 82 00:04:12,800 --> 00:04:16,359 Speaker 1: related to regulation. So it certainly has impacted some of 83 00:04:16,360 --> 00:04:19,200 Speaker 1: the banks, But the ones that did really well this week, 84 00:04:19,279 --> 00:04:22,520 Speaker 1: like Morgan Stanley, like JP Morgan, were actually the ones 85 00:04:22,600 --> 00:04:25,320 Speaker 1: who did not have a big hit or who post 86 00:04:25,360 --> 00:04:28,560 Speaker 1: two thousand eight, made a lot of the adjustments. Because 87 00:04:28,600 --> 00:04:31,600 Speaker 1: the investments that the bank's made to deal with the 88 00:04:31,680 --> 00:04:34,480 Speaker 1: regulatory framework that was put in place post two thou 89 00:04:35,120 --> 00:04:37,520 Speaker 1: a lot of them have not removed it's too expensive. 90 00:04:37,560 --> 00:04:40,719 Speaker 1: Should the government change or should regulation come back to 91 00:04:40,800 --> 00:04:43,279 Speaker 1: put it all right back? And the other thing, they've 92 00:04:43,279 --> 00:04:46,479 Speaker 1: made huge investments in technology. I think sometimes when you 93 00:04:46,560 --> 00:04:49,520 Speaker 1: look at the ratios of expense ratios and cost ratios. 94 00:04:49,680 --> 00:04:52,719 Speaker 1: I mean, and JP Morgan's leader in this space quite honestly, 95 00:04:52,760 --> 00:04:54,279 Speaker 1: have been worked with a lot of these banks, but 96 00:04:54,320 --> 00:04:57,440 Speaker 1: they've made massive investments in technology, not only in their 97 00:04:57,480 --> 00:04:59,720 Speaker 1: core operations but also addressing a lot of the things 98 00:04:59,720 --> 00:05:02,599 Speaker 1: is so irustrated with this digital economy, often referred to 99 00:05:02,640 --> 00:05:05,839 Speaker 1: as fintech. But nonetheless they've all invested heavily, and I 100 00:05:05,839 --> 00:05:08,040 Speaker 1: think they're getting the returns for those investments. We're just 101 00:05:08,040 --> 00:05:10,080 Speaker 1: starting earning season now and everybody's trying to figure out 102 00:05:10,080 --> 00:05:12,360 Speaker 1: where are we going with earnings? Overall? A lot of 103 00:05:12,400 --> 00:05:14,200 Speaker 1: investors say, well, maybe banks are sort of a bell 104 00:05:14,279 --> 00:05:16,640 Speaker 1: weather because it's an indication of how the economy is going. 105 00:05:16,680 --> 00:05:19,320 Speaker 1: When you were at IBM, was there a correlation between 106 00:05:19,320 --> 00:05:21,840 Speaker 1: the banks did and how you did economic cycles? Yes, 107 00:05:21,960 --> 00:05:24,880 Speaker 1: because we were large and in a hundred and seventy countries, 108 00:05:24,920 --> 00:05:27,520 Speaker 1: so capital spending was very important to us. So if 109 00:05:27,560 --> 00:05:29,520 Speaker 1: you had the car weight as we would think about 110 00:05:29,520 --> 00:05:32,119 Speaker 1: our potential for earnings growth unless we had a product 111 00:05:32,200 --> 00:05:34,440 Speaker 1: cycle and those kinds of things in technology, which you 112 00:05:34,480 --> 00:05:36,800 Speaker 1: still see today. It was more around a correlation of 113 00:05:36,839 --> 00:05:39,160 Speaker 1: capital expenditure because we were tied to that. I mean, 114 00:05:39,200 --> 00:05:43,080 Speaker 1: the budgets were set along company's confidence to invest. I 115 00:05:43,120 --> 00:05:45,800 Speaker 1: was going to say, in fact, the loans to the 116 00:05:45,880 --> 00:05:49,720 Speaker 1: industrial sector and manufacturing did go down on behalf of banks, 117 00:05:49,760 --> 00:05:53,400 Speaker 1: So the correlation may be weaker even today. Yeah, so 118 00:05:53,560 --> 00:05:55,680 Speaker 1: I just think that who knows, we'll see. You know, 119 00:05:55,680 --> 00:05:58,680 Speaker 1: I'm no longer engaged. They retired. I was seeing two 120 00:05:58,680 --> 00:06:01,359 Speaker 1: thousand levels of my last But my sense if you 121 00:06:01,360 --> 00:06:03,719 Speaker 1: look at tech earnings, which I follow little more closely, 122 00:06:04,000 --> 00:06:06,320 Speaker 1: they've been going down earnings have been going down forget 123 00:06:06,400 --> 00:06:09,520 Speaker 1: the stock prices and and hopefully there's a sentiment from 124 00:06:09,520 --> 00:06:11,760 Speaker 1: the analyst community that the fourth quarter at earnings in 125 00:06:11,800 --> 00:06:14,240 Speaker 1: tech bottom and it begins to come back again in 126 00:06:14,279 --> 00:06:16,120 Speaker 1: twenty two. What about that outside because I think to 127 00:06:16,160 --> 00:06:19,080 Speaker 1: those nine team was a story of actually pe multiples 128 00:06:19,080 --> 00:06:21,600 Speaker 1: really sustaining the value of the market more than the earnings. 129 00:06:21,600 --> 00:06:23,880 Speaker 1: Earnings were up, but fairly modestly, not nearly as much 130 00:06:23,920 --> 00:06:25,720 Speaker 1: as the market was. And what can we expect in 131 00:06:26,360 --> 00:06:29,640 Speaker 1: can we expect basically the earnings to catch up? That 132 00:06:29,800 --> 00:06:31,880 Speaker 1: is the sense we have right now at this point 133 00:06:31,880 --> 00:06:34,960 Speaker 1: of the year. And also it's the indications that CEOs 134 00:06:34,960 --> 00:06:38,039 Speaker 1: are giving off what it will be like this year. 135 00:06:38,520 --> 00:06:40,520 Speaker 1: I think that is going to have a huge impact. 136 00:06:40,560 --> 00:06:43,520 Speaker 1: The only problem with that also is that if there 137 00:06:43,680 --> 00:06:48,320 Speaker 1: is any deviation from that expectation, that company will probably 138 00:06:48,400 --> 00:06:51,520 Speaker 1: end up doing a lot less. Well, we'll be back 139 00:06:51,560 --> 00:06:55,400 Speaker 1: with Osani Becheloss and Sam Palmisano coming up a look 140 00:06:55,400 --> 00:06:59,000 Speaker 1: at how climate change is reshaping the financial markets. We'll 141 00:06:59,040 --> 00:07:01,880 Speaker 1: discuss with our round two next. I'm David Weston and 142 00:07:01,920 --> 00:07:10,000 Speaker 1: this is Bloomberg Wall Street Week. This is Bloomberg Wall 143 00:07:10,080 --> 00:07:14,600 Speaker 1: Street Week. With David Weston from Bloomberg Radio. We continue 144 00:07:14,640 --> 00:07:17,840 Speaker 1: our roundtable with Osani bechelos Rock Creek Group CEO, and 145 00:07:17,920 --> 00:07:22,040 Speaker 1: Sam Palmisano, the former CEO of IBM. The financial world 146 00:07:22,200 --> 00:07:24,679 Speaker 1: may be finding its voice when it comes to climate change. 147 00:07:24,960 --> 00:07:27,920 Speaker 1: This week, Black Rock mentioned climate twenty nine times in 148 00:07:28,000 --> 00:07:31,720 Speaker 1: its annual letter, saying climate change will upend global finance, 149 00:07:32,080 --> 00:07:35,400 Speaker 1: and it announced a range of initiatives, from eliminating investments 150 00:07:35,400 --> 00:07:38,640 Speaker 1: in thermal coal to launching new investment products that screened 151 00:07:38,680 --> 00:07:42,000 Speaker 1: for fossil fuels. Black Rock is in good company. Goldman 152 00:07:42,080 --> 00:07:45,560 Speaker 1: Sachs in December pledged to avoid financing coal mines and 153 00:07:45,720 --> 00:07:49,520 Speaker 1: Arctic exploration. In an op ed, CEO David Solomon wrote 154 00:07:49,520 --> 00:07:52,680 Speaker 1: that quote, over the next ten years, Goldman Sachs will 155 00:07:52,680 --> 00:07:56,720 Speaker 1: target seven fifty billion dollars of financing, investing, and advisory 156 00:07:56,760 --> 00:08:00,040 Speaker 1: activity to nine areas that focus on climate transition and 157 00:08:00,080 --> 00:08:02,800 Speaker 1: inclusive growth. So this is not new to you. The 158 00:08:02,840 --> 00:08:05,320 Speaker 1: idea that we're gonna take into account climate issues when 159 00:08:05,360 --> 00:08:08,640 Speaker 1: we invest climate issues have been around for those of 160 00:08:08,880 --> 00:08:12,200 Speaker 1: been thinking about it since about thirty four years ago. 161 00:08:12,800 --> 00:08:15,120 Speaker 1: And I think the term SGN, the term sort of 162 00:08:15,200 --> 00:08:18,440 Speaker 1: impact and looking at climate as part of your economic 163 00:08:18,480 --> 00:08:22,600 Speaker 1: decision making has been around, particularly in countries that are 164 00:08:22,640 --> 00:08:25,840 Speaker 1: growing very fast and using energy very fast. And you 165 00:08:25,920 --> 00:08:28,080 Speaker 1: came from Iran, which it depends upon oil. The time 166 00:08:28,320 --> 00:08:31,280 Speaker 1: you studied energy, basically you were a banker in energy, 167 00:08:31,320 --> 00:08:33,320 Speaker 1: so in the developing world, so you know this area 168 00:08:33,400 --> 00:08:36,480 Speaker 1: terribly well. We were working on renewable energy at the 169 00:08:36,520 --> 00:08:40,400 Speaker 1: World Bank in the nine nineties and I remember going 170 00:08:40,440 --> 00:08:43,440 Speaker 1: to Shell and they closed down the renewable area because 171 00:08:43,559 --> 00:08:46,800 Speaker 1: there was really the economics was not good. Nobody was 172 00:08:46,840 --> 00:08:50,800 Speaker 1: adopting it. And it's really really exciting to see where 173 00:08:50,840 --> 00:08:53,959 Speaker 1: we are now with the price of solar being so 174 00:08:54,160 --> 00:08:59,400 Speaker 1: competitive with with all the other with hydrocarbons exactly. I mean, 175 00:08:59,480 --> 00:09:01,439 Speaker 1: you know, there's been a lot of progress. I think. 176 00:09:01,480 --> 00:09:03,920 Speaker 1: I think to me an indication of a huge shift 177 00:09:04,040 --> 00:09:07,120 Speaker 1: is that the the CEOs of the major oil companies, 178 00:09:07,160 --> 00:09:09,560 Speaker 1: the integrated local companies all signed the Paris Accord and 179 00:09:09,600 --> 00:09:12,000 Speaker 1: supported the Paris Accord to President Trump when he was 180 00:09:12,240 --> 00:09:15,320 Speaker 1: talking about withdrawal, Right, that's this is a Having been 181 00:09:15,360 --> 00:09:17,360 Speaker 1: involved with this industry for a long term, this is 182 00:09:17,400 --> 00:09:19,800 Speaker 1: a dramatic shift. And I'd say from ten years ago, 183 00:09:20,160 --> 00:09:22,080 Speaker 1: if you would have expected the leaders of those major 184 00:09:22,120 --> 00:09:25,520 Speaker 1: integrated local companies to go support a climate initiative even 185 00:09:25,559 --> 00:09:29,400 Speaker 1: though the science is somewhat not completely defined. And these 186 00:09:29,400 --> 00:09:31,920 Speaker 1: guys are most of geophysicists. I mean, they'd argue the science, 187 00:09:31,920 --> 00:09:34,079 Speaker 1: but fundamentally that they got behind it, I think is 188 00:09:34,080 --> 00:09:37,240 Speaker 1: a major shift. CEO, how do you trade off the 189 00:09:37,280 --> 00:09:39,520 Speaker 1: long term from the shorter term, because it's a practically 190 00:09:39,600 --> 00:09:41,360 Speaker 1: you may have to give up some profitability in the 191 00:09:41,360 --> 00:09:43,840 Speaker 1: short term for the longer term health of the company. 192 00:09:43,960 --> 00:09:46,840 Speaker 1: It depends. See this is where this is. I can 193 00:09:46,880 --> 00:09:49,200 Speaker 1: get a long discussion of this because in my little thing, 194 00:09:49,280 --> 00:09:52,120 Speaker 1: thank we did a study about activists and investing and 195 00:09:52,160 --> 00:09:54,960 Speaker 1: we have a database of fifty one engagements. But the 196 00:09:55,000 --> 00:09:57,720 Speaker 1: reason why I say it depends is because if you 197 00:09:58,160 --> 00:10:01,880 Speaker 1: view E s G as your brand, this is the brand, 198 00:10:02,200 --> 00:10:04,439 Speaker 1: right then it's different than you view it as an 199 00:10:04,440 --> 00:10:07,920 Speaker 1: initiative because you think it's timing could be good. But 200 00:10:08,000 --> 00:10:10,240 Speaker 1: if you live by that is your value system. And 201 00:10:10,240 --> 00:10:12,560 Speaker 1: I'll give you a quick example. We launched this thing 202 00:10:12,640 --> 00:10:16,440 Speaker 1: called Smarter Planet. Smarter Planet addressed climate admissions in Stockholm 203 00:10:16,480 --> 00:10:18,480 Speaker 1: and cities like that because of traffic, and that was 204 00:10:18,520 --> 00:10:21,199 Speaker 1: a long time ago. We launched it in two thousand eight, 205 00:10:21,559 --> 00:10:24,440 Speaker 1: long before this was fashionable, but well before that, right, 206 00:10:24,640 --> 00:10:26,880 Speaker 1: and it had to do with climate, had to do 207 00:10:26,920 --> 00:10:29,480 Speaker 1: a clean up Galway Bay to the Hudson River with 208 00:10:29,520 --> 00:10:32,320 Speaker 1: the spills, all these sorts of things. Those projects where 209 00:10:32,320 --> 00:10:36,040 Speaker 1: every bit as economically attractive to our returns as other 210 00:10:36,080 --> 00:10:38,000 Speaker 1: things we were doing. I mean you can say, well, 211 00:10:38,000 --> 00:10:40,360 Speaker 1: your technology company, you can use software and all which 212 00:10:40,400 --> 00:10:42,840 Speaker 1: we could, you know, but nonetheless we've picked it, I 213 00:10:42,880 --> 00:10:45,160 Speaker 1: would say, because we felt that there was an emerging 214 00:10:45,200 --> 00:10:47,959 Speaker 1: need for smarter cities. And all by the way, our 215 00:10:48,120 --> 00:10:52,679 Speaker 1: workforce hiring, the applications that IBM after we launched quadrupled 216 00:10:52,679 --> 00:10:57,040 Speaker 1: in this is climate, the environment, in the e s g. 217 00:10:57,280 --> 00:11:01,760 Speaker 1: The social and governance do they drive results as much 218 00:11:01,920 --> 00:11:04,880 Speaker 1: as a practical matter. So I think on the environment side, 219 00:11:04,920 --> 00:11:08,319 Speaker 1: and on energy, it's now proven. I think that cleaner 220 00:11:08,360 --> 00:11:11,400 Speaker 1: sources of energy do compete in the short run and 221 00:11:11,480 --> 00:11:14,680 Speaker 1: in the long run when it comes to social and governance. 222 00:11:14,720 --> 00:11:17,200 Speaker 1: Governance has been around for a long time. Sam in fact, 223 00:11:18,480 --> 00:11:21,600 Speaker 1: was leaving the charge for a long long time. And 224 00:11:22,000 --> 00:11:24,800 Speaker 1: you remember the days when Nell Miller and it's the 225 00:11:24,840 --> 00:11:27,439 Speaker 1: monks you know, started I S S so this. The 226 00:11:28,200 --> 00:11:31,400 Speaker 1: use of governance again has been around for a long time. 227 00:11:31,440 --> 00:11:34,280 Speaker 1: I think what is changing now is companies are actually 228 00:11:34,320 --> 00:11:37,160 Speaker 1: really adopting it. Those who didn't care about risk management 229 00:11:37,440 --> 00:11:41,000 Speaker 1: got into trouble, so now it's a very important part 230 00:11:41,000 --> 00:11:43,319 Speaker 1: of governance, and I think that they're very good reasons 231 00:11:43,360 --> 00:11:46,080 Speaker 1: for it. But governance as complicated as we are calling 232 00:11:46,120 --> 00:11:49,200 Speaker 1: this because some people use governance for the right purpose 233 00:11:49,240 --> 00:11:53,360 Speaker 1: as responsibility, transparency of earnings and behavior whatever happens to be. 234 00:11:53,720 --> 00:11:57,439 Speaker 1: Other people will use it from an activism investor perspective 235 00:11:57,520 --> 00:12:00,839 Speaker 1: to get control over boards to push theurgy and their 236 00:12:00,880 --> 00:12:03,640 Speaker 1: agenda is not necessarily in sync with the long term 237 00:12:03,679 --> 00:12:06,680 Speaker 1: strategy of the company. So I would argue in some 238 00:12:06,720 --> 00:12:10,199 Speaker 1: cases they've actually used these proxy circuits to advance their 239 00:12:10,280 --> 00:12:14,280 Speaker 1: agenda and the regulators to get more of this as 240 00:12:14,320 --> 00:12:16,880 Speaker 1: far as board turnover and separate and centives for boards 241 00:12:16,880 --> 00:12:19,400 Speaker 1: and those sorts of things to drive their own personal agenda. 242 00:12:19,559 --> 00:12:23,000 Speaker 1: So it's yes, at the highest level, everybody who wants 243 00:12:23,400 --> 00:12:26,400 Speaker 1: great governance, you don't want another and Ron or any 244 00:12:26,400 --> 00:12:29,280 Speaker 1: of these sorts of things. However, it's also being I 245 00:12:29,280 --> 00:12:32,160 Speaker 1: would argue, misused by certain parties in the Martel to 246 00:12:32,200 --> 00:12:34,439 Speaker 1: that point of sunny. If you don't have some standardized 247 00:12:34,440 --> 00:12:37,720 Speaker 1: ways of measuring E, S or G, then it becomes 248 00:12:37,720 --> 00:12:39,480 Speaker 1: sort of a marketing tool. I say, you know, we 249 00:12:39,559 --> 00:12:41,599 Speaker 1: believe in this, but how are we going to a 250 00:12:41,640 --> 00:12:43,800 Speaker 1: world where actually we are all reporting the same way 251 00:12:43,840 --> 00:12:47,680 Speaker 1: so we can measure It is difficult to measure every 252 00:12:47,760 --> 00:12:52,440 Speaker 1: industry and every sector and every strategy with the same metrics. 253 00:12:52,559 --> 00:12:54,640 Speaker 1: So there are lots and lots of different groups that 254 00:12:54,679 --> 00:12:57,800 Speaker 1: have emerged, including like SASS trying to sort of create 255 00:12:57,840 --> 00:13:01,040 Speaker 1: the structure for this. So I think it will be 256 00:13:01,280 --> 00:13:04,120 Speaker 1: difficult to put one set of metrics for everything, but 257 00:13:04,280 --> 00:13:08,360 Speaker 1: to have reasonable metrics. Again, going back to climate, because 258 00:13:08,400 --> 00:13:13,120 Speaker 1: you can measure carbon relatively easily. That's more straightforward what 259 00:13:13,200 --> 00:13:16,840 Speaker 1: you talked about. Social much harder to measure if inequality 260 00:13:16,880 --> 00:13:20,120 Speaker 1: has increased or reduced and how over what kind of period, 261 00:13:20,400 --> 00:13:22,960 Speaker 1: and how has that impacted Let's say just something like 262 00:13:23,000 --> 00:13:25,800 Speaker 1: well being. Are people more productive in their jobs or 263 00:13:25,880 --> 00:13:28,800 Speaker 1: less productive? Those take a long time and you've lived 264 00:13:28,800 --> 00:13:30,840 Speaker 1: that and you've had to practice it as long as 265 00:13:30,880 --> 00:13:32,720 Speaker 1: you do it for the right reasons and take for 266 00:13:32,920 --> 00:13:35,720 Speaker 1: you know, say social or inclusion. I mean, if your 267 00:13:35,760 --> 00:13:38,480 Speaker 1: goal is have the best talent pool in the world. 268 00:13:38,800 --> 00:13:41,200 Speaker 1: You're inclusive. I used to say, I don't care what 269 00:13:41,240 --> 00:13:42,880 Speaker 1: they are. I don't care what you are. I don't 270 00:13:42,880 --> 00:13:45,800 Speaker 1: care what your believes, your religion, your gender. I want 271 00:13:45,800 --> 00:13:47,640 Speaker 1: the best I can get and I'm going to reward 272 00:13:47,679 --> 00:13:50,240 Speaker 1: you equally, and this is how the place is going 273 00:13:50,280 --> 00:13:53,240 Speaker 1: to work. So I think it's a talent attraction. So 274 00:13:53,720 --> 00:13:56,160 Speaker 1: we never did it in IBM because we thought the 275 00:13:56,160 --> 00:13:58,160 Speaker 1: government was going to audit us. We had to measure. 276 00:13:58,240 --> 00:13:59,680 Speaker 1: We did it because we want the best town we 277 00:13:59,679 --> 00:14:02,120 Speaker 1: could find wherever we could find it. But how can 278 00:14:02,160 --> 00:14:04,199 Speaker 1: we have a discussion about governance with a straight face 279 00:14:04,280 --> 00:14:06,320 Speaker 1: this week when you saw what went on with Boeing 280 00:14:06,920 --> 00:14:08,760 Speaker 1: and for that matter, Nissan as well. What's going on 281 00:14:08,800 --> 00:14:11,120 Speaker 1: with Nissan or no See. I think it's culture. I 282 00:14:11,120 --> 00:14:14,400 Speaker 1: mean I believe that those issues are driven as much 283 00:14:14,440 --> 00:14:18,240 Speaker 1: by culture, which then causes the governance incident. And by 284 00:14:18,280 --> 00:14:20,760 Speaker 1: that I mean I only know what I read in 285 00:14:20,800 --> 00:14:23,160 Speaker 1: the paper, so I don't have any insight information. But 286 00:14:23,280 --> 00:14:26,880 Speaker 1: I would surmise, having been in those jobs, that those 287 00:14:26,960 --> 00:14:30,360 Speaker 1: leaders at that point in time were overreaching for whatever 288 00:14:30,440 --> 00:14:34,360 Speaker 1: set of purposes, pushing schedules lower costs would have you 289 00:14:34,400 --> 00:14:38,560 Speaker 1: accept you have a product you're developing that could people 290 00:14:38,560 --> 00:14:42,160 Speaker 1: could die, or pushing very hard for revenue. And at 291 00:14:42,160 --> 00:14:45,040 Speaker 1: the same time, Carla needs to a high compensation package, 292 00:14:45,040 --> 00:14:48,040 Speaker 1: so you overreached for personal gain. If you do that, 293 00:14:48,120 --> 00:14:50,840 Speaker 1: you're going to have governance issues. It's a cultural problem. 294 00:14:50,880 --> 00:14:54,840 Speaker 1: It's not a you can't you can't govern bad behavior. 295 00:14:54,960 --> 00:14:57,680 Speaker 1: You should have integrity and executives who believe in the 296 00:14:57,720 --> 00:15:01,160 Speaker 1: value system. Sonny Bachelis and some Paumisana will be staying 297 00:15:01,200 --> 00:15:03,360 Speaker 1: with us. Coming up, we'll take a look at the 298 00:15:03,360 --> 00:15:06,040 Speaker 1: Phase one trade deal between the United States and China. 299 00:15:06,240 --> 00:15:10,240 Speaker 1: And here from a former United States trade representative. That's next. 300 00:15:10,520 --> 00:15:13,160 Speaker 1: I'm David Weston, and this is Bloomberg Wall Street Week. 301 00:15:16,680 --> 00:15:20,920 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 302 00:15:21,000 --> 00:15:25,040 Speaker 1: Bloomberg Radio. President Trump calls it the biggest reason I 303 00:15:25,200 --> 00:15:28,120 Speaker 1: ran for President, that Phase one trade deal he signed 304 00:15:28,120 --> 00:15:30,160 Speaker 1: at the White House this week. But our Wall Street 305 00:15:30,200 --> 00:15:32,920 Speaker 1: Week contributor Larry Summers says it may be big for 306 00:15:33,000 --> 00:15:36,000 Speaker 1: some US companies, but it isn't big for US workers 307 00:15:36,160 --> 00:15:39,000 Speaker 1: or for the country overall. I don't think it does much. 308 00:15:39,520 --> 00:15:43,680 Speaker 1: It puts some American corporations first, especially ones who have 309 00:15:43,760 --> 00:15:47,840 Speaker 1: outsourced to China. It gets the more ability to invest 310 00:15:47,920 --> 00:15:51,120 Speaker 1: in China, it gets them better protection of their intellectual 311 00:15:51,160 --> 00:15:54,880 Speaker 1: property in China, it gets the relaxation on restrictions that 312 00:15:54,960 --> 00:15:59,200 Speaker 1: they joint venture in China. So for a certain number 313 00:15:59,200 --> 00:16:03,920 Speaker 1: of American operations, it's terrific. I'm not sure how American 314 00:16:04,000 --> 00:16:09,640 Speaker 1: workers gain it all from American corporations being better able 315 00:16:09,680 --> 00:16:14,120 Speaker 1: to outsource to China. So it seems an odd priority 316 00:16:14,160 --> 00:16:18,880 Speaker 1: for this president who keeps bemoaning outsourcing. The issues that 317 00:16:18,920 --> 00:16:24,760 Speaker 1: affect American workers, issues like Chinese subsidies, aren't addressed at all. 318 00:16:25,320 --> 00:16:29,920 Speaker 1: The issues he's talked about of enforcing trade agreements, they're 319 00:16:29,960 --> 00:16:34,240 Speaker 1: not talked about at all. So this is a put 320 00:16:34,280 --> 00:16:41,320 Speaker 1: America corporations first agreement. Yes, there's some managed trade provisions 321 00:16:41,360 --> 00:16:46,080 Speaker 1: about increased exports, but the only effect those will have 322 00:16:46,720 --> 00:16:50,960 Speaker 1: is to rearrange the patterns of trade, with American soybeans 323 00:16:51,000 --> 00:16:55,640 Speaker 1: going to China and Brazilian soybeans going other places rather 324 00:16:55,720 --> 00:16:59,560 Speaker 1: than the current trade paths. But I see nothing in 325 00:16:59,600 --> 00:17:04,760 Speaker 1: this that will importantly strengthen the American economy. Now we 326 00:17:04,800 --> 00:17:07,440 Speaker 1: continue our round table with US Sonny Beschloss Rock Creek 327 00:17:07,480 --> 00:17:11,560 Speaker 1: Group CEO and Sam Palumisano, former CEO of IBM. And 328 00:17:11,560 --> 00:17:14,720 Speaker 1: we also welcome our special guest Michael Frohman, former United 329 00:17:14,720 --> 00:17:18,560 Speaker 1: States Trade Representative. Michael, what do you make of Larry's comments? Well, 330 00:17:18,600 --> 00:17:21,359 Speaker 1: I think to the degree that it does increase US 331 00:17:21,440 --> 00:17:26,639 Speaker 1: exports to China manufactured products, agriculture, etcetera, UH, that is 332 00:17:26,680 --> 00:17:30,600 Speaker 1: good for American workers, farmers, and ranchers. But Larry is 333 00:17:30,720 --> 00:17:34,320 Speaker 1: right to underscore how important the remaining issues are the 334 00:17:34,640 --> 00:17:38,800 Speaker 1: structural issues of reforming the state owned enterprise sector in 335 00:17:38,960 --> 00:17:42,840 Speaker 1: China or dealing with subsidies in China that really distort 336 00:17:43,200 --> 00:17:48,040 Speaker 1: the global economy and have an adverse effect on US company. 337 00:17:48,160 --> 00:17:51,160 Speaker 1: So Phase two is going to be very very important here. 338 00:17:51,560 --> 00:17:54,240 Speaker 1: I would just comment, I mean, I think that's all correct, 339 00:17:54,240 --> 00:17:56,639 Speaker 1: except that the fact that there's some stability in the 340 00:17:56,760 --> 00:17:59,720 Speaker 1: relationship as a positive, and by that I mean back 341 00:17:59,720 --> 00:18:01,640 Speaker 1: to an investment in the United States. If you look 342 00:18:01,680 --> 00:18:05,920 Speaker 1: at capital investment UH seventeen and eighteen, it was up, 343 00:18:06,000 --> 00:18:10,920 Speaker 1: say seven, it was flat in nineteen. Maybe that there's 344 00:18:10,920 --> 00:18:14,720 Speaker 1: some stability help companies since they understand the landscape. And 345 00:18:14,760 --> 00:18:16,400 Speaker 1: I agree with there's a lot more to be done 346 00:18:16,440 --> 00:18:18,840 Speaker 1: in the detail. We all understand that, but maybe that 347 00:18:18,840 --> 00:18:21,240 Speaker 1: will go back to investing again. Maybe it's a low 348 00:18:21,280 --> 00:18:24,000 Speaker 1: single digits, but some level of investment, which is also 349 00:18:24,119 --> 00:18:27,760 Speaker 1: good for the American worker. I was curious too to 350 00:18:27,880 --> 00:18:32,160 Speaker 1: ask you, Michael, do you think that in the execution 351 00:18:32,240 --> 00:18:36,560 Speaker 1: of this new trade agreement the Chinese will in fact 352 00:18:36,840 --> 00:18:39,840 Speaker 1: by by the kind of deadlines that are put in 353 00:18:40,000 --> 00:18:43,159 Speaker 1: or in your experience, their execution has in the past 354 00:18:43,400 --> 00:18:47,520 Speaker 1: kind of been a little different. Implementation is always is 355 00:18:47,560 --> 00:18:51,480 Speaker 1: always difficult with that, and I think the Trump administration 356 00:18:51,520 --> 00:18:55,120 Speaker 1: is very focused on on seeing whether they do implement 357 00:18:55,240 --> 00:18:58,639 Speaker 1: this or on schedule or not. For example, they have 358 00:18:58,680 --> 00:19:02,760 Speaker 1: thirty days to come up with they intellectual property rights plan. 359 00:19:02,960 --> 00:19:06,120 Speaker 1: Will all be eager to see what's what's in there, 360 00:19:06,320 --> 00:19:09,560 Speaker 1: but they also allow themselves some backdoors in the agreement. 361 00:19:09,560 --> 00:19:13,600 Speaker 1: When we talk about increasing US exports by two billion dollars, 362 00:19:13,880 --> 00:19:16,920 Speaker 1: the Chinese put in their language that says assuming that 363 00:19:17,040 --> 00:19:22,000 Speaker 1: market forces allow that um suggesting that there may be 364 00:19:22,240 --> 00:19:26,639 Speaker 1: some obstacles to actually implementing that. You know, to me, 365 00:19:26,760 --> 00:19:29,560 Speaker 1: I would judge the agreement about whether it advances the 366 00:19:29,640 --> 00:19:33,320 Speaker 1: kind of economic reforms we want to see in China 367 00:19:33,480 --> 00:19:36,080 Speaker 1: or not, because ultimately the big question is how do 368 00:19:36,160 --> 00:19:40,639 Speaker 1: we accommodate an economy as important as large as China 369 00:19:41,000 --> 00:19:43,680 Speaker 1: that follows quite a different set of rules into the 370 00:19:43,720 --> 00:19:47,439 Speaker 1: global economy, and that requires us to have more convergence 371 00:19:47,480 --> 00:19:49,760 Speaker 1: around a common set of rules. Michael, did President Trump 372 00:19:49,760 --> 00:19:51,960 Speaker 1: accomplished one thing, no matter what happens, That is he 373 00:19:52,040 --> 00:19:53,719 Speaker 1: got their attention in a way that they have not 374 00:19:53,760 --> 00:19:56,000 Speaker 1: gotten the Chinese attention on trade before. Did he have 375 00:19:56,119 --> 00:19:58,800 Speaker 1: to hit them over the head with a tub of forces. Well, 376 00:19:58,840 --> 00:20:02,199 Speaker 1: certainly the threat of tariffs and the imposition of tariffs 377 00:20:02,240 --> 00:20:05,560 Speaker 1: certainly did get their attention. And you know, I think, 378 00:20:05,760 --> 00:20:08,520 Speaker 1: as Sam said, it's good that we've called a truce 379 00:20:08,600 --> 00:20:12,560 Speaker 1: and we have seen some de escalation of the trade war. Uh, 380 00:20:12,720 --> 00:20:16,840 Speaker 1: there's still our tariffs on three fifty billion dollars of 381 00:20:17,040 --> 00:20:20,040 Speaker 1: exports to the United States, so over half our trade 382 00:20:20,080 --> 00:20:23,720 Speaker 1: is still subject to terroriffs. And the new enforcement mechanism 383 00:20:23,760 --> 00:20:26,840 Speaker 1: opens up a door to greater unilateral action than we've 384 00:20:26,840 --> 00:20:29,280 Speaker 1: seen before before. If there was a trade dispute, you 385 00:20:29,320 --> 00:20:31,879 Speaker 1: had to take it to some arbitration panel, get a 386 00:20:31,880 --> 00:20:34,720 Speaker 1: positive decision, and then you can impose tariffs. The Trump 387 00:20:34,720 --> 00:20:38,720 Speaker 1: Administration's innovation here is that there's a period of consultation, 388 00:20:38,840 --> 00:20:42,080 Speaker 1: but then ultimately the US and China can decide on 389 00:20:42,119 --> 00:20:45,240 Speaker 1: their own to impose terroriffs or take other actions against 390 00:20:45,240 --> 00:20:48,520 Speaker 1: the other without having to go through any other process. 391 00:20:48,640 --> 00:20:51,560 Speaker 1: And we're hoping that both sides are approaching that with 392 00:20:51,640 --> 00:20:55,240 Speaker 1: goodwill and the best intentions. Thanks to former US Trade 393 00:20:55,280 --> 00:20:58,840 Speaker 1: Representative Michael Frohman of Sonny Becheless and Sam Pomisano stay 394 00:20:58,920 --> 00:21:03,000 Speaker 1: with us. Coming up, Erica Carp, Cornerstone Capital founder and CEO, 395 00:21:03,160 --> 00:21:07,200 Speaker 1: joins us to discuss sustainable investing. That's next. I'm David 396 00:21:07,240 --> 00:21:19,879 Speaker 1: Weston and this is Bloomberg Wall Street Week. This is 397 00:21:19,920 --> 00:21:24,359 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 398 00:21:25,200 --> 00:21:28,200 Speaker 1: We continue our roundtable with Osny Beschloss, Rock Creek Group 399 00:21:28,280 --> 00:21:32,480 Speaker 1: CEO and Sam Paulisano, the former CEO of IBM. It's 400 00:21:32,520 --> 00:21:34,560 Speaker 1: time now that we get a second opinion on one 401 00:21:34,600 --> 00:21:36,639 Speaker 1: of our top stories this week when it comes to 402 00:21:36,720 --> 00:21:40,359 Speaker 1: sustainable investing. Erica Carp is a true expert. She's the 403 00:21:40,400 --> 00:21:43,119 Speaker 1: founder and CEO of Cornerstone Capital, a member of the 404 00:21:43,160 --> 00:21:46,800 Speaker 1: World Economic Form Global Agenda Council on Financing and Capital 405 00:21:47,080 --> 00:21:50,920 Speaker 1: and a founding board member of the Sustainability Accounting Standards Board. 406 00:21:50,920 --> 00:21:53,120 Speaker 1: Welcome America, Great to have you here. Thank you. We've 407 00:21:53,160 --> 00:21:56,200 Speaker 1: had a little discussion about s G Environmental social governance here, 408 00:21:56,440 --> 00:21:58,080 Speaker 1: but you really can tell us how do you get 409 00:21:58,080 --> 00:21:59,879 Speaker 1: it done? Every seems to think it's a good idea 410 00:22:00,119 --> 00:22:02,200 Speaker 1: in abstract. Why do you think that translated into the 411 00:22:02,200 --> 00:22:07,520 Speaker 1: real world. It's actually relatively simple. Um. E s G 412 00:22:08,800 --> 00:22:12,840 Speaker 1: is an analytical discipline. It's not a style. It's not 413 00:22:12,920 --> 00:22:16,720 Speaker 1: a trend, it's not it's not a strategy. E s 414 00:22:16,760 --> 00:22:21,199 Speaker 1: G is research. It's investment research, and it has to 415 00:22:21,240 --> 00:22:25,800 Speaker 1: be done in the course of the investing in frankly anything. Yeah, 416 00:22:26,040 --> 00:22:28,880 Speaker 1: so one day we're not going to say. People won't 417 00:22:28,920 --> 00:22:31,399 Speaker 1: say E s G investing or s r I or 418 00:22:31,520 --> 00:22:35,960 Speaker 1: values based investing or impact investing. It's investing, period. E 419 00:22:36,200 --> 00:22:39,679 Speaker 1: s G is an analytical tool, all right. If you 420 00:22:39,680 --> 00:22:42,440 Speaker 1: think about it that way, you know, this guy's the 421 00:22:42,520 --> 00:22:44,720 Speaker 1: limit in terms of how much money we can move 422 00:22:45,280 --> 00:22:49,280 Speaker 1: towards impact investing. But how do you get from a 423 00:22:49,359 --> 00:22:53,840 Speaker 1: marketing slogan to actually changing the real world. Well, as 424 00:22:53,880 --> 00:22:57,160 Speaker 1: an example, we mentioned the SASBY, Right, So this is here, 425 00:22:57,640 --> 00:23:00,199 Speaker 1: So SASBY, which by the way, is part of what 426 00:23:00,320 --> 00:23:04,800 Speaker 1: black Rock said they're embracing. That's huge because with SASBY, 427 00:23:04,840 --> 00:23:08,800 Speaker 1: what we've begin to for the Sustainability Accounting Standards Board 428 00:23:09,640 --> 00:23:13,640 Speaker 1: creating the metrics around this. It's actually not metrics. It's 429 00:23:13,680 --> 00:23:17,600 Speaker 1: more like we can call it metrics, but it's corporate disclosures, 430 00:23:17,760 --> 00:23:22,959 Speaker 1: corporate disclosure of material s chief factors. Right, And so 431 00:23:23,040 --> 00:23:26,359 Speaker 1: we're just this is a piece of infrastructure, right and 432 00:23:26,400 --> 00:23:30,000 Speaker 1: once we have that infrastructure via better data, right, the 433 00:23:30,119 --> 00:23:33,320 Speaker 1: data providers can do something better with it. The index 434 00:23:33,359 --> 00:23:36,720 Speaker 1: providers can rely on better data, the e t f 435 00:23:36,760 --> 00:23:38,879 Speaker 1: s can rely on better data. Right now, there is 436 00:23:39,400 --> 00:23:44,080 Speaker 1: systemic flaw in the system, and that's problematic. It's going 437 00:23:44,160 --> 00:23:46,639 Speaker 1: to ask you a lot of people do want to 438 00:23:46,920 --> 00:23:53,320 Speaker 1: allocate more two sustainable investments to impactful investments, to s 439 00:23:53,359 --> 00:23:57,399 Speaker 1: G investments. Why is it that they can't find the 440 00:23:57,520 --> 00:24:01,479 Speaker 1: right opportunities? Well, they can if they give it a 441 00:24:01,640 --> 00:24:05,320 Speaker 1: little more effort, right, right, I mean the opportunities right there. 442 00:24:05,440 --> 00:24:08,520 Speaker 1: Sustainable investment in E s G analysis does not limit 443 00:24:08,520 --> 00:24:12,960 Speaker 1: your opportunity sets. It does expanding it gives you more 444 00:24:12,960 --> 00:24:17,560 Speaker 1: predictive insight. The issue is that they're kind of Actually, 445 00:24:17,600 --> 00:24:19,280 Speaker 1: there's four issues that we have to think about. We 446 00:24:19,280 --> 00:24:22,040 Speaker 1: have to think about data quality, We have to think 447 00:24:22,040 --> 00:24:25,040 Speaker 1: about the language of sustainability. We have to think about 448 00:24:25,080 --> 00:24:29,160 Speaker 1: the fear that there is some sort of concessionary return, right, 449 00:24:29,480 --> 00:24:31,760 Speaker 1: and then we have to worry about the fear or 450 00:24:31,800 --> 00:24:35,800 Speaker 1: the myth that we're breaking a fiduciary duty. None of 451 00:24:35,840 --> 00:24:39,520 Speaker 1: those are real, but we have to make sure people 452 00:24:39,600 --> 00:24:42,119 Speaker 1: know that. So it's you know, that's why black Rocks 453 00:24:42,200 --> 00:24:45,520 Speaker 1: Move is so important. Well, that's my question. Isn't that important? 454 00:24:45,520 --> 00:24:47,680 Speaker 1: As you read that letter, does it really make a difference. 455 00:24:48,560 --> 00:24:52,359 Speaker 1: It's not that they per se or making a difference, 456 00:24:52,680 --> 00:24:56,040 Speaker 1: it's that they're speaking about it. The conscious differ raising 457 00:24:56,240 --> 00:24:59,640 Speaker 1: is making a difference. And just we need to have context. Right, 458 00:25:00,040 --> 00:25:03,600 Speaker 1: think about the magnitude of the problem. Right, take every 459 00:25:03,960 --> 00:25:07,440 Speaker 1: dollar of Black Rocks a u M. Seven trillion dollars. 460 00:25:07,960 --> 00:25:11,480 Speaker 1: If we took the seven trillion dollars today, it would 461 00:25:11,520 --> 00:25:14,760 Speaker 1: give us about maybe three years of the capex the 462 00:25:14,840 --> 00:25:18,280 Speaker 1: spending that we would need an alternative energies to transform 463 00:25:18,359 --> 00:25:22,320 Speaker 1: the economy. That's it, right, So their whole asset base 464 00:25:22,920 --> 00:25:27,399 Speaker 1: is not enough. Their voice starts to move people, you know, 465 00:25:27,600 --> 00:25:31,360 Speaker 1: and when you can move people, you can move money. Well, 466 00:25:31,359 --> 00:25:33,600 Speaker 1: I'm just curious because I mean, when I was working, 467 00:25:33,640 --> 00:25:37,080 Speaker 1: which is about ten years ago, we did so corporate 468 00:25:37,080 --> 00:25:39,600 Speaker 1: social responsibility reports. We had a pretty good story in 469 00:25:39,640 --> 00:25:42,159 Speaker 1: all these areas and inclusion on sustainability and all that 470 00:25:42,200 --> 00:25:45,120 Speaker 1: sort of stuff. Right. We pitched it like crazy, I mean, 471 00:25:45,240 --> 00:25:47,719 Speaker 1: and I pitched it. Investor Relations pitched it, and we 472 00:25:47,760 --> 00:25:50,439 Speaker 1: didn't have a receptive, but no one did much about it. 473 00:25:50,440 --> 00:25:52,600 Speaker 1: I shouldn't say we thought we could get people to 474 00:25:52,680 --> 00:25:55,320 Speaker 1: move into our stock based upon the things we were 475 00:25:55,359 --> 00:25:58,879 Speaker 1: doing and other than the financial results in cash flow, No, 476 00:25:59,200 --> 00:26:01,159 Speaker 1: not many people really move. So what do you what 477 00:26:01,200 --> 00:26:03,520 Speaker 1: do you think has changed? It's only been ten years, 478 00:26:03,960 --> 00:26:06,080 Speaker 1: so what is it? You know it's changed. And this 479 00:26:06,160 --> 00:26:08,439 Speaker 1: is the coolest thing, I mean, we can do. We 480 00:26:08,520 --> 00:26:13,240 Speaker 1: did a meta study it is called Sacrifice Nothing, and 481 00:26:13,320 --> 00:26:17,200 Speaker 1: we can look at reports out there and the vast 482 00:26:17,240 --> 00:26:20,720 Speaker 1: majority of them show when you do E s G analysis, 483 00:26:21,320 --> 00:26:24,640 Speaker 1: not only do you not give up returns, in many 484 00:26:24,680 --> 00:26:27,399 Speaker 1: cases you do better. Right, So when it comes to 485 00:26:27,640 --> 00:26:30,200 Speaker 1: in the final analysis, it's always going to be about 486 00:26:30,480 --> 00:26:34,640 Speaker 1: financial performance, right, And so once people realize that those 487 00:26:34,640 --> 00:26:38,680 Speaker 1: four myths, once we put them to rest, money is 488 00:26:38,720 --> 00:26:41,479 Speaker 1: going to start to flow. And so black Rock, I mean, 489 00:26:41,520 --> 00:26:44,440 Speaker 1: there's lots of ideas that we would love to give 490 00:26:44,920 --> 00:26:47,720 Speaker 1: with black Rock and partner with them on thinking about 491 00:26:48,080 --> 00:26:52,560 Speaker 1: you know, those four factors data, data and measurement. These 492 00:26:52,600 --> 00:26:55,800 Speaker 1: are two of the issues we have to be what 493 00:26:55,880 --> 00:26:59,080 Speaker 1: happens in a passive world? The world's going passive, not 494 00:26:59,160 --> 00:27:03,760 Speaker 1: going active. Well, actually it should, arguably because if everyone 495 00:27:03,840 --> 00:27:08,480 Speaker 1: is just hugging the benchmark, frankly, who cares but performance 496 00:27:09,400 --> 00:27:16,080 Speaker 1: that Yeah, But here's the issue. These indices are being 497 00:27:16,160 --> 00:27:22,000 Speaker 1: created based on flawed data, right, And so if everyone 498 00:27:22,040 --> 00:27:25,480 Speaker 1: just comes to terms with that and moves towards getting 499 00:27:25,680 --> 00:27:30,520 Speaker 1: standards for corporate disclosures, standards that give us predictive insight 500 00:27:31,119 --> 00:27:34,720 Speaker 1: into investment outcomes, then you know, the indicries and everything 501 00:27:34,720 --> 00:27:38,960 Speaker 1: else become better, you know, proxies for performance. But here's 502 00:27:38,960 --> 00:27:43,840 Speaker 1: the thing I can't remember. You'll know which economists said that, um, 503 00:27:44,040 --> 00:27:51,639 Speaker 1: great investing is anticipating the anticipations of others, right, index investing. 504 00:27:51,760 --> 00:27:57,400 Speaker 1: Passive investing is not anticipating, it's not proactive, it's not innovative, 505 00:27:57,840 --> 00:28:01,840 Speaker 1: and great managers. Active managers know that they're going to 506 00:28:01,960 --> 00:28:05,680 Speaker 1: invest in innovation right, then they're going to be able 507 00:28:05,680 --> 00:28:07,840 Speaker 1: to outperform over the long on. So when everyone's like 508 00:28:07,920 --> 00:28:10,439 Speaker 1: freaked out, which is why it's happening, one more venture 509 00:28:10,480 --> 00:28:16,840 Speaker 1: on private equity, because that's what that's exactly. Erica, thank 510 00:28:16,840 --> 00:28:18,200 Speaker 1: you so much for being here. It's really a treat 511 00:28:18,240 --> 00:28:21,080 Speaker 1: to have you. That's Erica carp of Cornerstone Capital. And 512 00:28:21,119 --> 00:28:23,000 Speaker 1: this is where we get the final thoughts from our 513 00:28:23,000 --> 00:28:24,680 Speaker 1: contributors this week, and we thought we talked a little 514 00:28:24,680 --> 00:28:27,120 Speaker 1: bit about Leon Black. He's on the cover of Bloomberg 515 00:28:27,119 --> 00:28:30,240 Speaker 1: Business Week this very week about how he makes money 516 00:28:30,320 --> 00:28:33,320 Speaker 1: when other people are losing money. So how does he 517 00:28:33,359 --> 00:28:36,399 Speaker 1: pull that off? Because he's investing companies that are deeply distressed. 518 00:28:37,280 --> 00:28:41,200 Speaker 1: Often imposes austerity, lay some people off, maybe leverage is up, 519 00:28:41,240 --> 00:28:44,480 Speaker 1: but he does all right, Well, I guess my question 520 00:28:44,640 --> 00:28:48,080 Speaker 1: is that financial management, that's his financial management works for 521 00:28:48,120 --> 00:28:50,440 Speaker 1: a period of time. At some point in time, as 522 00:28:50,520 --> 00:28:53,320 Speaker 1: a company small or large startup of five people or 523 00:28:53,320 --> 00:28:55,400 Speaker 1: I'll be able to half a million, you have to 524 00:28:55,400 --> 00:28:59,440 Speaker 1: create value. You have to create for your customers, your products, society, 525 00:28:59,440 --> 00:29:02,719 Speaker 1: whatever it is is managing the company. Financial is one element. 526 00:29:02,760 --> 00:29:05,120 Speaker 1: It's an important element, but it's only one dimension of 527 00:29:05,160 --> 00:29:08,080 Speaker 1: the challenge of the CEO. He has all these other dimensions. 528 00:29:08,080 --> 00:29:10,040 Speaker 1: The most important dimension is what has he done for 529 00:29:10,120 --> 00:29:12,760 Speaker 1: his customers or his clients. What is he or she 530 00:29:12,920 --> 00:29:17,000 Speaker 1: done for their employee base. That's the two most important dimensions. 531 00:29:17,040 --> 00:29:19,240 Speaker 1: So I accept and I respect people have made a 532 00:29:19,280 --> 00:29:21,160 Speaker 1: lot of money. I'm jealous of what they've done to 533 00:29:21,240 --> 00:29:23,400 Speaker 1: make a lot of money. But if I just pulled 534 00:29:23,440 --> 00:29:26,200 Speaker 1: the financial lovers in the IBM company and those days, 535 00:29:26,200 --> 00:29:28,040 Speaker 1: I probably would have lasted four or five years. I 536 00:29:28,040 --> 00:29:30,480 Speaker 1: wouldn't have made it a decade. But I'm suddy. That's 537 00:29:30,480 --> 00:29:38,280 Speaker 1: spoken as a true CEO. Absolutely. So you're talking about IBM, 538 00:29:38,400 --> 00:29:40,880 Speaker 1: and when we look at the markets, you know a 539 00:29:40,920 --> 00:29:43,480 Speaker 1: lot of people in the markets are invested in high yield, 540 00:29:43,720 --> 00:29:46,760 Speaker 1: a lot of people are and and basically what he's 541 00:29:46,800 --> 00:29:51,440 Speaker 1: doing is going in finding a distressed situation or something 542 00:29:51,520 --> 00:29:54,440 Speaker 1: close to distress that has a lot of problems, not 543 00:29:54,440 --> 00:29:59,000 Speaker 1: not the company you were running, and tries to reform it. 544 00:29:59,280 --> 00:30:02,040 Speaker 1: I think the big question is are those reforms for 545 00:30:02,160 --> 00:30:04,880 Speaker 1: the short term so that then you you know, sort 546 00:30:04,880 --> 00:30:06,959 Speaker 1: of sell it. I think the big problem about the 547 00:30:07,000 --> 00:30:11,000 Speaker 1: model of private equity. Sometimes as UM has been blamed 548 00:30:11,000 --> 00:30:13,760 Speaker 1: for being too short term, because after ten years you 549 00:30:13,840 --> 00:30:15,960 Speaker 1: have to sell the company to somebody else and move 550 00:30:16,000 --> 00:30:20,040 Speaker 1: on to make another investment. So I think some of 551 00:30:20,120 --> 00:30:22,840 Speaker 1: what is now interesting and people are looking at these 552 00:30:22,920 --> 00:30:25,360 Speaker 1: models where you do find the distress company, you do 553 00:30:25,480 --> 00:30:28,360 Speaker 1: turn it around, you do make it profitable, but it 554 00:30:28,440 --> 00:30:30,400 Speaker 1: goes on for a long time, you don't, you know, 555 00:30:30,680 --> 00:30:34,280 Speaker 1: so coming up with models of capital that are sustainable 556 00:30:35,560 --> 00:30:37,680 Speaker 1: and long terms so they don't have to actually flip 557 00:30:37,680 --> 00:30:40,040 Speaker 1: it at the end of the Often those private equity 558 00:30:40,080 --> 00:30:42,640 Speaker 1: firms selling it to another private equity firm, and basically 559 00:30:42,680 --> 00:30:44,880 Speaker 1: the money's being made on the fees on both sides 560 00:30:44,920 --> 00:30:48,000 Speaker 1: of it. Yes, and but but you're right, sons, right, 561 00:30:48,040 --> 00:30:50,880 Speaker 1: because most of these companies are have a seven to 562 00:30:50,960 --> 00:30:53,400 Speaker 1: ten year horizon for their investment, and that's what they've 563 00:30:53,400 --> 00:30:55,760 Speaker 1: convinced to their investors that they're gonna be seven to 564 00:30:55,880 --> 00:31:00,120 Speaker 1: ten years for their targets. And so therefore, and you 565 00:31:00,120 --> 00:31:02,400 Speaker 1: could argue in many cases you actually could turn the 566 00:31:02,440 --> 00:31:04,840 Speaker 1: company around. I would argue if I was doing it, 567 00:31:04,840 --> 00:31:07,160 Speaker 1: and probably less than four or five years, and then 568 00:31:07,200 --> 00:31:09,800 Speaker 1: you could also create a value proposition associated with it. 569 00:31:10,640 --> 00:31:12,280 Speaker 1: When I are, she said, I argue a point of 570 00:31:12,320 --> 00:31:14,959 Speaker 1: view the CEO. But you haven't done your job if 571 00:31:15,040 --> 00:31:18,000 Speaker 1: you haven't been able to connect with the people who 572 00:31:18,040 --> 00:31:20,480 Speaker 1: give you the money other than the investors. And they're 573 00:31:20,480 --> 00:31:24,040 Speaker 1: your customers, okay, right, and the people that extend your 574 00:31:24,080 --> 00:31:27,400 Speaker 1: brand to them are your employees, and so it's I mean, 575 00:31:28,200 --> 00:31:31,920 Speaker 1: I really I have an issue with the fact. Look, 576 00:31:32,120 --> 00:31:34,080 Speaker 1: if somebody asked me to go work with those guys 577 00:31:34,120 --> 00:31:35,920 Speaker 1: and do this for a living, I could do it 578 00:31:35,920 --> 00:31:38,400 Speaker 1: in four or five years. I could guarantee you the returns. 579 00:31:38,640 --> 00:31:40,680 Speaker 1: I don't think it's quality work, but you know that. 580 00:31:40,800 --> 00:31:43,360 Speaker 1: On the other I think that it's really interesting apologies 581 00:31:43,400 --> 00:31:47,080 Speaker 1: that in really successful firm. But is it going to 582 00:31:47,080 --> 00:31:50,680 Speaker 1: be sustainable? The founders have created it, But as somebody 583 00:31:50,760 --> 00:31:54,320 Speaker 1: who makes other companies better, can you make your own 584 00:31:54,320 --> 00:31:57,640 Speaker 1: companies sustainable? Thanks to our roundtable of Rock Creek Groups 585 00:31:57,680 --> 00:32:00,840 Speaker 1: CEO of Sandy Becheloss and Sam Paumisano, the former CEO 586 00:32:01,000 --> 00:32:04,200 Speaker 1: of IBM, also many thanks to special guests Erica carp 587 00:32:04,440 --> 00:32:08,120 Speaker 1: Cornerstone Capital founder and CEO, and former US Trade Representative 588 00:32:08,160 --> 00:32:11,120 Speaker 1: Michael Frohman that's it for Bloomberg Wall Street Week from 589 00:32:11,120 --> 00:32:14,200 Speaker 1: Bloomberg Radio. If you missed an episode of Bloomberg Wall 590 00:32:14,200 --> 00:32:17,240 Speaker 1: Street Week, full episodes are now available on YouTube, the 591 00:32:17,280 --> 00:32:21,440 Speaker 1: Bloomberg Terminal, and Bloomberg dot Com. I'm David Weston. This 592 00:32:21,600 --> 00:32:22,400 Speaker 1: is Bloomberg