Speaker 1: Larry Fink of Black Rock, chairman and CEO, joins us
Speaker 1: right now, I truly believe the purposeful companies they're going
Speaker 1: to be focusing on the long term impact on climate
Speaker 1: change and how it impacts their company. It's a total
Speaker 1: philosophical shift of what a corporations for. Everybody's calling it grainwashing,
Speaker 1: and I disagree. When you have actions that sound good
Speaker 1: but in effect they don't really amount to much in reality,
Speaker 1: it's actually more dangerous than we think. Welcome to calling
Speaker 1: bullshit the podcast about purpose washing, the gap between what
Speaker 1: companies say they stand for and what they actually do
Speaker 1: and what they would need to change to practice what
Speaker 1: they preach. I'm your host time onto you, and I've
Speaker 1: spent over a decade helping companies define what they stand for,
Speaker 1: their purpose and then help them to use that purpose
Speaker 1: to drive transformation throughout their business. Unfortunately, at a lot
Speaker 1: of companies and organizations today, there's still a pretty wide
Speaker 1: gap between word and deed. That gap has a name.
Speaker 1: We call it bullshit. But, and this is important, we
Speaker 1: believe that bullshit is a treatable disease. So when the
Speaker 1: bullshit detector lights up, we're going to explore things that
Speaker 1: a company should do to fix it. In this episode,
Speaker 1: we're going to look at black Rock, the largest investment
Speaker 1: management company in the world. They manage over nine trillion
Speaker 1: dollars in assets and their global influence is undeniable. In
Speaker 1: his annual letter to the heads of the smpanies, Larry Finn,
Speaker 1: black Rock CEO, has stated that their purpose is to
Speaker 1: help build a more equitable, financially resilient future, not just
Speaker 1: for their customers, but for the planet to That's an
Speaker 1: admirable and lofty goal, but is it true. That's exactly
Speaker 1: what we're going to explore in this episode. To really
Speaker 1: understand black Rock story, we need to understand how American
Speaker 1: business has evolved over the last several decades. So we're
Speaker 1: going to go back in time, all the way back
Speaker 1: to the end of World War Two, when the US
Speaker 1: economy began a period of rapid expansion. President Roosevelt approves
Speaker 1: legislation to provide for America's war veterans in the Peace
Speaker 1: to Come by law, federal loans, pre schooling, job insurance,
Speaker 1: and complete rehabilitation are among the benefits to short every
Speaker 1: man and woman in the The g I Bill helped
Speaker 1: a generation of returning soldiers go to college, secure good jobs,
Speaker 1: and buy homes. The manufacturing and services sector grew, and
Speaker 1: companies were eager to sell to an expanding American middle class.
Speaker 1: How many dreams can your shape in a minute? As
Speaker 1: the people have done. There were a few other factors
Speaker 1: behind that post war economic boom. First, many business leaders
Speaker 1: believed that they had wider responsibilities to people and communities,
Speaker 1: not just their shareholders. And second, the effective tax rates
Speaker 1: on individuals and corporations were higher, which meant that all
Speaker 1: of that wealth was being redistributed more efficiently. In the
Speaker 1: ds CEOs, we're only making about twenty times more than
Speaker 1: a typical worker, by that was three hundred and fifty
Speaker 1: times more. And back in the fifties, union membership was
Speaker 1: high and upward mobility was real for many Americans. And
Speaker 1: then in it all came to a screeching halt. Gives
Speaker 1: me the great pro pleasure to present to you today,
Speaker 1: Professor Milton Friedman, the world renowned economist Milton Friedman, published
Speaker 1: an essay in The New York Times that had a
Speaker 1: colossal impact on American business. He introduced the concept of
Speaker 1: neoliberalism that rejected the idea that companies should have a
Speaker 1: social conscience. In Ohio, an old man failed to pay
Speaker 1: his electric billity you may be familiar with the case,
Speaker 1: and the electric company turned off the electricity and he died.
Speaker 1: Who was respons Let's suppose that the electric company or
Speaker 1: to follow the practice of never turning off anybody's electricity.
Speaker 1: Who would pay the costs? The responsibility really lies not
Speaker 1: on the electric company for turning it off, but on
Speaker 1: those of this man's neighbors and friends and associates who
Speaker 1: are not charitable enough to enable him as an individual
Speaker 1: to make the electric bill. Friedman believed that a business
Speaker 1: had only one social responsibility to make money or its shareholders.
Speaker 1: To him, an executive that wanted their company to eliminate
Speaker 1: discrimination or avoid pollution was and I quote, preaching pure
Speaker 1: unadulterated socialism. Humanist capitalism, which said you had responsibilities to
Speaker 1: your workers and your community was out predatory capitalism. The
Speaker 1: dog eat dog short term approach to success was in
Speaker 1: the point is, ladies and gentlemen, that greed is good.
Speaker 1: In pursuit of ever larger profits, corporate leaders began to
Speaker 1: hack away at internal costs. Greed is right, Greed works
Speaker 1: paying the lowest possible wages, providing less training, less paid
Speaker 1: time off, or none at all. Greed clarifies cuts through
Speaker 1: and captions es of the evolutionary spirit. But the really
Speaker 1: bad behavior happened at the regulatory level. Corporations lobbied relentlessly
Speaker 1: to lower the corporate tax rate and weaken environmental protections,
Speaker 1: which is why humans are now facing the existential crisis
Speaker 1: of climate change. Okay, so where does black Rock fit
Speaker 1: into all of this? More precisely, where does black Rock
Speaker 1: CEO Larry Fink fit into all of this? Back in
Speaker 1: the height of the predatory capitalism days of the late
Speaker 1: nineteen eighties, Larry and seven other finance executives had an
Speaker 1: idea to create a risk reduced asset management company, or
Speaker 1: in plain English, a safer place for rich people and
Speaker 1: big institutions to park and grow their money. At first,
Speaker 1: pursuing Freedman's doctrine, black Rock just wanted to get as
Speaker 1: big as possible, and they did, eventually becoming the largest
Speaker 1: investment manager in the world. But then Larry Fink did
Speaker 1: something really freaking bizarre. He started talking about the responsibilities
Speaker 1: that business has had to help solve the big issues
Speaker 1: in the world. He was advocating that businesses become purpose led,
Speaker 1: an idea that was seemingly at odds with Freedman's philosophy
Speaker 1: that had taken the Western world by storm. Back in
Speaker 1: ninety seventy, black Rock chairman and CEO Larry Fink sending
Speaker 1: a letter to the CEOs of the SMP five companies,
Speaker 1: warning them not only about activism and short termism, but
Speaker 1: also calling on them to focus more on long term growth.
Speaker 1: And when Larry talks, CEOs listen. And suddenly he was
Speaker 1: saying stuff that would make Milton Friedman sit up in
Speaker 1: his grave. We are interested in long term results, not
Speaker 1: short term results. Larry started talking about the need for
Speaker 1: companies to take care of stakeholders and not just shareholders,
Speaker 1: and he began hammering c e o s to take
Speaker 1: a role in actively addressing climate change. Big news from
Speaker 1: black Rock this morning, the world's largest asset manager now
Speaker 1: announcing the firm will make investment decisions with environmental sustainability
Speaker 1: at its core. And finally, in Larry led a coalition
Speaker 1: of CEOs of nearly two hundred of the world's largest
Speaker 1: corporations called the Business Roundtable, to publish a letter redefining
Speaker 1: the true purpose of a corporation. You've effectively suggested that
Speaker 1: it's not just profit that you're after as an investor,
Speaker 1: but that to get to that profit, you think that
Speaker 1: these companies need to have a social purpose, which is
Speaker 1: a little bit stepping out. Well, no, I don't think
Speaker 1: it's stepping out. I think I'm actually reconfirming what Milton
Speaker 1: Friedman said. If you read his whole essay that everyone
Speaker 1: talks about, he talks about that you need to be
Speaker 1: connected in your community. I believe the companies that have
Speaker 1: purpose are the best companies in the world because it
Speaker 1: unites their employees, it connects the clients, it brings the
Speaker 1: organization onto a common plane. Look, I love that Larry
Speaker 1: think is saying this stuff and putting videos like this
Speaker 1: on the black Rock website. We contribute to a more
Speaker 1: inclusive and resilient economy that benefits more people. This is
Speaker 1: how we remain true to our purpose of helping more
Speaker 1: and more people experienced financial well being. But what we
Speaker 1: need to get to the bottom of is does he
Speaker 1: really mean it or is it just a bunch of bs.
Speaker 1: So let's start digging for more context on how investors
Speaker 1: and investment managers like black Rock can push companies to
Speaker 1: clean up their act. I called up Andrew Behar. He's
Speaker 1: the CEO of a nonprofit called As You Sow, which
Speaker 1: supports shareholder advocacy. That's s ow, like the proverb as
Speaker 1: you sow, so show you reap. He's also written a
Speaker 1: book called The Shareholders Action Guide, Unleash Your Hidden Powers
Speaker 1: to Hold Corporations Accountable. Andrew, thank you so much for
Speaker 1: being here. My pleasure. We're here to talk about black Rock,
Speaker 1: but having read your book, I wanted to start out
Speaker 1: today talking about the work you're doing at As You
Speaker 1: Sell Sure. So as You Say is at a five
Speaker 1: O one C three nonprofit. We're found when you focus
Speaker 1: on corporate accountability from the viewpoint of shareholders. So we
Speaker 1: engage major companies generally SMPI companies as shareholders and we
Speaker 1: bring to them a message around really around material risk
Speaker 1: and as shareholders we want to see them improve. We're
Speaker 1: advocating on behalf of the company creating more environmental, social
Speaker 1: and governance policies and practices. So can you talk a
Speaker 1: little bit more about how shareholder advocacy works, like what
Speaker 1: the primary mechanism is SURE So the SEC has a
Speaker 1: rule called fourteen A eight, which says that shareholders that
Speaker 1: have a certain amount of shares for a certain amount
Speaker 1: of time have legal standing to ask the companies certain things.
Speaker 1: For example, as shareholders, as you so, approached Young Brands,
Speaker 1: the parent company of Taco Bell, Long John Silver's, and
Speaker 1: Pizza Hut, to advocate for the reduction of plastic in
Speaker 1: their restaurants that ultimately ended up in the ocean. So
Speaker 1: we went to the company and said, our brand, Young
Speaker 1: Brands is being associated with the destruction of the ocean ecosystem,
Speaker 1: and we have a solution. It's a really very simple
Speaker 1: solution that's going to actually cost us a lot less
Speaker 1: than this negative brand association. And we suggested this and
Speaker 1: the companies they said, okay, well think about it. We escalated,
Speaker 1: We filed the shareholder resolution. If you're not familiar with
Speaker 1: that term. A shareholder resolution is a document a shareholder
Speaker 1: can file six months before a company's annual meeting, which
Speaker 1: is then put to a vote. There's a whereas clause
Speaker 1: which says, whereas the company continues to use styrofoam, and
Speaker 1: the styrofoam is finding its way into the ocean, and
Speaker 1: it's causing this destruction, whereas we have all this evidence
Speaker 1: and there's footnotes about what this destruction is doing. Therefore,
Speaker 1: it's resolved that the company will write a report about
Speaker 1: how this plastic use is impacting the ocean and potentially
Speaker 1: having a negative impact to our brand, which is a
Speaker 1: material issue for shareholders. These resolutions for change can be
Speaker 1: a big pain in the butt for companies like young brands,
Speaker 1: so there's a real incentive to settle the issue before
Speaker 1: a vote. So then what happens is the company then
Speaker 1: has a conversation with you and they say we'd like
Speaker 1: you to withdraw, and you say, well, we'll withdraw if
Speaker 1: you will pledge to change this practice. And sometimes the
Speaker 1: company says okay, and sometimes they say no. And if
Speaker 1: they say no, you talk to press about it, You
Speaker 1: talk to other investors about it to get a better
Speaker 1: understanding of the potential impact to the shareholder. Advocacy can
Speaker 1: have in one alone, as you so met with a
Speaker 1: hundred and eighty eight companies to discuss pressing global issues
Speaker 1: climate change, ocean plastics, toxins and the food system, antibiotics
Speaker 1: and meet racial justice, diversity, equity, inclusion, egregious CEO pay
Speaker 1: all these different issues, and one point seven trillion dollars
Speaker 1: of assets were voted yes. And as you so, resolutions right.
Speaker 1: And one of the things that you pointed out in
Speaker 1: your book was that there was a time when it
Speaker 1: was pretty rare for shareholder resolutions to even get ten
Speaker 1: percent of the vote. Today you said that they routinely
Speaker 1: get twenty thirty even of the vote. So it seems
Speaker 1: like this is picking up momentum. Would that be accurate?
Speaker 1: The institutional share owners are voting much more frequently and
Speaker 1: also much more for the resolutions and against management than
Speaker 1: ever before. It kind of leads us into the a
Speaker 1: black Rock conversation. Just this year, black Rock increased from
Speaker 1: a sevent voting against management to So when black Rock flexes,
Speaker 1: its power really ripples through the system. And the question
Speaker 1: I always have is why don't you use it more often? Like,
Speaker 1: for instance, Larry Fink's letters points out that there is
Speaker 1: every company should have a climate transition plan that is
Speaker 1: aligned with Paris that is a five percent emissions reduction
Speaker 1: every year for the next ten years. I mean, he
Speaker 1: puts it in his letter, but then he stopped short
Speaker 1: and never says or will vote against your board or
Speaker 1: will drop you from our managed funds. If he did that,
Speaker 1: every company would have a Paris compliant transition plan overnight.
Speaker 1: But why should any other CEO listen to what Larry
Speaker 1: Fink has to say? What's special about Larry Fink? They
Speaker 1: owned about seven to twelve percent of every company. Uh.
Speaker 1: In case he didn't catch that, Andrew just said black
Speaker 1: Rock owns a out seven of every company. He also
Speaker 1: goes on to say that historically black Rock doesn't share
Speaker 1: what they learn with other shareholder advocates. So on the
Speaker 1: one hand, it seems like there's problematic behavior on black
Speaker 1: Rock's part from a shareholder advocacy standpoint. On the other hand,
Speaker 1: there's also some good behavior, specifically what Larry Fink is
Speaker 1: addressing in his letters. And I've read his letters going
Speaker 1: back to and I guess it's a fascinating read to
Speaker 1: read them in sequence, because it feels like you're watching
Speaker 1: the progression of Larry Fink's thinking. He starts out talking
Speaker 1: mostly about the need for ceo s to make the
Speaker 1: mental shift from thinking quarter to quarter to thinking longer term,
Speaker 1: and that struck me as in itself a pretty unusual
Speaker 1: stance for someone in finance. Would you call that accurate,
Speaker 1: people truly understand finance, and they acknowledge that. They acknowledge
Speaker 1: that it's true that really this whole idea of short
Speaker 1: termism is an antiquated myth that needs to be overturned.
Speaker 1: And when Larry Think says it, well, there's a lot
Speaker 1: of gravitasks behind when he puts it in a letter.
Speaker 1: So hopefully that's starting to sink in that actually what
Speaker 1: investors want to invest in his companies who disclose honestly,
Speaker 1: tell us exactly where you are, layout a trajectory for
Speaker 1: where you want to go, and then tell us as
Speaker 1: you're hitting your six month, one year to year milestones,
Speaker 1: and if you don't hit your milestones, tell us what
Speaker 1: course corrections you're gonna make. Investors will reward that we're
Speaker 1: tossing out Milton Freedom. Uncle Milton's going under the bus.
Speaker 1: It's a total philosophical shift of what a corporations for now.
Speaker 1: What's happened since then is everybody's calling it grainwashing, and
Speaker 1: I disagree. It's a philosophical shift that's going to take
Speaker 1: some time to implement. And I believe that there we're
Speaker 1: seeing is the actual emergence of a new economy, A
Speaker 1: regenerative economy based on justice and sustainability, that's replacing our
Speaker 1: current economy that's based on extraction and destruction. We're right
Speaker 1: at this inflection point, right now, this minute, and that's
Speaker 1: why people feel so much turbulence. They don't quite know
Speaker 1: what to do with it. It's because we're just in
Speaker 1: this birthing cycle and birth or messy. You actually wrote
Speaker 1: a I found incredibly smart and very entertaining letter as
Speaker 1: a response to Larry Fink's letters to c E O S.
Speaker 1: Could you talk a little bit about what you said
Speaker 1: in that letter and why you said it? Sure, so
Speaker 1: you know, I read his letters, and I in my mind,
Speaker 1: I think if only Larry had sent this to me
Speaker 1: before he published it, I would have marked it up
Speaker 1: for him and he would do much better. So I
Speaker 1: took his letter. I literally put it into word. I
Speaker 1: did exactly what I would have done if Larry had said, Hey, Andy,
Speaker 1: can you mark this up for me? I finished the
Speaker 1: sentences when he says companies should have a climate transition plan,
Speaker 1: to report against it every year and have emission reduction
Speaker 1: by I added, or we'll vote against your board and
Speaker 1: if you don't get it done. In a year, we'll
Speaker 1: remove you from our managed funds. Right. I just concluded
Speaker 1: his sentences by adding action. I thought he brilliantly laid
Speaker 1: out the problem, and so I just helped him a
Speaker 1: little bit. Oh, I thought it was great, Andrew. We
Speaker 1: have a thing on calling bullshit called the BS scale,
Speaker 1: So on a scale of zero to one, zero being
Speaker 1: zero bullshit, which means the company means everything it says,
Speaker 1: and on being just complete BS. Where would you rate
Speaker 1: Black Rock getting better? Larry's letters have been instrumental in
Speaker 1: just awareness that climate change is this investing risk to
Speaker 1: the entire system. They've been instrumental in actually this whole
Speaker 1: idea of stakeholder capitalism. So I have to commend him
Speaker 1: for what he's done. My problem is he didn't finish
Speaker 1: the sentence with or we're going to vote against your board.
Speaker 1: And if he did that, if he said and we're
Speaker 1: going to use our power, then I would give him
Speaker 1: square a zero. That's what we need. So I don't
Speaker 1: have an exact number for you, but I'd say it's
Speaker 1: a work in process, and they could do a lot more,
Speaker 1: and they have the power to really make incredible change.
Speaker 1: So what is the one thing Andrew that Black Rock
Speaker 1: needs to do or change to better align its actions
Speaker 1: with the purpose that Larry is talking about. They need
Speaker 1: to stand with the other shareholders, stand with entire shareholder
Speaker 1: advocacy community. Two vote with us. We spent a lot
Speaker 1: of time and energy on this, and yet generally black
Speaker 1: Rock says, well, we met with the company and we're cool.
Speaker 1: Trust the shareholder advacy community support us. That would be
Speaker 1: a shift in where we're heading and the speed at
Speaker 1: which we could get there. Andrew, thank you so much
Speaker 1: for being here today. Thank you very much. Folks. It
Speaker 1: is time to make the call. Is black Rock really
Speaker 1: taking action to contribute to a more equitable, financially resilient
Speaker 1: future for all? Based on what I've heard so far,
Speaker 1: I'm calling a qualified bs. I think there's some bullshit here,
Speaker 1: but there are also some really positive signs. So what
Speaker 1: should Larry do now? Up next, we'll hear some solutions
Speaker 1: from some experts in in packed investing, including a black
Speaker 1: Rock insider and whistle blower. All Right, before the break,
Speaker 1: I called a qualified bullshit. There's still a gap between
Speaker 1: what Larry think is saying Black Rock stands for and
Speaker 1: the actions they're taking. So what should Larry and his
Speaker 1: leadership team do about that. In this podcast, we don't
Speaker 1: just curse the darkness. We also like to light a
Speaker 1: few candles. So I've invited to impact investing experts to
Speaker 1: propose some concrete things that black Rock could change to
Speaker 1: actually do their story around sustainable investing. First up, I'd
Speaker 1: like to welcome Matthew weatherly White. Matthew is a co
Speaker 1: founder and former managing director of the cap Rock Group,
Speaker 1: a multi family office based in Boise, Idaho, advising over
Speaker 1: three billion dollars, roughly a third of which has been
Speaker 1: deployed with an eye toward impact investing, which they define
Speaker 1: as pursuing positive financial return while simultaneously creating durable, measurable
Speaker 1: social and environmental value. Welcome Matthew. It's great to have
Speaker 1: you here. Thanks for asking me to join this conversation.
Speaker 1: I'm totally excited. We are also joined by Tarik Fancy.
Speaker 1: Tarik has held multiple positions in finance at firms like
Speaker 1: Credit Suites, First Boston, MHR Fund Management, and the Canada
Speaker 1: Pension Plan Investment Board, and in seventeen, Tarik joined black Rock,
Speaker 1: where he was the Chief Investment Officer for Sustainable Investing.
Speaker 1: I actually loved that he has this in his bio,
Speaker 1: so I'm just gonna read it. After trying to make
Speaker 1: Wall Street more green from the inside, he realized that
Speaker 1: there was no real social impact happening, rather just a
Speaker 1: bunch of marketing tak Thank you so much for joining
Speaker 1: us today. Glad to be here. Okay, so let's get
Speaker 1: right into some ideas for black Rock. Matthew in two
Speaker 1: minutes or less. What's the number one thing black Rock
Speaker 1: should do to better do their story? I think that
Speaker 1: you teetered up beautifully. There's this gap between what Larry
Speaker 1: Think is saying very publicly in his annual letters and
Speaker 1: what black Rock appears to be doing, and that really
Speaker 1: begs the question. Is that gap structural, institutional, or operational?
Speaker 1: And I think it's a little bit of all three. Right.
Speaker 1: If I were already think, I would do one really
Speaker 1: simple thing. I would change the new client form to
Speaker 1: require investors to opt out sustainable and impact investing and
Speaker 1: instead opt in, because I think if you make it
Speaker 1: that explicit, rather than forcing people to opt into a
Speaker 1: more inclusive, regenerative, equitable style of investing, if insaid, you
Speaker 1: make people opt doubt, I think the proportion of people
Speaker 1: who would choose to opt in to that sort of
Speaker 1: the negative shadow world of investing, which is now the
Speaker 1: ubiquitous approach. Right, everybody does that because everybody is being
Speaker 1: asked to opt into sustainable impact investing. I think the
Speaker 1: messaging alone would give Larry Fink so much power, so
Speaker 1: much sort of political capital to force change within the
Speaker 1: organization that that institutional operational hesitation slash resistance slash intractability.
Speaker 1: I think it would sort of collapse by on its
Speaker 1: own weight. When you look at organ donation for example,
Speaker 1: and the percentage of people that opt into organisation donation
Speaker 1: versus opt out of organization. It depends entirely upon how
Speaker 1: the form is structured. And if you have to opt in,
Speaker 1: it's like the people who are signing it opt into
Speaker 1: how the organs donated. But if you make them opt out,
Speaker 1: it's like eight. So just change the default setting. Essentially,
Speaker 1: it's one of those really simple, really deceptive them guessing
Speaker 1: that teople will say totally not possible. But I feel
Speaker 1: like there's one thing I would do. Yeah, No, I
Speaker 1: think that's a super cool idea. Reframe the whole conversation. Matthew.
Speaker 1: That was great, Thank you, Okay, Taric, your turn in
Speaker 1: two minutes or less. What's your idea to get black
Speaker 1: Rocks actions better aligned with their stated purpose? Well, I mean,
Speaker 1: I obviously know black Rock from the inside. I know
Speaker 1: Larry personally and worked firm, and I think he's extremely
Speaker 1: intelligent and talented. What I think he should do is
Speaker 1: actually be honest about the limitations of what business and
Speaker 1: financial markets can do without government regulation. And what do
Speaker 1: I mean by that. I don't think that the financial
Speaker 1: markets right now are structured in any kind of way
Speaker 1: where they can address the climate threat because people are
Speaker 1: still able to pollute and they don't pay the cost
Speaker 1: of that pollution. The biggest issues surround the fact that
Speaker 1: the entire system is structured to chase yield and profitability.
Speaker 1: That's not just black Rock, that's every single firm, including
Speaker 1: all the ones up worked at. And that's not a
Speaker 1: bad thing. I'm not disparaging it. I'm being realistic about
Speaker 1: a system that has been built with a chain of
Speaker 1: legal and financial obligations that Larry himself can't intervene in,
Speaker 1: and they're all around chasing profit. I think the most
Speaker 1: important thing you can do is actually look and say, listen,
Speaker 1: you know, we business leaders will lead as much as
Speaker 1: we can, but we need referees. Just like a competitive
Speaker 1: sports game has competition and there are rules and people
Speaker 1: compete on a playing field. Well, right now, the idea
Speaker 1: that I think that the players will figure it out
Speaker 1: all on their own through good sportsmanship is the idea
Speaker 1: he's peddling, and I think it's ridiculous, to be honest,
Speaker 1: and I think that's burning valuable time. We clearly need
Speaker 1: updated rules and referees for capitalism, and I worry that
Speaker 1: instead of doing that, we're beholden to a set of
Speaker 1: neoliberal theses that emerge in the eighties and have convinced
Speaker 1: us that we don't need regulation, that the free market
Speaker 1: will figure it all out, and that is to a
Speaker 1: large extent, would impact investing in E. S G is
Speaker 1: all about. These are all based on free market self
Speaker 1: correct theories. And I think that the sooner he accepts
Speaker 1: that we don't have time for that and the expert
Speaker 1: they're telling us we need stomach reforms, the faster we
Speaker 1: can actually create some real change. Right. I love that idea. Also,
Speaker 1: thank you, Tarik. So it's my turn, and you know
Speaker 1: I approach this with some trepidation because you guys are
Speaker 1: the experts here. But my perspective is that black Rock
Speaker 1: has done two important things. The first is the act
Speaker 1: of actually publishing the letters that call for CEOs to
Speaker 1: think longer term, to become purpose led to tackle specific
Speaker 1: problems like climate change. The second important thing that black
Speaker 1: Rock has done is getting members of the Business round Table,
Speaker 1: which for our listeners is two CEOs from the world's
Speaker 1: largest corporations, to basically publicly say that Milton Friedman was
Speaker 1: wrong and that the purpose of a corporation has to
Speaker 1: change from you know, merely enriching shareholders to seeing to
Speaker 1: the needs of broader stakeholders. And I think the issue
Speaker 1: right now is that nobody knows what to do next,
Speaker 1: and so Larry Fink, having started this conversation, now needs
Speaker 1: to lead it into action. And from my perspective, that
Speaker 1: means using black Rocks money as a hammer to create change,
Speaker 1: forcing fund managers to get transparent about where they're invested,
Speaker 1: for instance, and I think it means making sure that
Speaker 1: the entire financial industry has a set of measurements that
Speaker 1: are adopted as the final answer fore s G investments.
Speaker 1: I think black Rock needs to lead this, and in
Speaker 1: a way, I think they need to designate themselves as
Speaker 1: sheriff and actually start policing some of those metrics, calling
Speaker 1: folks out who don't measure up, calling some out who
Speaker 1: do measure up, and probably most importantly, calling themselves out
Speaker 1: when black Rock itself doesn't measure up. I think that
Speaker 1: would go a long way toward building trust. Can I
Speaker 1: jump in and disagree with that? Of course, yes, please.
Speaker 1: I think that the worst thing possible for society is
Speaker 1: that black Rock place sheriff. Why is that? Because? I mean,
Speaker 1: how would it have worked if we allowed in the
Speaker 1: subprime crisis and the financial crisis, you know, ten fifteen
Speaker 1: years ago, if we had said, hey, let's let the
Speaker 1: financial banks and all be their own sheriff's. We tried that.
Speaker 1: It's called self regulation. It doesn't work because when their incentives,
Speaker 1: which are extraordinarily short term, right, their focus towards the
Speaker 1: next few years and their bonuses, when those incentives don't
Speaker 1: align with the long term public interest, for example, for
Speaker 1: long term sustainability issues, you can be sure that a
Speaker 1: system like that, it's going to put the capital where
Speaker 1: their incentives are and not where we needed to go
Speaker 1: as a society. A hundred years ago, an economist called
Speaker 1: Arthur Pigou started coming up with the theory of externalities,
Speaker 1: and the idea was that if you're creating private profit
Speaker 1: in a way that hurts the public interest, you have
Speaker 1: to pay the cost of it. In other words, you're polluting,
Speaker 1: you have to pay a tax for that pollution or
Speaker 1: fine or something. That is what changes in too that's
Speaker 1: a market based mechanism because now you just fix the
Speaker 1: rules of the game, the players within that compete to
Speaker 1: score as many points or profits as they can within
Speaker 1: a new paradigm. Well, okay, I hear that, Turk, and
Speaker 1: I just want to clarify because I'm not saying that
Speaker 1: black Rock should be able to regulate the entire industry.
Speaker 1: What I am saying is that the industry needs a
Speaker 1: set of metrics that everyone is aligned on to define
Speaker 1: what is meant by E s G. Investing and what
Speaker 1: the metrics are that the industry is going to align on.
Speaker 1: And if black Rock took leadership in developing those metrics
Speaker 1: and then policed those metrics, they would be seen to
Speaker 1: be truly leading the action that needs to happen, as
Speaker 1: opposed to saying it but not doing really anything about it.
Speaker 1: That's a fair point. The only thing I'd say, though,
Speaker 1: is that the issue isn't that Larry can do a
Speaker 1: whole bunch of things to address climate change, but he's not.
Speaker 1: The issue is that he can't do that, and he's
Speaker 1: saying he can. That's the issue. What I saw inside
Speaker 1: the system was that all the portfolio managers and capital
Speaker 1: allocators are doing exactly what they should be doing. They're
Speaker 1: chasing the highest yield, they're chasing the most profitability. They
Speaker 1: should be doing that because that's not Larry Finks money.
Speaker 1: The Night and a Half trailing the Black Rock manages
Speaker 1: is on behalf of clients, most of his retirement money
Speaker 1: from average people, and so that money he can't do
Speaker 1: what he wants with it. That has to be invested
Speaker 1: to maximize return measured in dollar value, not social values.
Speaker 1: That's a legal construct. It's the idea of fiduciary duty.
Speaker 1: There's no choice they have around that. Is there evidence
Speaker 1: that says by incorporating environmental or social consequences, we are
Speaker 1: by definition generating below market returns. I can tell you,
Speaker 1: as a trained investor who was integrating environmental and social
Speaker 1: considerations into the largest pool of assets and capitalism that
Speaker 1: generally speaking, the idea that E s G is beneficial
Speaker 1: to returns is for the most part of fantasy. Let
Speaker 1: me give you an example, because this happened. I'm a
Speaker 1: portfolio manager and I have to allocate capital and it
Speaker 1: could be to renewable power, or it could be to
Speaker 1: fossil fuels. Now absent to carbon tax, and we know
Speaker 1: no Belt Prizewinn in conference telling us we need a
Speaker 1: carbon it. We need something to correct the market failure.
Speaker 1: Absent that the portfolio managers going to invest more in
Speaker 1: fossil fuels and we need for them to write so
Speaker 1: we need a carbon tax. What Larry's out there saying is,
Speaker 1: which sounds similar to the sort of the broader thesis,
Speaker 1: is that E s G is good and if you
Speaker 1: have the right tools and you have the right data,
Speaker 1: then you're going to do the right thing and invest
Speaker 1: in it. And what I'm telling you is that when
Speaker 1: it's more profitable for companies underpaid their workers to not
Speaker 1: invest in renewable power, to not make long term sustainability investments,
Speaker 1: and you have the executives who's going to top that
Speaker 1: system with very short term incentives they're not paid to
Speaker 1: care about long term issues. They're just not going to
Speaker 1: do it. It's not because they're bad people, it's because
Speaker 1: the system is not built for them to do it.
Speaker 1: So they can consider E s G. But the issue
Speaker 1: is the E s G thesis at its course, as
Speaker 1: E s G is good for returns, which is financial
Speaker 1: jargon proxy for saying being a good responsible company is
Speaker 1: better for your profits. The problem is that's not true.
Speaker 1: If the E s G data tells you that you
Speaker 1: should invest in a company that's less responsible, they'll do
Speaker 1: that because their produceries they have to do that. Think
Speaker 1: of that sports analogy, right, You're on the field to
Speaker 1: score as many points as you can. Now what we're
Speaker 1: figured out is a dirty play actually scores more points.
Speaker 1: You raise Milton Freeman, Right, We talked about Milton Freemen
Speaker 1: all the time. He wrote in a free Enterprise Private
Speaker 1: property system. In corporate executive is an employee the owners
Speaker 1: of the business. So to your point, the FU share
Speaker 1: responsibility comes in from that regard, etcetera. He has direct
Speaker 1: responsibility to his employers. That responsibility is to conduct the
Speaker 1: business in accordance with their desires, which generally will be
Speaker 1: to make as much money as possible. And here's where
Speaker 1: it gets interesting. While conforming to the basic rules of
Speaker 1: the society, both those embodied in law and those embodied
Speaker 1: in ethical custom. And I think that that little phrase
Speaker 1: like it undermines so much of what we say Milton
Speaker 1: Friedman said, because to your point earlier, if the government
Speaker 1: changes the rules, imposes a carbon tax, enforces gender parity
Speaker 1: in c suite, like, whatever the rule is, capitalism will
Speaker 1: adapt and reflect that immediately. That's what capitalism does really,
Speaker 1: really well. But to say that in the absence to
Speaker 1: that it's not designed to do it, I totally call
Speaker 1: bullshit on that. I think capitalism is an extraordinary optimization mechanism.
Speaker 1: So you're saying that the market will self correct itself
Speaker 1: on climate change, because that's effectively what we're saying, because
Speaker 1: otherwise you need a rule change. No. No, I'm saying
Speaker 1: that the market will reflect given the conformance the basic
Speaker 1: rules to society, goes in bettered and law on those
Speaker 1: in bettered and ethical custom. And that's why I think
Speaker 1: that opt out idea is interesting, because the ethical custom
Speaker 1: has no way of expressing itself in the markets right now.
Speaker 1: There is no way for the general public to say, hey,
Speaker 1: we think that corporations should be thinking more about climate
Speaker 1: change absence selling some shares with you know whatever. That
Speaker 1: so they're not gonna work. But if there was this
Speaker 1: way to message the ethical custom and back it up
Speaker 1: with the standards embodied in law, suddenly I think Wall
Speaker 1: Street changes on a dime. I think that Harry. For
Speaker 1: you to say that that Larry thinks sort of can't
Speaker 1: act in accordance with his values or his stated objectives
Speaker 1: in his letters because the regulatory framework doesn't let him,
Speaker 1: I think that is effectively inviting regulation or is writing
Speaker 1: reregulations or something, because it seems like I really want
Speaker 1: to do this, but I can't. Therefore I need government
Speaker 1: to act so that I can do this. I don't
Speaker 1: know if he's saying that, but that's sort of the
Speaker 1: framework that I hear. He's not saying that, but I
Speaker 1: mean that's what even portfolio managers are told me. So
Speaker 1: their point was, listen, I'll reduce my carbon footprint if
Speaker 1: someone puts the tax on carbon. Everyone will, even if
Speaker 1: you don't believe in climate change. But asking them to
Speaker 1: voluntarily do it when the reality of the economics is
Speaker 1: that it's actually profitable for them to do things we
Speaker 1: don't want them to do, as society just doesn't work.
Speaker 1: It's not because they're bad people, because the system is
Speaker 1: built according to incentives and legal obligations and they're not
Speaker 1: set up to give us outcomes that we need. What's
Speaker 1: wrong with the idea though, of black Rock getting on
Speaker 1: offense and spearheading a drive to change government regulation here
Speaker 1: so he could say, listen, our experts and society tell
Speaker 1: us we need systemic reforms, So they're going to have
Speaker 1: to come through government because that's the only way we'll
Speaker 1: flatten the curve fast enough. And you know what we're
Speaker 1: gonna do is both come out and say that, which
Speaker 1: he hasn't done. And again if he doesn't say that,
Speaker 1: it misleads the public, and number two say hey, we're
Speaker 1: gonna start using our lobbying efforts to actually say who
Speaker 1: we need a price on carbon. If he did that,
Speaker 1: I would say, hey, you know what, I think he
Speaker 1: actually wants to fight climate change. I want to pivot
Speaker 1: for just a second to a couple of other ideas.
Speaker 1: In his letters, Larry talks about net zero as being
Speaker 1: the goal that essentially getting our carbon production to zero
Speaker 1: from producing more carbon than is absorbed to producing the
Speaker 1: same amount of carbon that the planet absorbs currently, so
Speaker 1: that net zero carbon is being added to the atmosphere.
Speaker 1: What do either of you think about net zero as
Speaker 1: a concept. The average CEO gets paid three times the
Speaker 1: worker in that industry, so that's the highest has been
Speaker 1: in decades. The average CEO also spends five years in
Speaker 1: their role. That's the shortest it's been in decades. So
Speaker 1: what you're saying is that the average CEO gets paid
Speaker 1: a hell of a lot of money in a very
Speaker 1: short period of time in five years what they might
Speaker 1: have gotten ten or fifteen or whatever years before when
Speaker 1: you have very short term incentives like that. And then
Speaker 1: you say, okay, the goal is net zero, by I mean,
Speaker 1: call me a skeptic, but yeah, Matthew, you did a
Speaker 1: TED talk a little while back in which you say
Speaker 1: that you believe that in the future all investing will
Speaker 1: be E S G investing. I'd love to hear you
Speaker 1: talk about where you think we are on that transition,
Speaker 1: because it's certainly grown in popularity since you made that statement. Yes,
Speaker 1: and my optimists had goes back to what I would
Speaker 1: have Larry Phint do, right, which is really a gigantic
Speaker 1: public statement of values. When I put my pastant's hat
Speaker 1: on and say, well, if ten years ago you would
Speaker 1: you would have said to me, well, two, we're gonna
Speaker 1: have trillions of dollars pointed towards e s G. We're
Speaker 1: gonna have hundreds of billions of dollars towards pointing towards
Speaker 1: climate resiliency. The issues of gender parity and pay equity
Speaker 1: and underrepresented minorities is all going to be sort of
Speaker 1: on the table. I would have said, holy sh it, like, well,
Speaker 1: if that's all there in ten years, we would have won.
Speaker 1: We're there, We're good. Quite to the contrary, the problems
Speaker 1: are more acute now then they were a decade ago,
Speaker 1: and so I think sort of pick up a thread
Speaker 1: that part laid down earlier. The failures are disorienting. I mean,
Speaker 1: there's so persistent that it's dispiriting to me. So yes,
Speaker 1: I do think that eventually, particularly relative to climate resiliency,
Speaker 1: it will simply be unacceptable to make investments at some
Speaker 1: point with utter disregard to the environmental consequences and just
Speaker 1: pretended they don't exist. Like I think that will be
Speaker 1: eventually just unacceptable behavior. In much the same way that
Speaker 1: slavery was rendered unacceptable or colonialism was rendered unacceptable. Right,
Speaker 1: and yet the time frame is so compressed right now
Speaker 1: around climate chains that I really worry whether or not
Speaker 1: the market response mechanism, blunted as it is by regulatory
Speaker 1: framework and an ethical framework on Wall Street, is even
Speaker 1: remotely able to respond in the time frame that we
Speaker 1: needed to write. But I also I was reading an
Speaker 1: article in preparing for this discussion about an attempt to
Speaker 1: classify investment green investing essentially in the EU, and they
Speaker 1: have three classifications, but it's essentially dark green, light green,
Speaker 1: and then everything else. They were saying, in the current
Speaker 1: investing environment, everyone wants to position themselves as either light
Speaker 1: green or dark green, and because of that, it raises
Speaker 1: the specter of just ongoing purpose washing. Absent any regulation
Speaker 1: on what is a green fund or not, there's going
Speaker 1: to be a race to the bottom, because you'd be
Speaker 1: insane not to call your fund green if everybody else
Speaker 1: is right. So the EU taxonomy does help in that sense,
Speaker 1: because at least you have some rules around what it
Speaker 1: means to be green, because otherwise it's not just funds,
Speaker 1: it's anything, right. Imagine you go to the grocery store
Speaker 1: anything else. If there's an environmentally green product that looks nice,
Speaker 1: people will pay more fur it and prefer it. But
Speaker 1: the challenges no one's actually going and saying, but is
Speaker 1: this detergent truly sustainable? Right? I think one of the
Speaker 1: biggest challenges in the whole attempt to taxonomyze and categorize
Speaker 1: impact is that everyone sort of competing for market share
Speaker 1: based on their own new taxonomy, and so we have
Speaker 1: these huge dispersion of frameworks and measurement systems and set
Speaker 1: to go back to tards idea that we need regulations,
Speaker 1: which it drives a lot is. I totally agree and
Speaker 1: I'm not like a huge fan of overregulating every but
Speaker 1: we it has to happen. I want to go back
Speaker 1: to black Rock. A little bit earlier in this episode,
Speaker 1: I interviewed a guy named Andrew Behar, who is the
Speaker 1: CEO of an organization called as You So, and he
Speaker 1: pointed out that at the black Rock General shareholder meeting,
Speaker 1: he challenged Larry Fink to actually implement some of the
Speaker 1: great ideas that he talks about in his letters, and
Speaker 1: Larry's response was, we are fully implemented and that that
Speaker 1: gave me pots. That's one of the reasons that I
Speaker 1: decided to feature black Rock is that seems like bullshit
Speaker 1: to me, right, Tark, I assume you would agree with that.
Speaker 1: I don't think it's necessarily bullshit, because this is the
Speaker 1: point I'm trying to make, is that there's limits on
Speaker 1: what he can do. You don't have a thesis to
Speaker 1: say you should do it because it's good for the world.
Speaker 1: You can't do that. You have to do it in
Speaker 1: cheryl our interests. And if cheryl our interests is that
Speaker 1: you can make more profit in the next few years
Speaker 1: dumping chemicals in the river, and there's no reason to
Speaker 1: ever believe that anyone's going to make them pay the
Speaker 1: cost of that. There's no referee coming in saying you
Speaker 1: can't do that and you're gonna pay a fine. Then
Speaker 1: technically is a fiduciary you should be doing that. And
Speaker 1: to your point, that's actually where the bullshit was, that
Speaker 1: he's not giving the full context around his answer, going
Speaker 1: out there and implying that you can do lots of
Speaker 1: amazing things. I realized it wasn't gonna work, and I left.
Speaker 1: This is like giving weak grass to a cancer patient. Right,
Speaker 1: it's really nicely marketed. It sounds great, but there's no
Speaker 1: reason to think it's going to stop the cancer. And
Speaker 1: if the rest of the world doesn't know that and
Speaker 1: it's going to take him a few years to figure
Speaker 1: it out, then it's much worse because we're burning time. Right,
Speaker 1: you're giving weak grass with cancer patient, and then you
Speaker 1: can clean see clearly that the cancer patients delaying chemotherapy. Yep,
Speaker 1: I like that. Okay, gentlemen, this has been fantastic. I
Speaker 1: want to thank you both for being here today, and
Speaker 1: to wrap this discussion up, I want to ask each
Speaker 1: of you to give black Rock a BS score. So
Speaker 1: on a scale of zero two, one being the worst
Speaker 1: total BS and zero being the best zero BS, what
Speaker 1: would you give black Rock? Matthew, why don't you start
Speaker 1: During the course of this conversation, I have to admit
Speaker 1: that my perspective has shifted. That's good, that's what we're
Speaker 1: here to do. Yeah, I'm gonna I'm gonna give Tarag
Speaker 1: a nod there, and it is a perspective has shifted
Speaker 1: along two axes. First, I feel like my bullshit rating
Speaker 1: has gone up because what I see now is Larry
Speaker 1: Fink is actually exploiting his role as a perceived leader
Speaker 1: while knowing full well without disclosing it, that he's he
Speaker 1: can't do anything right. And so on one level, my
Speaker 1: bs meters panded Hunters right. On the other hand, I'm
Speaker 1: sort of more apathetic than I have been two structural impediments.
Speaker 1: I wasn't quite willing to give Larry Fink or the
Speaker 1: leaders at black Rock a little bit of room, a
Speaker 1: little bit of empathy. I guess to work within the
Speaker 1: system that's simply intractable, and so I'm gonna split my
Speaker 1: score and go hundred slash like, fair enough, we'll work
Speaker 1: with that. What do you reckon? Ah? I would say
Speaker 1: that it's closer to a hundred dinners to zero. But
Speaker 1: I would also add that I don't think it's black
Speaker 1: Rock specific, right. If it's let's say it's for black Rock,
Speaker 1: then I would argue the rest of the industry, and
Speaker 1: I mean the financial service industry and Goldman Sachs list,
Speaker 1: all of them, they're all in the same boat, right
Speaker 1: because they're all effectively saying the same things. I think
Speaker 1: we're out singled amount is by saying that you're the
Speaker 1: largest one. And if that voice is being used to
Speaker 1: pedal narratives that effectively just see your syrup to delay
Speaker 1: the taxes and regulation that none of us want. I mean,
Speaker 1: I'm a capitalis I don't love tax in regulation. But
Speaker 1: at some point even Milton Friedman, I'm certain, would have
Speaker 1: said we need a carbon tax because he's not stupid, right, like,
Speaker 1: watch the planet get destroyed? And I would challenge them
Speaker 1: to rethink what responsible business means through the lens of
Speaker 1: your own younger employees. Are you serving their interests? I
Speaker 1: think capitalism can solve these issues, but I also think
Speaker 1: that capitalists themselves need to debate how that comes about
Speaker 1: and not let there be one sort of version of
Speaker 1: it being peddled from a few people talk that could
Speaker 1: actually be endangering the entire system. The majority of millennials
Speaker 1: today don't believe in capitalism. That concerns me, right that
Speaker 1: because they're all of us. That's right, that should concern
Speaker 1: everybody exactly, And I don't blame them, right unless they
Speaker 1: see a system that is producing better social and environmental
Speaker 1: outcomes and addressing the problems we have, they're going to
Speaker 1: lose faith in the system and endangers the entire metaphice Okay, fancy,
Speaker 1: Thank you so much for being here today. Really appreciate
Speaker 1: you taking the time. Thank you. I enjoyed this chat.
Speaker 1: And Matthew Weatherley White, thank you for being here today.
Speaker 1: Really appreciate it. Really. Okay, it's time for my official
Speaker 1: bullshit score, because there seems to be some intent to change,
Speaker 1: but they definitely aren't there yet. I'm giving Black Rock
Speaker 1: a fifty nine. To weigh in with your own score,
Speaker 1: visit our website Calling Bullshit podcast dot com. We'll track
Speaker 1: their behavior over time and see if they can't bring
Speaker 1: that score down. You'll also be able to see where
Speaker 1: Black Rock ranks on bullshit compared to the other companies
Speaker 1: we feature on this show. So, if you're running a
Speaker 1: purpose led business or you're thinking of beginning the journey
Speaker 1: of transformation to become one, here are three things that
Speaker 1: you need to take away from this episode. One. Defining
Speaker 1: a purpose is an important step, but it's the beginning,
Speaker 1: not the ending. Once you define it, it needs to
Speaker 1: drive the actions you take, both internally and externally. Two.
Speaker 1: Those actions can take many forms. In black Rocks case,
Speaker 1: we've heard suggested actions like changing the default settings on
Speaker 1: investment recommendations to E s G. Compliant unless the client
Speaker 1: specifically opts out and actions like black Rock actually lobbying
Speaker 1: for a carbon tax or partnering with shareholder advocates like
Speaker 1: Andrew Behar to drive real change in the governance of
Speaker 1: the companies and funds they invest in. The actions for
Speaker 1: your company would undoubtedly be different, but the point is
Speaker 1: it's the actions that make your purpose real for people.
Speaker 1: And three, Transparency is a key aspect of being purpose lad.
Speaker 1: In Larry's case, being super clear about what black Rock
Speaker 1: can and can't do is another key to building trust
Speaker 1: that he really means what he's saying. Larry, if you
Speaker 1: ever want to come on the show to discuss anything
Speaker 1: we've touched on in this episode, I want you to
Speaker 1: know you have an open invitation. Thank you for joining
Speaker 1: us today. Andrew Bhart, Matthew Weatherly White, and Taric Fancy.
Speaker 1: You can find them all on social media. We've got
Speaker 1: all their handles on our website, Calling Bullshit Podcast dot com,
Speaker 1: and check out Andrew book The Shareholder Action Guide Unleash
Speaker 1: your hidden powers to hold corporations accountable. And if you
Speaker 1: have ideas for companies or organizations we should consider for
Speaker 1: future episodes, you can submit them on the site too.
Speaker 1: If our stock went up with you today. Subscribe to
Speaker 1: the Calling Bullshit podcast on the I Heart Radio app,
Speaker 1: Apple Podcasts, or wherever you get your podcasts. And thanks
Speaker 1: to our production team Susie Armitage, Hannah Beal, Amanda Ginsburg,
Speaker 1: Andy Kim, d s Moss, Mikaela Reid, Leena Beck Cilison,
Speaker 1: Jeff Venton and Basil Soaper. Calling Bullshit was created by
Speaker 1: co Collective and is hosted by me Tie Montague. Thanks
Speaker 1: for listening, Ey,