WEBVTT - The Coordinated Attack on Shareholder Activism 0:00:01.560 --> 0:00:04.160 In the past few years, there's been a major backlash 0:00:04.160 --> 0:00:10.200 to what's called ESG investing. Those letters stand for Environmental, Social, 0:00:10.320 --> 0:00:14.840 and governance, and they refer to looking at particular risks 0:00:14.960 --> 0:00:18.639 that a company might have, so not just their short 0:00:18.720 --> 0:00:23.200 term financial performance, but also how they're looking at environmental 0:00:23.280 --> 0:00:27.880 risks to their supply chain, for example, or social risks 0:00:27.960 --> 0:00:32.320 in terms of whether or not they're tracking diversity in 0:00:32.360 --> 0:00:36.519 their workforce, things like that. ESG has been around for 0:00:36.560 --> 0:00:40.520 a really long time, and it's mostly been pretty non 0:00:40.600 --> 0:00:44.960 controversial up until a few years ago. Now there's this 0:00:45.080 --> 0:00:48.800 huge backlash. People are calling it quote unquote woke capital, 0:00:49.360 --> 0:00:52.440 all those kinds of things, and that's been driven by 0:00:52.479 --> 0:00:56.800 a couple of factors. First, this increase in the last 0:00:57.080 --> 0:01:01.320 ten years or so of what's called sharehold activism, so 0:01:01.400 --> 0:01:04.840 when people who hold shares in a particular company put 0:01:04.880 --> 0:01:10.480 forth resolutions aimed at improving that company's environmental or social performance. 0:01:11.000 --> 0:01:13.240 And the second is a move by the Securities and 0:01:13.319 --> 0:01:16.400 Exchange Commission in the US that started a few years 0:01:16.440 --> 0:01:20.360 ago to try to provide some kind of consistency in 0:01:20.400 --> 0:01:25.120 the way that companies report on climate risk. In particular, 0:01:25.640 --> 0:01:28.240 it's always been a little bit loosey goosey, a little 0:01:28.280 --> 0:01:33.320 bit inconsistent, kind of changing from company to company depending 0:01:33.520 --> 0:01:38.479 on what industry they're in, or maybe who's auditing their reports, 0:01:38.720 --> 0:01:43.160 those kinds of things. So whenever the SEC sees inconsistencies 0:01:43.200 --> 0:01:46.840 like that in a space around investment, they see that 0:01:46.959 --> 0:01:50.360 as their job to provide the sort of consistency and 0:01:50.440 --> 0:01:53.880 stability that investors are looking for. That's why they started 0:01:53.920 --> 0:01:56.640 to tackle this in the first place. And when they 0:01:56.720 --> 0:01:59.200 first announced that they were going to put out some 0:01:59.360 --> 0:02:03.840 kind of climate risk disclosure guidance, initially they talked about 0:02:03.880 --> 0:02:07.200 including what are called scope three emissions. Those are the 0:02:07.240 --> 0:02:11.640 emissions associated with the entire supply chain, so it's the 0:02:11.800 --> 0:02:14.920 inputs up top and the way that your product is 0:02:15.120 --> 0:02:17.680 used and the emissions associated with that. So you can 0:02:17.720 --> 0:02:20.960 imagine lots of companies had an issue with this, from 0:02:21.120 --> 0:02:25.880 animal agg companies to oil and gas companies too, big 0:02:25.960 --> 0:02:29.720 tech companies whose data centers are responsible for a whole 0:02:29.720 --> 0:02:33.600 lot of emissions and emissions that are growing every day. 0:02:34.240 --> 0:02:36.720 We've covered this before in the podcast, but a lot 0:02:36.720 --> 0:02:40.200 of companies fought really hard against the inclusion of scope 0:02:40.200 --> 0:02:44.720 three emissions. Today's guest Andrew Beahar, president of the As 0:02:44.760 --> 0:02:49.320 You Sow Foundation, which focuses on shareholder activism, traces the 0:02:49.360 --> 0:02:53.240 backlash back even a little earlier, to a twenty nineteen 0:02:53.320 --> 0:02:57.200 decision by a group of companies known as the Business Roundtable. 0:02:58.440 --> 0:03:01.639 These are guys that, for the record, were very involved 0:03:01.680 --> 0:03:06.560 in pushing climate science denial and generally obstructing climate policy 0:03:06.760 --> 0:03:11.040 for years. So not big tree hugging liberals by any 0:03:11.080 --> 0:03:14.440 stretch of the imagination. They's some of the largest companies 0:03:14.520 --> 0:03:17.400 in the world. But they sat down in twenty nineteen 0:03:17.480 --> 0:03:20.040 and decided that the way the companies had been operating, 0:03:20.320 --> 0:03:23.360 with this laser focus on short term profits being the 0:03:23.400 --> 0:03:26.720 only thing that mattered, was actually not working, that it 0:03:26.880 --> 0:03:30.560 was ultimately harming their own bottom lines. So they agreed 0:03:30.600 --> 0:03:35.240 to adopt an approach that they called shareholder capitalism. Behar 0:03:35.360 --> 0:03:38.520 says that's what really kicked off a big right wing 0:03:38.600 --> 0:03:44.000 fight against shareholder activism, and esg We've been talking about 0:03:44.040 --> 0:03:46.880 a sort of activism in this series. That's probably one 0:03:46.880 --> 0:03:49.320 that comes to mind more often when people hear the 0:03:49.320 --> 0:03:55.160 word activism getting out in the streets, civil disobedience, protest, 0:03:55.840 --> 0:03:59.400 But this is also a type of activism and it's 0:03:59.440 --> 0:04:02.920 also fasing a big backlash right now, so I wanted 0:04:03.040 --> 0:04:05.760 to talk about it as part of this Real Free 0:04:05.760 --> 0:04:09.600 Speech Threat series. A lot of the recent fight against 0:04:09.760 --> 0:04:13.840 shareholder activism has been led by a guy named Leonard Leo, 0:04:14.040 --> 0:04:16.800 whose name you might recognize if you're a regular listener 0:04:16.839 --> 0:04:20.919 of this podcast. He ran the Federalist Society for a 0:04:20.960 --> 0:04:24.039 long time. He's also often the guy who's pulling the 0:04:24.040 --> 0:04:29.320 strings behind the Republican Attorney's General Association or RAGA, and 0:04:29.400 --> 0:04:31.480 in the last couple of years he's been a recipient 0:04:31.520 --> 0:04:34.719 of billions of dollars of right wing money to continue 0:04:34.760 --> 0:04:40.120 his crusade against any kind of regulation on industry, especially 0:04:40.160 --> 0:04:43.400 regulation on pollution. And it just so happens that he's 0:04:43.440 --> 0:04:47.600 not a big fan of basic civil rights either, so 0:04:47.720 --> 0:04:53.600 going after ESG and shareholder activism fits squarely in his wheelhouse. 0:04:54.920 --> 0:04:57.920 One of the latest battles in this whole anti ESG 0:04:58.080 --> 0:05:02.440 anti shareholder activism fight has been a string of lawsuits 0:05:02.480 --> 0:05:05.800 that are trying to make it effectively illegal for shareholders 0:05:05.839 --> 0:05:10.600 to put forth resolutions around social justice or environmental concerns. 0:05:11.320 --> 0:05:14.320 Excellons filed one of these suits. The National Association of 0:05:14.320 --> 0:05:18.680 manufacturers as filed one American Airlines. These are starting to 0:05:18.839 --> 0:05:21.599 pick up, and again it's all in the context of 0:05:21.640 --> 0:05:26.200 this interconnected fight against really looking at any environmental or 0:05:26.240 --> 0:05:30.680 social justice issues, really trying to separate business interest from that, 0:05:30.839 --> 0:05:34.120 to block any sort of regulation that would in any 0:05:34.160 --> 0:05:39.080 way curtail a business's ability to just focus on profit. 0:05:39.480 --> 0:05:43.080 And of course, again it's a weird fight because in 0:05:43.120 --> 0:05:46.240 a lot of ways the things they're doing to fight 0:05:46.360 --> 0:05:52.000 against looking at these factors are actually harming profit. I 0:05:52.040 --> 0:05:55.160 had a super interesting conversation with Behar about all of 0:05:55.200 --> 0:05:58.280 this that's coming up after this quick break. This is 0:05:58.440 --> 0:06:02.680 drilled the real free speech threat. And I'm Amy Westerbelt. 0:06:08.920 --> 0:06:13.320 So I want to start with the Exon lawsuit if 0:06:13.360 --> 0:06:17.719 you could just walk me through what happened there. 0:06:17.839 --> 0:06:22.040 The excellent lawsuit against our Juna Capital was in response 0:06:22.120 --> 0:06:26.400 to a shareholder resolution that they filed that was basically 0:06:26.440 --> 0:06:31.680 asking for climate disclosure and reduction of emissions. It was 0:06:31.960 --> 0:06:38.240 not an exceptionally out of the ordinary resolution, but Exxon, 0:06:38.560 --> 0:06:41.240 rather than going to a no action, going to the 0:06:41.279 --> 0:06:43.520 SEC and saying we want to take no action on 0:06:43.680 --> 0:06:47.920 this resolution, which is very standard practice if a company 0:06:48.000 --> 0:06:52.359 gets a resolution that they feel as ordinary business is micromanagement. 0:06:53.040 --> 0:06:56.760 It has already had substantial implementation. They go to the 0:06:56.800 --> 0:07:00.600 SEC and in fact, Exon is famous as being the 0:07:00.600 --> 0:07:04.279 only company or maybe one of a few, it files 0:07:04.279 --> 0:07:06.960 a no action on every resolution, as you say, has 0:07:07.000 --> 0:07:10.440 fob no no historically, as you saw, has fouled twenty 0:07:10.480 --> 0:07:13.120 seven resolutions at Exon since twenty ten, and we've had 0:07:13.120 --> 0:07:16.920 twenty seven no actions, so we know Exon knows how 0:07:16.920 --> 0:07:20.320 to file no actions. But rather than filing a no action, 0:07:20.960 --> 0:07:27.200 which we expected, they went to litigation, and once the 0:07:27.240 --> 0:07:30.280 litigation got going, our junis said, you know what, will 0:07:30.280 --> 0:07:33.920 withdraw the resolution. So essentially gave Exon the win. That's 0:07:33.920 --> 0:07:36.120 all I was asking for. We want you to withdraw 0:07:36.120 --> 0:07:37.840 the resolution so don't have to put it on our 0:07:37.880 --> 0:07:43.360 proxy statement. But rather than saying okay, we won, great, 0:07:43.760 --> 0:07:47.280 they said, we want to continue. We want to essentially 0:07:47.320 --> 0:07:51.440 punish this shareholder and we want to make sure that 0:07:51.480 --> 0:07:55.720 they can never file a shareholder resolution again. They want 0:07:55.760 --> 0:08:02.560 to essentially classify that there's two of shareholders, like real 0:08:02.600 --> 0:08:06.360 shareholders and shareholders whore just owned shares to file resolutions. 0:08:07.080 --> 0:08:09.520 So essentially what they're trying to do is to rewrite 0:08:10.120 --> 0:08:13.040 property law. When you buy a share of stock, you 0:08:13.080 --> 0:08:15.680 have property rights that say that you get to decide 0:08:15.680 --> 0:08:17.720 who's on the board of directors, you get to file 0:08:17.720 --> 0:08:22.080 shareholder resolutions, you get dividends, there's basic rules. It's your 0:08:22.080 --> 0:08:26.200 property rights associated with that piece of property. And what 0:08:26.200 --> 0:08:29.480 Excellent's trying to do is to not only newter the 0:08:29.520 --> 0:08:33.440 SEC's power, but also to rewrite this whole idea of 0:08:33.480 --> 0:08:36.480 what rights to shareholders have. And this is part of 0:08:36.520 --> 0:08:40.600 a much bigger crusade that's been going on that we 0:08:40.679 --> 0:08:45.319 generally refer to as the anti ESG crusade that's been 0:08:45.440 --> 0:08:48.520 led for most part by a fellow named Leonard Leo, 0:08:48.720 --> 0:08:51.760 who you might recognize as being the co chair of 0:08:51.760 --> 0:08:54.880 the Federalist Society. He was given one point six billion 0:08:54.920 --> 0:08:59.280 dollars in twenty twenty two mid twenty twenty two essentially 0:08:59.320 --> 0:09:04.600 to try to stop shareholders' rights, to stop shareholders from 0:09:04.600 --> 0:09:09.160 doing what they are allowed by law to do. And 0:09:09.440 --> 0:09:11.800 I can go down that path and tell you exactly 0:09:11.880 --> 0:09:14.079 how he's been doing it because a three tiered strategy 0:09:14.080 --> 0:09:16.640 that they're using, and this is just one part of 0:09:16.679 --> 0:09:20.640 the strategy. So this is a much bigger question, and 0:09:20.720 --> 0:09:25.199 it involves the House Judiciary Committee. It involves filing literally 0:09:25.400 --> 0:09:30.720 hundreds of bills at the state level to make sustainable 0:09:30.760 --> 0:09:35.000 investing illegal, to make assessing and addressing risk illegal at 0:09:35.000 --> 0:09:37.480 the state level. And what the ramifications of this have 0:09:37.600 --> 0:09:41.120 been because it's been a financial disaster for the states 0:09:41.120 --> 0:09:46.839 that have adopted these laws. So it's much bigger piece 0:09:46.880 --> 0:09:49.760 of work. And the excellent lawsuit is just one piece 0:09:49.760 --> 0:09:52.720 of it. There's also several other lawsuits, the National Association 0:09:52.840 --> 0:09:57.160 Manufacturer's lawsuit, the American Airlines lawsuit, Chevron deference. It's all 0:09:57.240 --> 0:10:02.160 one thing, which is take away share holder's basic rights. 0:10:02.160 --> 0:10:05.000 Interesting to place it in the context of all that stuff. 0:10:05.040 --> 0:10:07.720 I guess the anti ESG stuff in general feels like 0:10:07.800 --> 0:10:10.680 an attack on shareholder activism. 0:10:10.600 --> 0:10:12.800 More than a little one. No, that's the centerpiece of it. 0:10:12.840 --> 0:10:17.080 I mean, really, what it is is in twenty nineteen, 0:10:17.240 --> 0:10:20.320 there was a major decision made by every corporation essentially 0:10:20.320 --> 0:10:23.800 in the world that the ideas of Milton Friedman that 0:10:23.880 --> 0:10:28.240 shareholder premiscy no longer were working. It was just not 0:10:28.480 --> 0:10:31.560 working out. I mean, if you think about it, shareholder primacy, 0:10:31.559 --> 0:10:35.160 which was put forth in the nineteen seventies by Milton 0:10:35.200 --> 0:10:39.960 Friedman says, you can dump in the commons, you can 0:10:40.080 --> 0:10:43.719 have slavery in your supply chain, you can poison your customers. 0:10:44.120 --> 0:10:49.080 That's all okay, so long as you maximize short term 0:10:49.120 --> 0:10:53.679 profit and for well. Back then in the nineteen seventies, 0:10:53.920 --> 0:10:57.120 the holding capacity of the atmosphere to hold carbon was 0:10:57.200 --> 0:10:59.960 much greater, the capacity of the ocean to hold play 0:11:00.040 --> 0:11:03.120 sticks was much greater. So you could be dumping in 0:11:03.120 --> 0:11:04.680 the commons, but it wasn't going to come back and 0:11:04.679 --> 0:11:08.280 bite you. Like right now, what's happening with corporations is 0:11:08.800 --> 0:11:12.160 their supply chains. They can't get raw commodities because well 0:11:12.240 --> 0:11:16.760 just about everything that grows is being harmed by climate change. 0:11:16.760 --> 0:11:20.800 You know, cotton production massively down, I mean, olive oil 0:11:21.080 --> 0:11:25.480 Spain and Southern Europe lost their entire harvest. Coca is 0:11:25.600 --> 0:11:30.080 now the commodity price for coco doubled in the last year. 0:11:30.440 --> 0:11:35.280 So everybody who's seeing all these inflation at the grocery store, 0:11:36.040 --> 0:11:38.960 it's because of climate This is climate inflation, but it's 0:11:39.000 --> 0:11:42.320 also affecting supply chain. So dumping in the commons is 0:11:42.360 --> 0:11:45.280 going to harm the corporation that's doing the dumping. That's 0:11:45.360 --> 0:11:49.400 why in twenty nineteen, one hundred and eighty one companies 0:11:49.480 --> 0:11:53.200 that make up the Business Roundtable said, these ideas no 0:11:53.280 --> 0:11:56.240 longer work. This is not good for us, it's not 0:11:56.320 --> 0:11:59.000 good for our shareholders. It's not good for all of 0:11:59.040 --> 0:12:03.760 our stakeholders to adopt this new idea called stakeholder capitalism. 0:12:04.040 --> 0:12:07.400 You take care of your employees. You want to be 0:12:07.480 --> 0:12:10.520 able to, you know, to really retain to attract the 0:12:10.520 --> 0:12:14.880 best and the brightest. Customer loyalty very important. You don't 0:12:14.880 --> 0:12:16.840 want to poison your customers, want to take care of them. 0:12:17.160 --> 0:12:19.920 Your supply chain incredibly important. You've got to get that 0:12:20.000 --> 0:12:23.720 material in order to bring products to market, you know. 0:12:23.760 --> 0:12:26.679 And of course the communities where you operate, which that 0:12:26.760 --> 0:12:31.200 community could be not only like local community, but also 0:12:32.000 --> 0:12:36.360 the broader the planetary community, because dumping into the atmosphere 0:12:36.400 --> 0:12:39.480 is going to come back to bite you. And I 0:12:39.480 --> 0:12:42.360 mean we saw an example of this just just like 0:12:42.440 --> 0:12:45.040 a couple of weeks ago, Coke and pepsi. They were 0:12:45.080 --> 0:12:49.120 saving a penny on a pound of sugar, and well 0:12:49.160 --> 0:12:52.000 that's Milton Friedman like, okay, great, but they were using 0:12:52.040 --> 0:12:54.360 slavery in their supply chain. And an expos in the 0:12:54.360 --> 0:12:57.280 New York Times came out showing what's going on, and 0:12:57.320 --> 0:13:01.120 so now their brand is associated with it's just horrific 0:13:01.160 --> 0:13:04.200 treatment of laborers. It's going to cost them hundreds of 0:13:04.200 --> 0:13:08.000 millions of dollars to rehabilitate their brand, and so it's 0:13:08.080 --> 0:13:12.160 just it's shifting the time horizon from looking at the 0:13:12.200 --> 0:13:16.800 next quarter to looking much broader. And the interesting thing 0:13:16.880 --> 0:13:19.400 is that most investors are actually much more long term 0:13:19.440 --> 0:13:22.880 now that the vast majority about eighty percent of most 0:13:22.880 --> 0:13:27.680 companies investors are sovereign wealth funds, pension funds, borrowin k plans. 0:13:28.240 --> 0:13:32.959 But people have this mythology that you should be making 0:13:33.040 --> 0:13:38.120 these decisions, like really structural decisions for the companies based 0:13:38.160 --> 0:13:41.400 on essentially the fifteen percent of day traders, and that 0:13:42.120 --> 0:13:46.720 idea has shifted. So again mid twenty nineteen, Business Roundtable 0:13:46.760 --> 0:13:50.160 comes out with it and the World Economic Forum endorses 0:13:50.200 --> 0:13:54.920 it as the Fourth Manifesto. This manifesto the Fourth Industrial 0:13:54.960 --> 0:13:59.720 Age that we're moving away from an extract of economy 0:14:00.120 --> 0:14:02.880 to a regenerative economy that's one that's based on justice 0:14:02.920 --> 0:14:06.199 and sustainability. So we're about five years into the implementation 0:14:06.320 --> 0:14:09.880 of that. Now when that decision was made that was 0:14:09.960 --> 0:14:13.640 a real disruption, and that is what the anti ESG 0:14:13.880 --> 0:14:18.360 crusade is about. It's trying to stop this transition that's 0:14:18.440 --> 0:14:23.200 already happening. The market forces are already decided, and they're 0:14:23.200 --> 0:14:26.640 trying to use the heavy hand of big government. There's 0:14:26.640 --> 0:14:29.480 really literally one hundred and forty seven bills in twenty 0:14:29.840 --> 0:14:35.080 five states right now that are trying to suppress freedom 0:14:35.120 --> 0:14:37.720 to invest, that are trying to tell us how to think. 0:14:38.680 --> 0:14:41.040 And the ramifications of those I can tell you the 0:14:41.080 --> 0:14:45.840 eighteen states that have adopted anti ESG legislation, all of 0:14:45.880 --> 0:14:49.920 their pension funds are underperforming versus the rest of the country, 0:14:51.440 --> 0:14:57.640 and significantly because they can't assess an address risk, their 0:14:57.680 --> 0:15:00.720 treasurers are unable to float municipal bud because all the 0:15:00.720 --> 0:15:03.920 banks have been banned. So Texas spend next to five 0:15:03.960 --> 0:15:07.040 hundred million dollars in the first eight months after SB 0:15:07.160 --> 0:15:10.200 thirteen was put in place just to get their municipal bonds. 0:15:10.520 --> 0:15:14.120 The Texas Chamber of Commerce, this is Exxon and Chevron, 0:15:14.200 --> 0:15:17.760 Conico Phillips are part of that. They reported that Texas 0:15:17.960 --> 0:15:20.720 has wasted six hundred and sixty eight million dollars and 0:15:20.760 --> 0:15:25.360 lost three thousand jobs directly resulting from SB thirteen. So 0:15:26.840 --> 0:15:30.880 these red states are harming their firefighters, their teachers, their 0:15:30.920 --> 0:15:34.560 police officers, their pension funds, they're harming all the citizens, 0:15:34.600 --> 0:15:39.560 wasting all these the tax money in these states, and 0:15:40.760 --> 0:15:43.720 yet it continues. And that's that's why about eighty percent 0:15:43.720 --> 0:15:47.320 of these bills get killed because they're so financially just 0:15:47.480 --> 0:15:54.080 disastrous for the states. But it's political theater, and these 0:15:54.080 --> 0:15:58.119 folks think that they're scoring points for passing this legislation. 0:15:58.440 --> 0:16:00.880 What have you seen in the wake of the SEC 0:16:01.040 --> 0:16:07.840 finally finalizing its climate risk disclosure guidelines and ultimately leaving 0:16:08.120 --> 0:16:11.040 Scope three out, which I think a lot of people 0:16:11.120 --> 0:16:14.440 characterized as them caving to pressure and this kind of 0:16:14.480 --> 0:16:18.680 relentless anti ESG campaign. So now that that's been chalked 0:16:18.760 --> 0:16:21.680 up as a win for the anti ESG folks, are 0:16:21.720 --> 0:16:23.640 you still seeing as much of a push at the 0:16:23.680 --> 0:16:27.400 state level to pass these laws and or these sorts 0:16:27.440 --> 0:16:31.840 of lawsuits against shareholders or do you think they're satisfied now? 0:16:31.960 --> 0:16:34.400 Oh, no, they're they're insatiable, They're they're just getting revved up. 0:16:34.440 --> 0:16:36.880 In fact, Leonard Leo just recently said we need to 0:16:36.920 --> 0:16:39.840 flood the zone with litigation. They're planning hundreds of lawsuits 0:16:39.840 --> 0:16:45.040 against corporations. These guys are anti business, anti freedom, anti capitalists. 0:16:45.560 --> 0:16:47.840 That was part of phase one. Now phase two is 0:16:47.880 --> 0:16:51.560 going to be this massive litigation. And also Leonard Leo's 0:16:51.560 --> 0:16:55.320 calling for more white men on boards. The number of 0:16:55.360 --> 0:16:58.160 white men on boards dropped from eighty two percent twenty 0:16:58.160 --> 0:17:01.480 twenty to seventy seven percent in twenty twenty four, and 0:17:01.520 --> 0:17:04.639 that five percentage loss only have a super majority is 0:17:04.680 --> 0:17:05.880 considered undertennable. 0:17:06.320 --> 0:17:08.200 When you say that he's talking about flooding the zone 0:17:08.240 --> 0:17:11.000 with litigation, Is it more of these kinds of lawsuits 0:17:11.080 --> 0:17:13.240 like what Exxon filed against our Juna. 0:17:13.960 --> 0:17:18.320 No, it's more like filing suits against corporations, for instance, 0:17:18.400 --> 0:17:22.280 corporations that have diversity on their board or diversity in 0:17:22.280 --> 0:17:23.080 their workforce. 0:17:23.520 --> 0:17:27.680 So like a lack of fiduciary responsibility kind of thing 0:17:27.720 --> 0:17:30.960 where they're like not supposedly not making enough money because 0:17:30.960 --> 0:17:34.040 they're too worried about wokeness. And that sort of argument 0:17:34.200 --> 0:17:35.040 is that, well. 0:17:34.920 --> 0:17:37.479 There's a k named ed Blum, Edward Blum who filed 0:17:37.520 --> 0:17:40.679 the action the Supreme Court, who's. 0:17:40.400 --> 0:17:42.440 Now very familiar, very familiar. 0:17:42.520 --> 0:17:48.320 Yes, what they're asserting is that that if a company 0:17:48.920 --> 0:17:52.159 has a diversity, equity and Inclusion department, if they have 0:17:52.200 --> 0:17:54.760 a diverse workforce, that they're going to be suing them 0:17:54.840 --> 0:17:58.440 because they say that is not in that's not for 0:17:58.960 --> 0:18:03.560 short term profit maximization. Now, as you, SAI did a study. 0:18:03.600 --> 0:18:05.920 We looked at the EEO one reports. That's the Equal 0:18:05.920 --> 0:18:09.600 Employment Opportunity reports of You looked at six thousand EO 0:18:09.640 --> 0:18:13.040 one reports, so sixteen hundred companies over five years. These 0:18:13.040 --> 0:18:14.879 are the reports that every company puts out to the 0:18:14.920 --> 0:18:19.720 federal government about their diversity. It's by each you know, 0:18:19.760 --> 0:18:22.359 you have management, and you've got all the different groups 0:18:22.400 --> 0:18:24.840 within the company, and then you've got all the protected classes. 0:18:24.920 --> 0:18:28.639 And what we found is a statistically significant correlation showing 0:18:28.680 --> 0:18:32.360 that greater diversity leads to financial outperformance on eight key 0:18:32.359 --> 0:18:36.520 financial metrics, including ten year stock return, return on capital, 0:18:36.560 --> 0:18:42.080 return on investment, basically every way that you would judge finance. 0:18:42.720 --> 0:18:46.639 So if a company does not have diversity, they're actually 0:18:46.720 --> 0:18:49.919 in breach of their fiduciary duty. Now they're going to 0:18:49.960 --> 0:18:51.960 try to lip it, and that's why they've been doing 0:18:52.000 --> 0:18:55.520 all these webinars about don't believe data. There's actually a 0:18:55.560 --> 0:19:00.520 whole thing around. It's called DEI lies and at you 0:19:00.560 --> 0:19:02.800 should not believe. I mean they have a guy from 0:19:02.840 --> 0:19:06.080 the London School of Economics. Literally he's I've now seen 0:19:06.080 --> 0:19:11.040 two of his webinars saying don't trust any data that 0:19:11.119 --> 0:19:15.000 there's yeah, that there's that it's all biased. That don't 0:19:15.560 --> 0:19:23.160 like basically, don't trust math, don't trust statistics. Just don't 0:19:23.200 --> 0:19:27.800 trust data because there's what they call confirmation bias. Now, 0:19:28.440 --> 0:19:31.000 I know my team that analyzed these one point three 0:19:31.080 --> 0:19:33.800 million data points over took over a year. There are 0:19:33.800 --> 0:19:38.000 two PhDs statisticians and I can tell you this data 0:19:38.080 --> 0:19:40.399 is real and if you do not have a diverse 0:19:40.440 --> 0:19:43.840 management team, you are not going to be You're going 0:19:43.880 --> 0:19:46.560 to be underperforming. In fact, we actually found that all 0:19:46.600 --> 0:19:50.320 white management teams underperform. So if you want to increase 0:19:50.359 --> 0:19:54.200 the output of your financial investments, look for diverse management 0:19:54.240 --> 0:19:58.439 teams that overweight them underweight the all white management teams 0:19:58.640 --> 0:20:02.280 and you will outperform the BENU. We've seen this now, 0:20:02.400 --> 0:20:06.480 it's clear, it's over five years and statistically significant. 0:20:06.720 --> 0:20:09.520 I know you know Ed Bloom is a fan of 0:20:09.720 --> 0:20:14.840 these cases, arguing that any kind of diversity approach is 0:20:15.040 --> 0:20:17.960 violating the equal protection clause of the fourteenth Amendment. Are 0:20:17.960 --> 0:20:20.520 they taking that kind of an approach here as well, 0:20:20.760 --> 0:20:25.080 or just saying that the short term financial gains don't 0:20:25.160 --> 0:20:26.360 just don't take any approach. 0:20:26.440 --> 0:20:28.960 They have no principles, They are just trying to achieve 0:20:29.000 --> 0:20:32.159 an end. And also it's also you know what was 0:20:32.200 --> 0:20:33.840 his name, Stephen Miller? Who? 0:20:34.040 --> 0:20:34.240 Right? 0:20:34.680 --> 0:20:36.119 Yeah, he just and he just got a grant of 0:20:36.160 --> 0:20:38.400 I believe twenty seven million dollars from one of these 0:20:39.160 --> 0:20:42.840 right wing billionaires. I mean, this is all funded by 0:20:43.320 --> 0:20:46.240 just a handful like three or four right wing billionaires 0:20:46.240 --> 0:20:49.920 and oil barons. And they're funding Leonard Leo, They're funding 0:20:49.960 --> 0:20:55.400 the Federal Society, American Enterprise, Heritage Foundation, ALEC. All these 0:20:55.440 --> 0:20:59.840 groups are all funded together. So it's really a coord 0:20:59.880 --> 0:21:03.080 and needed, concerted effort. But getting back to the SEC, 0:21:03.160 --> 0:21:05.879 because it's really important, an important point. You have to 0:21:05.920 --> 0:21:09.640 take the SEC climate disclosure rule in context of why 0:21:09.720 --> 0:21:13.520 was the SEC created in nineteen thirty four, Well, there 0:21:13.640 --> 0:21:17.879 was no financial information available and that's when the stock 0:21:17.960 --> 0:21:20.880 market crashed and the Great Depression happened, and they said, 0:21:20.920 --> 0:21:25.080 you know what, we need standardized financial metrics, we need 0:21:25.119 --> 0:21:27.600 every company to report in the same way. We needed 0:21:27.720 --> 0:21:30.639 verified by a third party, and we needed in a 0:21:30.680 --> 0:21:33.919 standardized format so we have comparability, like you can look 0:21:33.960 --> 0:21:37.000 at a financial report from any two companies and since 0:21:37.080 --> 0:21:42.760 same format. Well ninety years later, twenty twenty four, they've 0:21:43.000 --> 0:21:46.399 come to realize that these financial statements are not the 0:21:46.440 --> 0:21:48.760 only information you need to determine if a company is 0:21:48.800 --> 0:21:51.720 going to be outperforming, if it's going to be successful, 0:21:51.920 --> 0:21:54.320 and how to compare it to its peers. There's other 0:21:54.359 --> 0:21:58.680 things like I just mentioned. Do they have diversity, that's 0:21:58.720 --> 0:22:01.760 definitely a big one. What do they do about their 0:22:01.760 --> 0:22:05.200 supply chains, how do they treat their employees? All these things. 0:22:05.400 --> 0:22:07.840 You know, companies that treat their employees well have much 0:22:07.880 --> 0:22:12.119 better retention, they spend less money on training and on recruitment, 0:22:13.119 --> 0:22:17.840 They will outperform, and so investors need to know these things. 0:22:17.920 --> 0:22:20.480 So what the Climate Disclosure Rule said is that these 0:22:20.520 --> 0:22:24.560 material risk factors need to be disclosed accurately, need to 0:22:24.600 --> 0:22:27.640 be verified by a third party in a standardized format. Now, 0:22:27.640 --> 0:22:34.600 the first one of these factors was carbon emissions. So overall, 0:22:34.880 --> 0:22:38.920 the big takeaway here is, Okay, you've got the financial metrics, 0:22:39.000 --> 0:22:43.320 and now you've got all of the material metrics. That's 0:22:43.359 --> 0:22:48.879 a big again philosophical shift that investors need more information 0:22:49.000 --> 0:22:52.600 to make to do their fiduciary duty and make good 0:22:52.640 --> 0:22:57.439 informed decisions. That's the real takeaway. Now. The fact that 0:22:57.480 --> 0:23:01.640 they don't use Scope three means well, we only get 0:23:01.680 --> 0:23:04.919 to look at twenty percent of the emissions instead of 0:23:04.960 --> 0:23:08.800 one hundred percent. Be much better look at one hundred percent. Also, 0:23:08.840 --> 0:23:11.800 they gave the companies the ability to decide what is material, 0:23:12.119 --> 0:23:16.600 even though the Supreme Court defines materiality as what a 0:23:16.640 --> 0:23:19.520 shareholder needs to make a buy, hold or sell decision. 0:23:20.119 --> 0:23:23.000 So those are the problematic parts of the new rule, 0:23:23.480 --> 0:23:26.320 But the fact that the rule exists, that we're now 0:23:26.359 --> 0:23:32.440 going to start to see standardized disclosure rules particually important 0:23:32.520 --> 0:23:36.560 because ultimately, right now, companies are just disclosing information that 0:23:36.600 --> 0:23:42.320 could be completely misleading, and you know companies Sustanalytics MSCAW, 0:23:42.320 --> 0:23:43.760 they scrape them up and they put them in a 0:23:43.800 --> 0:23:46.720 database and everybody thinks there's truth behind them when there isn't. 0:23:47.400 --> 0:23:50.880 But here's the other good news. In Europe, they've got 0:23:50.880 --> 0:23:54.080 CSRD and companies are going to have to be disclosing 0:23:54.160 --> 0:23:58.359 accurately for that so any multinationals already going to be 0:23:58.680 --> 0:24:02.439 starting to disclose in the next eighteen months. That is 0:24:02.480 --> 0:24:06.040 pretty much going to help investors to make the right decisions. 0:24:06.440 --> 0:24:12.159 And also companies that do disclose voluntarily, accurately have it 0:24:12.280 --> 0:24:14.439 verified in a sandrised format are going to get a 0:24:14.440 --> 0:24:17.560 lot more investors because well, if you're an investor, you're 0:24:17.600 --> 0:24:20.119 going to say, oh, well, this company doesn't have anything 0:24:20.119 --> 0:24:23.840 to hide, and we have an honest relationship, that there 0:24:23.880 --> 0:24:28.160 is trust between the company and its shareholders. Now, remember, 0:24:29.920 --> 0:24:33.560 the board reports to the shareholders. The shareholders are the 0:24:33.680 --> 0:24:37.560 ultimate owners of these companies, and that is a critical 0:24:37.560 --> 0:24:41.040 thing that people don't realize, or maybe they realize it 0:24:41.040 --> 0:24:45.320 in the background, but that that is the core of 0:24:45.520 --> 0:24:49.320 the property rights associated with owning a shareff stock. So 0:24:50.280 --> 0:24:52.760 while we're disappointed that they don't have Scope three, and 0:24:52.800 --> 0:24:55.320 we're very disappointed that they gave the companies the right 0:24:55.400 --> 0:24:59.119 to decide what is material, and also the fact that 0:24:59.119 --> 0:25:02.680 that's not lea to do that that Supreme Court says 0:25:02.680 --> 0:25:06.359 it's up to shareholders to decide that there is this 0:25:06.440 --> 0:25:12.400 new structure that says disclose accurately, verified by a third 0:25:12.440 --> 0:25:15.400 party and in a standardized format means, oh, now we've 0:25:15.440 --> 0:25:19.919 got audited financials and soon we will have audited sustainability 0:25:19.920 --> 0:25:22.800