Speaker 1: Welcome Trillions. I'm Joel Webber and I am America. I'll
Speaker 1: run us Eric. There is this thing that happened in
Speaker 1: late May that if you're a business journalist, UM you
Speaker 1: immediately sat up and this was the results of UM
Speaker 1: an Exxon board meeting, and out of nowhere, something called
Speaker 1: Engine number one showed up and basically all of Corporate
Speaker 1: America took notice and ended up getting three board seats
Speaker 1: on x On Mobile. And it speaks to a lot
Speaker 1: of things, and we're we're thrilled about this, but a
Speaker 1: couple of the folks at Engine number one are going
Speaker 1: to join us today on trillions. What stood out to
Speaker 1: you about that moment, because it was not just about
Speaker 1: what an activist can accomplish with board seats. A couple
Speaker 1: of things. First, it's a small company who got bigger
Speaker 1: players to act. And I've always really looked at Vanguard
Speaker 1: and black Rock and some of the institution owners of
Speaker 1: having quite a bit of power. This is one of
Speaker 1: the issues we hear from from uh, you know, people
Speaker 1: about how big passive is getting and their voting power.
Speaker 1: At the same time, you've got E S, G, E
Speaker 1: T F S coming out, which essentially score stocks and
Speaker 1: then exclude maybe some of the energy stocks. I've always
Speaker 1: struggled with those. Why wouldn't you want to own the
Speaker 1: people you want to help? So I looked at this
Speaker 1: and I was like, this makes a lot of sense
Speaker 1: to me that, you know, voting and owning the shares
Speaker 1: is how you can really impact things as opposed to
Speaker 1: just not owning Exxon. Let's work with them, And so
Speaker 1: I was immediately took notice. Then they filed for an
Speaker 1: e t F and I was like, wow, this is
Speaker 1: this is interesting and it's it's a really simple et F.
Speaker 1: It's the five biggest stocks. And what I also found, uh,
Speaker 1: really intriguing was the expense ratios point oh five percent,
Speaker 1: So it's got a Vanguardian price tag and the tickers
Speaker 1: good vote, so it's got a lot of things going
Speaker 1: for it, and I think it could redefine E s
Speaker 1: G investing. You know, if your goal is to have
Speaker 1: an impact, it just seems like this, this activist type
Speaker 1: ETF would be the way to do it versus a
Speaker 1: just not owning a couple of energy stocks. So the
Speaker 1: name of that et F engine number one transformed FIVETF
Speaker 1: with the ticker vote joining us today from Engine number one,
Speaker 1: Charlie Penner and Yasmin die Bilger also joining us um
Speaker 1: from Bloomberg Intelligence ESG analysts robbed Boff and at Bloomberg News.
Speaker 1: On s G reporter Sagel Kashan So one big happy
Speaker 1: family joining us for this very very important interview, which
Speaker 1: I think of is almost the ultimate David and Goliath story,
Speaker 1: this time on Trilliance Engine number one. Charlie, Jasmine, Rob Sagel,
Speaker 1: Welcome to trillions. Thank you so so Charlie. It's almost
Speaker 1: like you were flying in delp mode um and all
Speaker 1: of a sudden you shook corporate America in a really
Speaker 1: big way. You had a point zero two percent steak
Speaker 1: in x on mobile, no history of activism in oil
Speaker 1: or natural gas, and all of a sudden you had
Speaker 1: scored three board seats, which was a quarter of of
Speaker 1: of what was available. And you know, not long ago,
Speaker 1: Exxon was the world's most valuable company. So just tell me,
Speaker 1: how did you come out out of nowhere here? How
Speaker 1: did you manage to pull that off? Um? Yeah, I mean, um,
Speaker 1: the out of nowhere part. Um. I might give a little, uh,
Speaker 1: you know, backstory on so I spent fifteen years doing
Speaker 1: traditional share older activism strategy at a very successful activists
Speaker 1: from called John and Partners that does traditional activism so
Speaker 1: focused on things like capitalcation, capital structure, UH and things
Speaker 1: like that. And we had actually done a fair number
Speaker 1: of campaigns in the energy space, companies like use An
Speaker 1: Exploration and e QT and and Karen McGee, and you know,
Speaker 1: in a lot of respects, this campaign was similar because
Speaker 1: before you got to the long term picture that we
Speaker 1: viewed at Engine number one as being a failure to
Speaker 1: appropriately prepare for the long term changes face in the industry,
Speaker 1: there was just a basic bad capital allocation story which
Speaker 1: quite frankly was worse in terms of value destruction than
Speaker 1: the other companies I mentioned um So, in one respect,
Speaker 1: the very kind of basic near term components of the
Speaker 1: campaign that looked at the last ten years of value
Speaker 1: destruction and exile mobile even before COVID struck, was in
Speaker 1: some ways very familiar. I think the thing that that
Speaker 1: perhaps came out of no or was the additional element
Speaker 1: of the longer term focus on where can this company
Speaker 1: be ten twenty thirty years down the road? And I
Speaker 1: exaggerate obviously you did not come out of nowhere, because
Speaker 1: you actually had a very successful track record. And actually
Speaker 1: just take a moment and you you have tussled with
Speaker 1: big companies before or in that prior life, one being
Speaker 1: Apple for instance, Can you talk about that? Yeah? Sure,
Speaker 1: And just to be clear, you know, most of the
Speaker 1: time I spent at john OH was executing and helping
Speaker 1: textcut on other people's ideas that were in that kind
Speaker 1: of traditional activist mold. What I spent the last few
Speaker 1: years at JOHNAH doing was campaigns that that uh I
Speaker 1: had originated that were um without longer term focus. That
Speaker 1: the thinking being that, uh, you know, companies that think
Speaker 1: more long term will perform better over the long term.
Speaker 1: And if you're thinking long term, you're focused on things,
Speaker 1: in the case of Apple, like your relationship with your users.
Speaker 1: And you know, at that time in eighteen UM it
Speaker 1: was really the kind of beginning stages of the tech lash,
Speaker 1: and even though Apple hadn't really kind of come under
Speaker 1: that type of scrutiny yet, it didn't take a lot
Speaker 1: of looking around the corner when you looked at really
Speaker 1: the spike and negative mental health outcomes for the heaviest
Speaker 1: young users of the phone in terms of things like
Speaker 1: UM depression and loneliness and suicide risk factors and sleep deprivation,
Speaker 1: and the basic thinking was in in you know, this
Speaker 1: is something I'm still trying to do today. Is basically
Speaker 1: if you look at positive impacts and long term value
Speaker 1: creation potential as being two sides of the same coin.
Speaker 1: The basic argument at Apple was that if your goal
Speaker 1: has apples to move from being valued like a hardware
Speaker 1: company h to being valued like a subscription based recurring
Speaker 1: revenues company, and you want to do everything possible to
Speaker 1: keep people feeling safe and secure within the ecosystem, um,
Speaker 1: you'd want to do things to partner with families to
Speaker 1: give them really more dynamic control over the phones, which
Speaker 1: you have to combine for a lot of other things
Speaker 1: like good parenting and discussions and things. Um. And fortunately
Speaker 1: for us, Apple very quickly said this makes sense. And
Speaker 1: you know, they called Tim Cooke was on the phone
Speaker 1: the next day with with their biggest shareholders saying what
Speaker 1: do you think of us? And they said, yeah, why
Speaker 1: wouldn't you do this? It makes sense? And um, the
Speaker 1: controls were really well received. They need to do more
Speaker 1: to market them. Quite frankly, Google actually, which copied a
Speaker 1: lot of what Apple did, has done a better time
Speaker 1: marketing it, but it was a good first step and
Speaker 1: and I think kind of hopefully, you know, validated the
Speaker 1: case a little bit that focusing on these things isn't
Speaker 1: just about you know, positive impact, it's just kind of
Speaker 1: good business sense to it the long term. Well. And
Speaker 1: McDonald's was another one that that you had at that
Speaker 1: moment in time too, And I guess that's gonna be
Speaker 1: an interesting segue here, because when you engage with companies
Speaker 1: like this, sometimes it's public and sometimes it's not talked
Speaker 1: about the way that you dealt with McDonald's at that Yeah,
Speaker 1: and that was actually one that previously had not named
Speaker 1: the company, but the New York Times, I guess spoke
Speaker 1: to some other people and figured it out. That was
Speaker 1: actually the year after the Apple campaign, and the basic
Speaker 1: idea again there was to try to kind of marry
Speaker 1: the long term value creation argument with the positive impact argument.
Speaker 1: In that case, you know, um, at least prior to
Speaker 1: the pandemic, McDonald's was a company that loses about two
Speaker 1: percent of its customers every year, and to make up
Speaker 1: for that, you know, they've been doing things like selling
Speaker 1: you know, cheesy bacon on the fries and don't sticks
Speaker 1: with breakfasts and stuff like that, which you know find
Speaker 1: but isn't necessarily i think by their own emission in
Speaker 1: great long term value creation strategy. So you know, one
Speaker 1: of the reasons that they've been losing customers, and again
Speaker 1: this is all pre pandemic is people looking for either
Speaker 1: healthier or flexitarian choices where they're not looking to eliminate meat,
Speaker 1: but want to be able to reduce the intake of
Speaker 1: meat in a growing number of cases for environmental reasons.
Speaker 1: So the basic idea was they can both have a
Speaker 1: you know, positive impact on reducing their deforestation in methane
Speaker 1: emissions and also appeal to customers who maybe have given
Speaker 1: up on McDonald's, particularly families with younger kids who may
Speaker 1: not feel great about you know, kind of taking in there. Again,
Speaker 1: that's one where there's there's more work to be done.
Speaker 1: But they did introduce partnership with Beyond met in Canada,
Speaker 1: which you know, it was marketing in a certain way
Speaker 1: that maybe could be approved upon going forward. And the
Speaker 1: now they have this mick plant uh concept that that
Speaker 1: you know what, we'll see what develops with that. But yeah,
Speaker 1: that was the one that followed Apple, which which brings
Speaker 1: us sort of two Engine number one. So how did
Speaker 1: that come into being, because it's actually almost born at
Speaker 1: the beginning of the pandemic, right, Yeah, So I had
Speaker 1: met the founder of Engine number one, Chris James, after
Speaker 1: the Apple campaign, and he at that time was formulating
Speaker 1: his thinking about what would eventually become Engine number one,
Speaker 1: and very much, very much focused on, uh, the idea
Speaker 1: that you know, companies over time have to internalize their
Speaker 1: externalities in terms of their evaluation, and that the investments
Speaker 1: that they make in their people, in their customers, in
Speaker 1: the society around them, and in their communities, uh, in
Speaker 1: the environment. Ultimately, if you take a long term time
Speaker 1: prize and approach, you can't reflect and value. So you know,
Speaker 1: he had a lot of ideas, one of which ultimately
Speaker 1: the CTF. But what I was trying to do it
Speaker 1: at Jonah fit very well into his kind of grander vision.
Speaker 1: So we kept talking and yeah, I joined Engine number one,
Speaker 1: you know, late last year, which feels like a longer
Speaker 1: time ago than it was. But yeah, um yes, but
Speaker 1: let me bring you into this. Um. Uh, you and
Speaker 1: I met when you were at JP Morgan. You were
Speaker 1: an et F person. You're one of the first guests
Speaker 1: on this on this podcast actually so, and then now
Speaker 1: you're here, and I guess, can you bridge everything Charlie saying,
Speaker 1: because this is a new world for a lot of
Speaker 1: ETF investors, they're not even used to hearing stuff like this,
Speaker 1: and you're gonna basically take some of this activism that
Speaker 1: Charlie just went over several examples of and democratize it
Speaker 1: in the E t F. Can you talk about the
Speaker 1: process to do that? Yeah? Sure, And maybe just taking
Speaker 1: a step back since he referenced my time at JP
Speaker 1: Morgan and one of the things I learned that I
Speaker 1: was one of the early employees in JP Morgan's ETS business.
Speaker 1: I joined when that firm had one E t F
Speaker 1: and five million dollars. And when you look at the
Speaker 1: market dynamics of ETS, one of the things you see is, Wow,
Speaker 1: the space is crowded and it's concentrated. And so you
Speaker 1: sort of asked them actual questions, how does a new
Speaker 1: entrant come into the space and and really think it's
Speaker 1: going to crack the code and grow? Um, you know,
Speaker 1: JP Morgan was obviously very successful at doing that. I
Speaker 1: left when they had about sixty billion dollars, but in
Speaker 1: my thinking of coming here, it's sort of what you
Speaker 1: were hitting on, Eric, when I was thinking about what
Speaker 1: is the value proposition of an engine number one type
Speaker 1: provider in the ETS space? And from my perspective, it
Speaker 1: was a couple of things. The first is this idea
Speaker 1: of being purpose built, so engine number one focuses only
Speaker 1: on impact. And I think that that sort of focused
Speaker 1: mission statement, focused products that that we could drive off
Speaker 1: of it UM was something that was actually quite unique
Speaker 1: in the market for this particular spaces sustainability. And I
Speaker 1: think secondly, you know a lot of the things that
Speaker 1: people talk about the sustainable investing world. You look at
Speaker 1: it and you think, wow, it's growing quite a lot,
Speaker 1: but it's still a drop in the bucket of all
Speaker 1: the E T F bascets out there. So my hypothesis
Speaker 1: was something was holding that space back a little bit UM.
Speaker 1: And I think it really was a combination of or
Speaker 1: is a combination of one investors really feeling this quandary
Speaker 1: between can I invest in alignment with my values and
Speaker 1: the financial tradeoff that you have to make UM and
Speaker 1: to this all feel like being tangible, there being a
Speaker 1: real so what to what they're doing UM and so
Speaker 1: I think that's where the engine number one E t
Speaker 1: F business really fits well into the broader framework is
Speaker 1: Charlie was talking about it. It's the ability to harness
Speaker 1: the power of all investors, be it the largest investors
Speaker 1: in the country, all the way down to the self
Speaker 1: directed investor, give them a voice and a vote um
Speaker 1: pun intended, and really a seat at the table on
Speaker 1: some of these really important topics. And I think that
Speaker 1: value proposition is really unique. And so let's just really
Speaker 1: just for one second stop here and just contrast this
Speaker 1: with E s G t F s UM. E s
Speaker 1: G t F s are going out scoring a bunch
Speaker 1: of stocks and they all all have their different methodologies.
Speaker 1: Typically they won't own an exon or they'll own it
Speaker 1: in a sale a smaller uh you know, waiting. Can
Speaker 1: you talk a little bit about trying to position this.
Speaker 1: I'm trying to pretend you're in a meeting with an
Speaker 1: advisor or an investor. How are you explaining this versus say,
Speaker 1: the onslaught of now on s gtfs out there. Yeah,
Speaker 1: I think this is the really important point. There's not
Speaker 1: a lot of product development in the space, but to
Speaker 1: your point, they all sort of look and feel the same.
Speaker 1: It's either excluding or rewaiting based on some some E
Speaker 1: s G data point. They're basically E s G by
Speaker 1: what they own, but not what they do. And I
Speaker 1: think there's this real question you sort of have to
Speaker 1: ask yourself about what's the theory of change behind putting
Speaker 1: your money in one of those products? What changes if
Speaker 1: I were to move my entire savings account from the
Speaker 1: SMP five to something that slightly relighted stocks based on scores.
Speaker 1: And I think that's maybe one of the things that
Speaker 1: holds back the end investor. I'm not sure that that
Speaker 1: type of strategy is very real to them, So that
Speaker 1: the premise of vote was actually quite simple on the
Speaker 1: investment side, as you said, it really was if you
Speaker 1: have market cap, and you like market cap and like
Speaker 1: the price of market cap, you can keep all of
Speaker 1: those things. UM. But where we're really going to drive
Speaker 1: value is the work we do as active owners, which
Speaker 1: from our perspective, really spans a very broad spectrum of things.
Speaker 1: It's the votes we cast, it's the collaborative engagements that
Speaker 1: we run in a small subset. It's also the work
Speaker 1: that Charlie's doing. UM On the more activism side, and
Speaker 1: that's really where what we're doing is different. And my
Speaker 1: personal opinion is that we're solving those challenges I mentioned. One,
Speaker 1: we're not introducing a financial trade off. Again, most people,
Speaker 1: virtually every investor has market cap in their portfolio, and
Speaker 1: so we're saying, if you like that, you can keep
Speaker 1: it the same. But two, we're allowing this to come
Speaker 1: to life with real tangible examples of how we're voting
Speaker 1: shares and hoping to change companies. Charlie, when Chris described
Speaker 1: the strategy for you early on and was like, hey,
Speaker 1: I've got this idea to marry activism within within E
Speaker 1: t F, what was your what was your first reaction
Speaker 1: to that? I mean it was described a little more
Speaker 1: broadly and and it's probably worth mentioning, you know, kind
Speaker 1: of that, Um, you know, engine number one is multifacet
Speaker 1: I mean there's the E t F, there's a more traditional,
Speaker 1: uh you know, more concentrated portfolio. There'll be additional I
Speaker 1: believe E t F or some private investment stuff. So
Speaker 1: it was really presented as and what was really interesting
Speaker 1: about it was the idea that all these different businesses
Speaker 1: would kind of be synergistic with each other. So you
Speaker 1: know the the Jasmin said. The idea I think really
Speaker 1: behind engine number one is systemic change. So one way
Speaker 1: you can bring about systemic changes through these kind of
Speaker 1: targeted activist campaigns. Right, you spend a year of your
Speaker 1: life and probably take off another ten on the back end,
Speaker 1: you know, running a campaign like the Exxon campaign. But
Speaker 1: another thing you can do is, hopefully over time, as
Speaker 1: the t F hopefully grows, is you kind of change
Speaker 1: the voting landscape is. As you know you were mentioning
Speaker 1: before the the unintended consequence of these e s CHI
Speaker 1: funds that are just focusing on the good actors is
Speaker 1: less accountability for folks who are companies. Maybe you should
Speaker 1: be doing things differently. And if you can grow this
Speaker 1: thing and also have an influence on on the overall
Speaker 1: kind of voting proclivities of other funds as well, um,
Speaker 1: you can bring create greater accountability not just to a
Speaker 1: handful of companies a year we're going to be the
Speaker 1: subject of activist campaigns, but actually to the entire market.
Speaker 1: And it doesn't have to be a massive, you know,
Speaker 1: soul sucking exercise like X, and it can be the
Speaker 1: smaller kind of shareholder engagements and votes that that really,
Speaker 1: you know, change the kind of everyday discourse that people
Speaker 1: are having about environmental and social and long term drivers
Speaker 1: have valued at the biggest companies still hit um to
Speaker 1: each other. You mentioned systemic change. A lot of the
Speaker 1: s G issues UM timate change or racism here in
Speaker 1: the US, these are huge systemic issues. A number of
Speaker 1: people have said, you have said, like divestment campaigns, ets,
Speaker 1: no carbon funds, all of these sort of like products
Speaker 1: are not really enough to address these issues on the
Speaker 1: time frame that we need, especially with climate change. Um
Speaker 1: So how do you sort of like react to that,
Speaker 1: you know, when it comes to like e t s
Speaker 1: addressing something like climate change in the next ten years.
Speaker 1: And yeah, I I we would agree with those people.
Speaker 1: It's kind of the founding principle, which is, if you
Speaker 1: are looking to bring about change within a time frame
Speaker 1: that is soon enough to be consequential, divestment in most
Speaker 1: cases is not going to do that. You know, companies
Speaker 1: like Examobile are not hurting for capital. So look, it's
Speaker 1: not to knock anybody's investment choices. You know, everyone can
Speaker 1: make their own decisions, but our our opinion is that
Speaker 1: you can't just ignore the companies that are most in
Speaker 1: need of change. Uh, And it doesn't to us feel
Speaker 1: great just not to be invested in then we'd rather
Speaker 1: be invested in them, be able to give investors in
Speaker 1: need to have broad market exposure at a very low price,
Speaker 1: and be able to you know, again through the vote,
Speaker 1: through collaborative engagement, and in the subset of cases, through
Speaker 1: an activist approach imposed. We hope greater accountability on the
Speaker 1: market to deal with with those issues, which again we
Speaker 1: think are are as long as you have a long
Speaker 1: term time rise in which we think most investors do,
Speaker 1: really fundamental of long term value drivers for these companies.
Speaker 1: You are answering these these questions the right way. Maybe
Speaker 1: just one thing, I just to add on to what
Speaker 1: Charlie was saying there on the voting side, just to
Speaker 1: underscore the point a little bit. I think most investors
Speaker 1: don't know how their shares are being voted. And I
Speaker 1: think that that's actually one of the sleeping giants in
Speaker 1: this room. If you think about it. You know, the
Speaker 1: average scent P five hundred fund um has has if
Speaker 1: you look historically at voting track records, has voted against
Speaker 1: let's call it, se of environmental and social shareholder proposals
Speaker 1: over the last five to ten years. And I think
Speaker 1: a investors don't know that, and be they also don't
Speaker 1: necessarily know they have a choice in that, and that
Speaker 1: maybe be he sort of speaks to the power of
Speaker 1: harnising all investors here. There's trillions of dollars behind that, right,
Speaker 1: if we could actually just provide a layer of transparency
Speaker 1: to that and provide an alternative that in of itself
Speaker 1: may actually have some pretty profound impact and change. And so,
Speaker 1: you know, I guess the e t F is named
Speaker 1: that way for a reason. I do think that the
Speaker 1: voting part actually has the potential to be really interesting
Speaker 1: and transformational. You know, Vanguard and black Rock are passive
Speaker 1: owners and or Index one and they own they're the
Speaker 1: top two owners of most companies out there. Um, they
Speaker 1: own about eight percent nine percent of every company pretty much.
Speaker 1: And you talked about this voting record. Now we in
Speaker 1: the industry week, they're starting to get more transparent. They'll
Speaker 1: they'll tell you how they voted a lot of times
Speaker 1: with management. And I don't know. If I'm not in there,
Speaker 1: I don't I can't grade them myself. I'm not really
Speaker 1: that involved. But I guess could you talk a little
Speaker 1: bit about this idea. I use the metaphor of a
Speaker 1: tug boat that engine number one, even though engines are
Speaker 1: train Um. I like the name by the way. I
Speaker 1: use the metaphor of a tug boat, where you know,
Speaker 1: maybe you guys are able to tug these bigger owners
Speaker 1: into a direction. They might not go on their own.
Speaker 1: They might not propose this or be the catalyst for
Speaker 1: some of these, but they'd be willing to go along
Speaker 1: with that. So can you talk about that relationship and
Speaker 1: and moving them towards your side on these issues. I
Speaker 1: guess what Eric's trying to say was, was tugboat number
Speaker 1: one ever in the name conversation? No, but it probably
Speaker 1: should have been. You know, it's probably not too late. Um.
Speaker 1: You know, I think that the way I think about
Speaker 1: at least is you have to be meeting a market need.
Speaker 1: So if you think about you know, the early two thousands,
Speaker 1: you know, the kind of modern wave of shareholder activism,
Speaker 1: you know, it was meeting a market need, which was
Speaker 1: that challenging companies were the CEO was an empire builder,
Speaker 1: or the board paid management as if they were top
Speaker 1: performers when they're actually you know, bottom UH quartile performers.
Speaker 1: And it wasn't institutional investors didn't care about those issues.
Speaker 1: But if you're voting you know, ten thousand proxies a
Speaker 1: year and you're engaging with hundreds or thousands of companies
Speaker 1: every year, and you have, you know, a full time job,
Speaker 1: you're not going to take off six months or a
Speaker 1: year to do kind of a deep dive into those
Speaker 1: companies UM and and make these types of proposals. So
Speaker 1: in the same way that you know, the traditional UH
Speaker 1: and still very successful activist funds like like JOHNA and
Speaker 1: others UM Meta market need you know, I think funds
Speaker 1: like black Rock and Vandguard and others are absolutely sincere
Speaker 1: when they when they talk about the need for companies
Speaker 1: to have a plan for for the energy transition and
Speaker 1: to deal with other important issues. But it is not
Speaker 1: their business model. They don't have the time and whatever
Speaker 1: other kind of um, you know, personality traits or or
Speaker 1: deep facts that you need to take kind of an
Speaker 1: activist approach. And so if we can offer hopefully compelling
Speaker 1: arguments and good candidates that you know, we've spent the
Speaker 1: better part of a year of trying to find I
Speaker 1: don't used as really pushing them in any particular direction.
Speaker 1: I think there's there's sincere when they say they care
Speaker 1: about these issues, but we're meeting a market need, which
Speaker 1: is employing a dedication of time in a particular set
Speaker 1: of resources and skills that hopefully can be helpful in
Speaker 1: giving them a choice. You know, most of the time
Speaker 1: they don't have a real choice, uh, in situations and
Speaker 1: with companies like Exxon when it actually comes time to
Speaker 1: casting your vote, and if we can offer them something,
Speaker 1: if we do a good job, it helps kind of
Speaker 1: move the ball forward in a way that's consistent with
Speaker 1: their goals, as opposed to pushing them in in in
Speaker 1: some new direction. Hi, Rob here, I just wanted to
Speaker 1: chime in with a follow up question. I mean, obviously
Speaker 1: Black Rock and Vanguard have been mentioning for years they're
Speaker 1: interested in climate change, you know, Liar fank Of has
Speaker 1: written that letter, um. But more recently, in the last
Speaker 1: year or so, social issues have become more and more important,
Speaker 1: and you obviously mentioned the Apple campaign earlier. I'm just
Speaker 1: wondering that are there any opportunities on the social side,
Speaker 1: particularly around diversity, inclusion or equality. Absolutely, Yeah, I think
Speaker 1: that you know, UM and the social can be more
Speaker 1: difficult to quantify, but you know, whether it's UM diversity inclusion,
Speaker 1: whether it's human capital management, whether it's responsible technological development UM,
Speaker 1: these are playing a massive role in things like income inequality,
Speaker 1: which is a massive drag on economic growth, on weakening
Speaker 1: of democratic small d institutions around the world, which is
Speaker 1: a threat to the very system of capitalism that we
Speaker 1: we all operate within. UH. And so yeah, absolutely, I
Speaker 1: think I think the the S and sh H can
Speaker 1: be just as impactful. You know, you're probably stirring with
Speaker 1: a longer spoon, quite frankly, because you're not really getting
Speaker 1: so much into issues of like they said, cap allocation
Speaker 1: and things that were more kind of meat and potatoes
Speaker 1: in the x ON campaign. But I think they absolutely
Speaker 1: can drive a great deal of long term value and
Speaker 1: also destroy long a lot long term value if you
Speaker 1: don't answer those types of questions correctly. YEA touching on
Speaker 1: what Joel and both UH and what world could our
Speaker 1: glass about x ON? That campaign was largely based on
Speaker 1: the financialism company, how you push for change on E
Speaker 1: S G issues when the company isn't doing so well
Speaker 1: on S issues? But financially are performing well, yeah, you
Speaker 1: still have to root in the financials. I mean, look,
Speaker 1: we are not adding a whole lot of value if
Speaker 1: we can't by some means quantify you know what we're
Speaker 1: talking about. But you know it can be certainly a
Speaker 1: lot more difficult. I mean even you know, any campaign
Speaker 1: that we're going to be doing is not going to
Speaker 1: have the you know, ability to break it down as
Speaker 1: cleanly as you know. For example, in a trial actus campaign,
Speaker 1: if you're pushing for a share of back, you can
Speaker 1: say what the new denominator is going to be. Or
Speaker 1: you are asking a company to spin off and under
Speaker 1: performing division and you can say, here's what Spinko is
Speaker 1: going to trade down here or remain coal trade and
Speaker 1: you can kind of needly quantify listening. So even on
Speaker 1: the environmental side, um, you know, we could say what
Speaker 1: we thought the impact of better capitalllocation, more discipline and
Speaker 1: consistent capitalllocation policies would be. But in terms of you know,
Speaker 1: the longer term, you know, giving the marketing reason to
Speaker 1: think that even in a decarbonizing world of lower oil
Speaker 1: and gas demanded, EXA Mobile still have a reason for
Speaker 1: being in in twenty or thirty years. That's pretty difficult
Speaker 1: to quantify um. You know, on the social front, I mean,
Speaker 1: take you know, the Apple campaign, it's difficult to say
Speaker 1: exactly what the precise impact of you know, better more
Speaker 1: dynamic controls for parents would be. But that's also kind
Speaker 1: of the nature of uh, that business. I mean, what
Speaker 1: they're doing on the privacy front, what they're doing on
Speaker 1: augmented reality, what they're doing on an emojis and group
Speaker 1: face and you know, they don't break those things out
Speaker 1: into separate kind of menu items that people pay more for.
Speaker 1: So in some ways that's kind of the nature of
Speaker 1: that business. But at the end of the day, you
Speaker 1: still have to be able to break it down into
Speaker 1: either revenue growth you know, hopefully in the case of
Speaker 1: fast food companies that that offer more plant based protein
Speaker 1: substitutes as time go on to to meet growing customer demands.
Speaker 1: You have to be able to translate it into profitability.
Speaker 1: Certainly with human capital management, there are a lot of
Speaker 1: companies that have shown that by investing more in people,
Speaker 1: you actually increase basic metrics like sales per square foot
Speaker 1: and need but dot per square foot. So you know, look,
Speaker 1: we we have to be able to make for for
Speaker 1: at least for the activist campaigns, arguments that will appeal
Speaker 1: not just to E s G focused investors and and stakeholders,
Speaker 1: but to uh uh, you know, basic long term investors,
Speaker 1: and that will require at some point talking about how
Speaker 1: it impacts revenues or profitability or the multiple or some
Speaker 1: other metric that people look at, you know, when they're
Speaker 1: valuing these companies. One thing to maybe add on that,
Speaker 1: because we've now that we've been in market for a
Speaker 1: couple of weeks now on an index, on one of
Speaker 1: the questions we get a lot is but wait, what
Speaker 1: what is the value proposition here from an economic side
Speaker 1: if your basic premise is to track an index and therefore,
Speaker 1: you know why you even need an economic argument behind
Speaker 1: what you're doing if you're not going to take by
Speaker 1: definition and outsized position UM. And you know, it's something
Speaker 1: it's something that I've actually thought quite a lot about
Speaker 1: UM as I think about this new product where we're
Speaker 1: actually specifically trying to be market categoriented. I mean at
Speaker 1: a high level, of course, the entire firm has places
Speaker 1: in its portfolio where it leads into concentration. When we
Speaker 1: have a strong economic view, so you know, I think
Speaker 1: point one is an engine. Number one ties the impact
Speaker 1: we're doing to economic value. But to you know, we're
Speaker 1: only ever going to be as successful as the investors
Speaker 1: we can bring along with us. And as Charlie was mentioning,
Speaker 1: you know the the e t F. You know, even
Speaker 1: if we're wildly successful and ten billion dollars a hundred
Speaker 1: billion dollars, you can extrapolate how big that product could grow,
Speaker 1: you still need to actually build a coalition of people
Speaker 1: around you and make reasonable shareholder arguments for what you're doing.
Speaker 1: So um, I do feel like even the index side
Speaker 1: of the argument actually still has a very it's stronger
Speaker 1: when you tie it to an economic value proposition. One
Speaker 1: of the things that we have noticed this and I'm
Speaker 1: not sure if you have a prepared to answer for this,
Speaker 1: but people love the SMP five hundred. There's just something
Speaker 1: about that brand name. And we have the Bloomberg five hundred,
Speaker 1: and I think that's actually better they were SMP is
Speaker 1: way too late to take In Tesla, it's basically actively
Speaker 1: managed fun in a way. Here's a more beta, a
Speaker 1: real beta index you guys track in the morning Star one. Yeah,
Speaker 1: there's people are really hooked on this index, How do
Speaker 1: you try to dislodge somebody who has like an IVV
Speaker 1: or a voo tracking the SMP five hundred with this. Yeah,
Speaker 1: I think that's a really good question, because, I mean,
Speaker 1: the intentional design behind this product as we're trying to
Speaker 1: simplify the investment decision as much as possible. So if
Speaker 1: you have something you like as much as we can,
Speaker 1: you should try to keep it. You know, at a
Speaker 1: high level, the morning Star index that we're tracking is
Speaker 1: is exposure to the largest five companies waited by market
Speaker 1: cap in the US. So it sounds very similar and
Speaker 1: it is very similar from a long term tracking error perspective.
Speaker 1: So I do think we've met the objective of actually
Speaker 1: having a very similar exposure. But I'll also say morning
Speaker 1: Star as a partner, um it's a fabulous partner for us.
Speaker 1: I think what they're doing in the index space is
Speaker 1: actually quite disruptive in some sense, maybe similar to how
Speaker 1: we're thinking about ourselves and the world we operate in. UM.
Speaker 1: So I also have the added benefit of, you know,
Speaker 1: a like minded partner with us. But in effect, you know,
Speaker 1: now that I've been in market a couple of weeks
Speaker 1: talking to investors. I do think that while they're all
Speaker 1: these small nuanced differences between standard US equity large cap
Speaker 1: index is, they're they're essentially very similar, and most investors,
Speaker 1: UM don't really see much of the difference. Hey throw
Speaker 1: up here again, UM, just on on the UH the
Speaker 1: management fee five basis points. Obviously that helps attract a
Speaker 1: u M. That obviously puts more muscle behind your campaigns.
Speaker 1: But then is it sustainable to to run these activist
Speaker 1: campaigns with that? You know, I heard the Exon campaign.
Speaker 1: I think it was twelve and a half million dollars.
Speaker 1: Is it sustainable to keep running campaigns like that with
Speaker 1: just five basis points? Yeah? And and again this is UM,
Speaker 1: you know, it's it's a it's UM important to keep
Speaker 1: in mind as I mentioned, you know earlier that you know,
Speaker 1: engine number one now has an ETF, but it has
Speaker 1: other strategies as well, including as I mentioned, more concentrated portfolio.
Speaker 1: So UM, we are bringing more UH to the financial
Speaker 1: picture than just the five picks five BIPs that DTF
Speaker 1: is is bring. UM. But yeah, I don't think it'll
Speaker 1: make a lot of sense to have a solely an
Speaker 1: e t F that that's charging five bits and be
Speaker 1: running multiple, you know, twelve nine dollar campaigns every year,
Speaker 1: but that's not what we're doing. Maybe just to add
Speaker 1: to that, I mean, I think there is a very
Speaker 1: intentional choice with having our first e t F and
Speaker 1: we plan on having more ets be the one that
Speaker 1: we chose to launch, which is that it's what, like
Speaker 1: I said, what most people have in their portfolios. So
Speaker 1: you know, this type of product that speaks to a
Speaker 1: wide range of investor both from institutional and self directed,
Speaker 1: and it's sort of a standard part of everyone's portfolio.
Speaker 1: Gives us access and breath in an investor base, which
Speaker 1: I think is really valuable to the firm. UM. So
Speaker 1: it's Charlie mentioned this is one of multiple strategies we run,
Speaker 1: but I also think it's got a really interesting strategic
Speaker 1: angle for for the broader firm. You know, I just
Speaker 1: want to ask one quick question, yes, which is we
Speaker 1: just did an episode about tickers and how how people
Speaker 1: claim good tickers? How did you get vote? It blows
Speaker 1: my mind and it makes me so happy, and I
Speaker 1: saw that you had done that, UM that section or
Speaker 1: session I sakers are so important. People who aren't E
Speaker 1: t F people don't necessarily gravitate too much work. But
Speaker 1: as someone who's built so many ets in my life,
Speaker 1: it is so important to get the right ticker. And
Speaker 1: when we got vote, it was just it was just
Speaker 1: one of those amazing moments because it says what it's
Speaker 1: I mean, it's really basically the way we think about
Speaker 1: the product is like your voice, take your seat at
Speaker 1: the table, and like we're pushing on an open door
Speaker 1: and we use the word vote. So um, really we're
Speaker 1: really lucky to have grab grab that one. You know.
Speaker 1: Interesting talking about vote and voting rights, you do have uh,
Speaker 1: some companies in in the S and P or among
Speaker 1: the five largest, particularly tech companies, which we talked about earlier,
Speaker 1: where you don't have that one share, one vote. How
Speaker 1: do you work with those companies where maybe the power
Speaker 1: of voting isn't all there is it is for some
Speaker 1: other companies. Yeah, Um, well, it's certainly more of a challenge. Um,
Speaker 1: I think you know it. It though it's still goes
Speaker 1: back to um having to make compelling economic arguments. So
Speaker 1: I mean, if you look at Apple, you know it
Speaker 1: might have well have been a you know, a dual
Speaker 1: share class company right at the time. I think the
Speaker 1: market cap was nine billion dollars. And even with with
Speaker 1: California State Teachers Retirement System joining us, we have like
Speaker 1: a billion dollar position. So can you you know, take
Speaker 1: them to a vote at the annual meeting and and
Speaker 1: toss people off the board. No, but you can still
Speaker 1: make uh, you know, compelling long term arguments. And it's
Speaker 1: it's ironic. Actually, some of the tech companies I won't
Speaker 1: name names who justify high low vote structure by saying, well,
Speaker 1: we want to look out for our long term uh
Speaker 1: you know, value creation interests. You might argue or taking
Speaker 1: an overly short term approach to their business model. Um,
Speaker 1: but if you can, you know, make a compelling argument
Speaker 1: that they can you know, be more valuable over the
Speaker 1: long term by answering some of these questions differently and
Speaker 1: and and get shareholders to concur you know, you can
Speaker 1: still get things done. But you're right, You're you're missing
Speaker 1: in those cases the ultimate hammer, which is putting different
Speaker 1: people on the board if if they don't come along.
Speaker 1: But I feel I still think in a lot of
Speaker 1: situations it can be worth trying, and I think will
Speaker 1: be worth trying as time goes on. Here um sechel
Speaker 1: here again, um one for you, Charlie, people in the
Speaker 1: space who've been doing this for like many decades or
Speaker 1: talking again about structural change and talking policy and things
Speaker 1: like that. Are you planning to do any sort of
Speaker 1: like lobbying or anything like that if you want to
Speaker 1: sort of push full systemic change. UM? Well, UM, you
Speaker 1: know I think that, UM, it's you know, never say never. Um.
Speaker 1: And certainly things that impact UH investor rights and and
Speaker 1: you know, board accountability, you know, so on there within
Speaker 1: a purview and that's something that you know, even uh,
Speaker 1: you know before coming to Engine number one was something
Speaker 1: that that yeah, I've worked on from time to time,
Speaker 1: but I would say that, you know, we do recognize
Speaker 1: that a lot of these issues, UH are issues that
Speaker 1: that will play out in a complex global system, and
Speaker 1: in many cases the regulatory environment will have a heavy
Speaker 1: impact on those It's one of the reasons why, for example,
Speaker 1: on the XO mobile board, we thought it was important
Speaker 1: to have somebody like Andy Karsner, who, in addition to
Speaker 1: being a galaxy brain type when it comes to the
Speaker 1: energy transition, you also spend time as Assistant Secretary of
Speaker 1: Energy UH and has UH stayed in that kind of milieu,
Speaker 1: including with the current administration. So we understand that that
Speaker 1: that in a lot of these cases, the regulatory and
Speaker 1: the technological as well as the investor community focuses will
Speaker 1: all kind of intersect. Would that ever lead to getting
Speaker 1: involved in in kind of non investor related policy lobbying efforts.
Speaker 1: It's not something I think currently being contemplated, but I
Speaker 1: guess never said ever if if it made sense. But
Speaker 1: you know, we recognize that our lane is really making
Speaker 1: arguments that will appeal to investors. Uh. And and you know,
Speaker 1: I think in most cases that is that's a separate
Speaker 1: lane from what's going on with with policy makers. So
Speaker 1: let's talk about that lane and just going forward. Charlie,
Speaker 1: how do you decide what you're going to engage in
Speaker 1: and what you're not going to engage in? And how
Speaker 1: are you looking through that lens? How is engine number
Speaker 1: one looking at the future? Uh? Well, you know, first
Speaker 1: thing is you've got to make sure that you have
Speaker 1: a path to victory. I mean, I know, I know
Speaker 1: a lot of people looked at the excellent campaign and
Speaker 1: thought that, um, you know, we were taking a flyer,
Speaker 1: but we really weren't. Um if if I didn't think
Speaker 1: and if if um you know if if everyone looking
Speaker 1: at it didn't see a clear path to victory, and
Speaker 1: that means you know, counting potential votes. Um, it's not
Speaker 1: a great use of a year of your life, you know,
Speaker 1: if there's no way to win. Um. So you know
Speaker 1: the gating item as always can you be successful? And
Speaker 1: then after that, uh, you look at you know, the
Speaker 1: value creation opportunity, you look at the impact opportunity, and
Speaker 1: again there should for a good campaign will be joined
Speaker 1: at the hip and then you wait against other opportunities
Speaker 1: that you're looking at. Me. You don't have a infinite
Speaker 1: number of campaigns that you can pursue every year. Uh,
Speaker 1: and so you try to, you know, make the ones
Speaker 1: that are most compelling from a value creation and uh,
Speaker 1: you know kind of narrative perspective, tape precedence. So if
Speaker 1: you think about this in years of your life, how
Speaker 1: long of a lift do you have ahead of you? God,
Speaker 1: it's such a grim question and kind of claim my
Speaker 1: mortality and we're not gonna be how long we'll be
Speaker 1: sitting at this ask? Uh, we invited you on a podcast,
Speaker 1: but you can also lay down on like like a
Speaker 1: couch if you need to. Um, I honestly just kind
Speaker 1: of I think just think from campaign to campaign, and
Speaker 1: there's lots of other ideas that that we're working on
Speaker 1: now that I think, um, and they're not all x
Speaker 1: ON type ideas in the sense that they will require
Speaker 1: taking things to a vote. I mean, most most activist
Speaker 1: situations you don't get resolved constructively and usually privately. Uh
Speaker 1: So hopefully they'll be a fair number of those, more
Speaker 1: certainly more of those than than campaigns like XSON. But
Speaker 1: you know, as long as as we can keep coming
Speaker 1: up with with good ideas that we think will be
Speaker 1: compelling to people, you know, no plan to stop doing it,
Speaker 1: um Cecil Harry again. UM So I'm not gonna ask
Speaker 1: you what your next campaign is, but I know you're
Speaker 1: not going to answer it, But can you give us
Speaker 1: an idea of what theme that you're playing cycle would
Speaker 1: be at the environment, racial discrimination, worker pay, incoming equality,
Speaker 1: what's your next name? I mean, really all of above,
Speaker 1: I can tell you that, Um, there's more to do,
Speaker 1: certainly on the um IOC front. Uh there is more
Speaker 1: to do, not just on the supply side of them,
Speaker 1: the climate change and energy transition uh issue, but on
Speaker 1: the demand side. I'd say, a lot more to do.
Speaker 1: I think that on the human capital management front, there's
Speaker 1: a lot to do in kind of marrying the idea
Speaker 1: of good operational decisions enabling greater investment in people. I
Speaker 1: think on the responsible technological front, uh, there's a ton
Speaker 1: of work to be done. So working on a bunch
Speaker 1: of different stuff, and it's just a question of, uh,
Speaker 1: you know, when the work gets done, when the timing
Speaker 1: is right, and you know, when we're sure that that
Speaker 1: you know we're we're more likely to be successful than not.
Speaker 1: So Um, Yeah, I think there's a lot of interesting
Speaker 1: stuff coming down the pike hopefully. Sure, But what's going
Speaker 1: to be the focus though, I mean there's lots of
Speaker 1: issues there. Uh, the focus will be um, systemic change
Speaker 1: will beyond things that aren't tweaks to a business model
Speaker 1: and are not the type of thing where you say,
Speaker 1: for example, like you know, a lot of funds you
Speaker 1: know focused on percentages. Can you can increase this percentage?
Speaker 1: You can decrease that percentage. What we'd like to do
Speaker 1: is is U propose things that offer a better and
Speaker 1: more long term and more sustainable in every sense of
Speaker 1: the word business model. So I can tell you there's
Speaker 1: a couple of things that that con see the light
Speaker 1: of day, uh this year, that that fall into that category,
Speaker 1: and they're not in the energy space. Is that more well?
Speaker 1: Systemic change is quite a nebulous sort of concept. So
Speaker 1: why don't you guide us a little bit more to
Speaker 1: sort of the theme that you're you're looking at the
Speaker 1: Siegel I'm doing. I'm doing. My joke is called uh,
Speaker 1: I look, I don't want to ruin the surprise. I
Speaker 1: think that you like it. We'll talk when the time comes.
Speaker 1: Stage prompts. Can this thing go global? I mean obviously
Speaker 1: you have UM, you know different UM shareholder rights structures globally,
Speaker 1: So can can you build an international index and edition
Speaker 1: at US index with the similar concept? I hope we
Speaker 1: see more versions of our strategy beyond just the S
Speaker 1: and P five hundred or morning Star five hundred type
Speaker 1: of exposure. I mean, ultimately, the value proposition we're trying
Speaker 1: to think about with this products, that is, let's find
Speaker 1: pockets of core market cap assets where they're large, they're meaningful,
Speaker 1: and investors use them in building portfolios. UM. Clearly the
Speaker 1: US is you know, different cuts of the US is
Speaker 1: a more kind of simple extension story, so small cap
Speaker 1: made cap value growth. But um, but but I do
Speaker 1: think you know, the concept of what we've done here,
Speaker 1: what we've cracked the code is not just niche to
Speaker 1: what we've done. There's many other places we can go
Speaker 1: with it. Um And I personally, for me, I want
Speaker 1: to see where investors bring us on that. UM. I
Speaker 1: think it's going to be most interesting to see how
Speaker 1: this product is received and where people actually want to
Speaker 1: pull us from the concept of other indexes but similar
Speaker 1: active ownership strategy. There's no only no reason it couldn't.
Speaker 1: I mean, most of the non US markets, they actually have,
Speaker 1: at least in terms of the actual rights that shareholders have,
Speaker 1: fairly robust rights. It's really more a question of the
Speaker 1: local uh you know, market and kind of shareholder attitudes
Speaker 1: quite frankly, which you know, I think are bigger determinants
Speaker 1: of whether or not makes sense center particular country. But um, yeah,
Speaker 1: there's in most most situations, there's there's no reason why
Speaker 1: you can't as long as you have a good handle
Speaker 1: on the kind of attitudes of the shareholder base. Yeah,
Speaker 1: I mean it's a question we ask at the end
Speaker 1: of every trillions, what is your favorite et F ticker
Speaker 1: that is not your own. Oh my gosh. Um, I
Speaker 1: actually did like I do like she and just maybe
Speaker 1: just keeping it in the space of sustainability, um, keeping
Speaker 1: it very simple to what those products we're trying to achieve. Yeah,
Speaker 1: and Charlie, how about you. I don't know if I
Speaker 1: ever gave more than thirty sects a year ago. I
Speaker 1: just google them. I'll go with yo. No idea what
Speaker 1: it is, but it rolls off the time. All right,
Speaker 1: there you go, Charlie, Jasmine, Sagril rob thank you all
Speaker 1: so much for joining us on Trillia. Thanks, thank you,
Speaker 1: Thanks for listening to Trillions til next time. You can
Speaker 1: find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcast, Spotify,
Speaker 1: and wherever else you like to listen. We'd love to
Speaker 1: hear from you. We're on Twitter, I'm at Joel Webber Show,
Speaker 1: He's at Eric fall Tunas. You can find more about
Speaker 1: Engine number one at engine one dot com. This episode
Speaker 1: of Trillions was produced by Magnus Hendrickson. Francesca Leevie is
Speaker 1: the head of Bloomberg Podcast. Bye