WEBVTT - Good Conspiracy: ESG, Assemblies, HPS 0:00:03.120 --> 0:00:12.120 Bloomberg Audio Studios, Podcasts, radio News. Here we go, Hello, 0:00:12.200 --> 0:00:15.520 and welcome to The Money Stuff Podcast, your weekly podcast 0:00:15.560 --> 0:00:20.079 where we talk about stuff related to money. I'm Matt 0:00:20.160 --> 0:00:22.960 Levigne and I write the Moneys Doff column for Bloomberg Opinion. 0:00:23.120 --> 0:00:25.680 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:25.720 --> 0:00:27.320 an anchor for Bloomberg Television. 0:00:28.960 --> 0:00:30.480 What are you talking about today, Katie? 0:00:30.520 --> 0:00:34.360 We're going to talk about ESG and whether index funds 0:00:34.520 --> 0:00:38.480 are illegal. We're going to talk about maybe an answer 0:00:38.560 --> 0:00:41.640 to shareholder voting, and then we're going to talk about 0:00:41.680 --> 0:00:48.720 Blackrock HPS. It finally happened. Blackrock finally bought HPS. But 0:00:48.800 --> 0:00:53.720 let's start with ESG. Turns out, at least according to Texas, 0:00:53.800 --> 0:00:55.320 that's an anti trust violation. 0:00:56.040 --> 0:00:59.520 It's been writing for almost ten years. Our index fund's illegal, 0:01:00.080 --> 0:01:02.960 and I didn't invent that idea, but I feel like 0:01:03.000 --> 0:01:05.760 I've done a lot to popular has it, and within 0:01:05.800 --> 0:01:07.840 the next few years it might become the case that 0:01:07.880 --> 0:01:11.679 index funds are illegal. So Texas and some other states, 0:01:11.680 --> 0:01:14.160 but some states, led by Texas, sued what do we 0:01:14.200 --> 0:01:16.520 in the business called the Big three asset managers, so 0:01:16.840 --> 0:01:20.479 Vanguard Blackrock, and State Street for an alleged anti trust 0:01:20.520 --> 0:01:26.280 conspiracy where they allegedly all got together and pressured coal 0:01:26.360 --> 0:01:30.399 companies to cut the production of coal to raise the 0:01:30.400 --> 0:01:37.240 price of coal, and that is the anti trust conspiracy. Now, 0:01:37.440 --> 0:01:40.199 there's a long running theory that these big diversified asset 0:01:40.200 --> 0:01:43.920 managers like Blackrock and Vanguarden, State Street, but also like 0:01:43.959 --> 0:01:46.800 some of the smaller less INDEXI managers, because they kind 0:01:46.800 --> 0:01:50.200 of own every company in an industry, they have a 0:01:50.200 --> 0:01:53.480 desire for the companies in that industry to get together, 0:01:53.840 --> 0:01:57.440 cut production, not compete with each other too hard, raise prices, 0:01:57.680 --> 0:02:01.919 and like earn outsized margins because they are not competing 0:02:02.640 --> 0:02:04.240 the way they would if they were all owned by 0:02:04.320 --> 0:02:07.080 separate owners. This is like a long running theory. It's 0:02:07.160 --> 0:02:11.440 very controversial, and one reason it's controversial is that no 0:02:11.480 --> 0:02:15.680 one really thinks that those meetings happen, you know, so 0:02:15.720 --> 0:02:18.480 the classic examples airlines, no one really thinks that like 0:02:18.720 --> 0:02:22.240 Blackrock sends people to the CEOs of airlines and says 0:02:22.280 --> 0:02:25.160 you need to stop competing with other airlines on your 0:02:25.240 --> 0:02:28.280 roots because we want you to raise ticket prices and 0:02:28.520 --> 0:02:30.560 earn more profits, and we want everyone else to raise 0:02:30.600 --> 0:02:32.960 ticket prices are and more profits too, and no one 0:02:33.000 --> 0:02:36.840 really thinks that the airline executives would listen to those conversations. 0:02:37.120 --> 0:02:40.320 So there's just not like a lot of evidence that 0:02:41.000 --> 0:02:45.800 these index fund companies, these big investors get together and 0:02:45.919 --> 0:02:49.800 actually explicitly tell companies to cut production and raise prices. 0:02:49.880 --> 0:02:51.800 So that's like the problem with a lot of these 0:02:51.960 --> 0:02:54.360 anti trustee theories that like, oh, look, these index funds 0:02:54.360 --> 0:02:58.000 own every company, so isn't that a weird anti trust problem. 0:02:58.200 --> 0:03:01.920 The huge exception to that is esg. The huge exception 0:03:02.000 --> 0:03:04.720 to that is that the big asset managers really did 0:03:04.760 --> 0:03:08.320 sign on to statements saying we want companies to achieve 0:03:08.440 --> 0:03:13.760 net zero emissions. And that is all well and good 0:03:13.960 --> 0:03:17.040 when you're talking about consulting companies trying to fly less 0:03:17.080 --> 0:03:20.040 or whatever. But when you talk about coal companies, talking 0:03:20.040 --> 0:03:23.280 about a coal company lowering its emissions is very similar 0:03:23.320 --> 0:03:26.240 to talking about a coal company lowering its production of coal. 0:03:26.440 --> 0:03:28.120 And so if all of the big shareholders of all 0:03:28.160 --> 0:03:30.200 the big coal companies get together and say to the 0:03:30.200 --> 0:03:32.560 coal companies, you should lower your production of coal, and 0:03:32.600 --> 0:03:34.840 the coal companies go out and say, we have lowered 0:03:34.840 --> 0:03:37.800 our production of coal in order to meet ESG goals. Then, like, 0:03:37.920 --> 0:03:40.160 I don't know, that kind of looks like the owners 0:03:40.160 --> 0:03:41.960 of all the companies getting together and saying we're going 0:03:42.000 --> 0:03:44.320 to lower production to raise prices. And so you have 0:03:44.400 --> 0:03:48.920 this lawsuit saying not only that Black Rock and Vanguard 0:03:49.000 --> 0:03:52.680 signed on to net zero pledges and then urged companies 0:03:52.720 --> 0:03:55.800 to lower their emissions, but also that these coal companies 0:03:56.360 --> 0:03:59.320 cut production of coal into rising demand for coal and 0:03:59.360 --> 0:04:02.200 the price of coal sort, and these coal companies made 0:04:02.320 --> 0:04:05.400 quote cartel like profits. So I don't know, it's kind 0:04:05.400 --> 0:04:06.200 of a cool lawsuit. 0:04:07.200 --> 0:04:10.920 If I were Black Rock or Vanguard or State Street, 0:04:11.000 --> 0:04:15.040 could I defend myself on the emissions point saying we 0:04:15.120 --> 0:04:18.280 didn't mean for you to lower production, We didn't mean 0:04:18.279 --> 0:04:20.359 for you to stop mining coal, just do it in 0:04:20.440 --> 0:04:24.000 a more green way. Does that hold any water? 0:04:24.360 --> 0:04:25.920 I don't know. That's like kind of hard, Like I 0:04:25.960 --> 0:04:27.440 think there are a lot of defenses here, and this 0:04:27.520 --> 0:04:29.280 is like a creative lawsuit more than it is like 0:04:29.279 --> 0:04:32.320 a slam dunk lawsuit. Even if the story was we 0:04:32.360 --> 0:04:35.520 just wanted them to mind in a greener way and 0:04:35.600 --> 0:04:37.800 that raised the cost of mining or like you know, 0:04:37.920 --> 0:04:40.160 delayed mining, like that would still be sort of a 0:04:40.200 --> 0:04:43.560 production cut. But it's also like obviously the case that 0:04:43.680 --> 0:04:48.440 if you are generically an ESG investor, thermal coal is 0:04:48.520 --> 0:04:52.279 kind of your least favorite thing. And so yeah, there 0:04:52.320 --> 0:04:55.360 is some amount of pressure on companies to shift away 0:04:55.360 --> 0:04:58.520 from thermal coal mining. And like the lawsuit, you don't 0:04:58.560 --> 0:05:02.360 see like explicit statements from like Blackrock saying coal companies 0:05:02.360 --> 0:05:05.279 shouldn't mind coal anymore. It's more like statements like we're 0:05:05.320 --> 0:05:08.479 going to engage with companies about their climate goals and 0:05:08.520 --> 0:05:11.320 try to really understand how they see the future of 0:05:11.320 --> 0:05:15.159 the market for thermal coal. It's all vague statements, but 0:05:15.760 --> 0:05:17.920 it is all suggestive of the idea that the people 0:05:18.040 --> 0:05:21.599 writing those statements are not big believers in increasing the 0:05:21.600 --> 0:05:22.680 production of thermal coal. 0:05:23.320 --> 0:05:25.680 Something that I feel like I've asked you before, but 0:05:25.680 --> 0:05:29.560 I'll ask you again is whether or not intent matters 0:05:29.640 --> 0:05:33.440 when it comes to antitrust. Like, surely, when you know, 0:05:33.520 --> 0:05:37.680 putting together these ESG flavored proposals for these coal companies, 0:05:38.040 --> 0:05:42.440 Blackrock wasn't trying to like boost their margins and line 0:05:42.480 --> 0:05:44.520 the pockets of these coal companies. 0:05:45.480 --> 0:05:48.080 So a couple of points of that one the lawsuit 0:05:48.120 --> 0:05:51.559 says It doesn't matter that they think they were doing 0:05:51.560 --> 0:05:53.240 this for the good of the world. If you have 0:05:53.320 --> 0:05:55.880 a conspiracy to restrain trade, if you have a conspiracy 0:05:55.920 --> 0:05:59.000 to lower production that has the effect of raising prices, 0:05:59.000 --> 0:06:00.679 the fact that you were doing it or some outside 0:06:00.680 --> 0:06:03.440 benefit is not a really good anti trust defense. On 0:06:03.480 --> 0:06:06.599 the other hand, it's a very weird claim because like 0:06:06.680 --> 0:06:09.200 the lawsuits, they are anti trust lawsuits, and so they 0:06:09.240 --> 0:06:13.520 are arguing that Blackrock and Vanguard were ganging up to 0:06:13.520 --> 0:06:16.240 have cartel like profits in the coal industry, which is 0:06:16.279 --> 0:06:18.400 a strange claim for a couple of reasons. One is 0:06:18.440 --> 0:06:23.719 like most of the time when politicians complain about ESG, 0:06:24.240 --> 0:06:26.960 what they say is Blackrock is usually the punching bag. 0:06:27.080 --> 0:06:31.599 Blackrock is not being a fiduciary for its investors. It's 0:06:31.680 --> 0:06:34.600 not trying to get the highest returns for investors. It's 0:06:34.640 --> 0:06:38.599 not putting profits first. Instead, it's putting its own moral 0:06:38.680 --> 0:06:42.080 interest in climate change or whatever ahead of the financial 0:06:42.080 --> 0:06:46.520 interests of its investors. But this lawsuit says no, no, no, Actually, 0:06:46.520 --> 0:06:49.840 BlackRock's ESG stuff is making cartelig profits right Like the 0:06:50.600 --> 0:06:55.400 ESG stuff is incredibly lucrative for these big asset managers, 0:06:55.480 --> 0:06:58.080 which is just a strange claim. It's not really a 0:06:58.120 --> 0:07:00.240 claim that Blackrock would make, right. I mean, I think 0:07:00.279 --> 0:07:02.560 a lot of ESG investors would say, this is actually 0:07:02.839 --> 0:07:05.320 in the long term financial interest of our investors. But 0:07:05.360 --> 0:07:07.640 they're not saying, oh, we're making cartel like profits by 0:07:07.640 --> 0:07:09.880 cutting down the minor coal. But it's also not something 0:07:09.920 --> 0:07:12.160 that like the Attorney General of Texas would say in 0:07:12.200 --> 0:07:15.120 any context outside of this lawsuit, right, Like the attorney 0:07:15.120 --> 0:07:17.800 general texts say, oh, Blackrock is not putting its investors' 0:07:17.800 --> 0:07:19.680 interests first, except here it is here it's making a 0:07:19.720 --> 0:07:21.640 lot of money for investors. So that's like a funny 0:07:21.640 --> 0:07:23.760 little claim. The other thing that's weird is that the 0:07:23.800 --> 0:07:27.320 coal companies are not defendants, right. Yeah, if you're worried 0:07:27.360 --> 0:07:30.880 about anti trust conspiracy in which the coal companies are 0:07:30.920 --> 0:07:34.080 earning cartel like profits by all agreeing to cut back 0:07:34.120 --> 0:07:36.400 on production, like why aren't you seeing the coal companies, 0:07:36.480 --> 0:07:38.640 and again the answer is political, right, The answer is like, 0:07:38.680 --> 0:07:40.480 it would be weird for the Attorney General of Texas 0:07:40.520 --> 0:07:43.560 to sue all the big coal companies, but to sue Blackrock. 0:07:43.200 --> 0:07:47.160 Is finn Yeah, that is so funny. I mean you 0:07:47.200 --> 0:07:50.000 mentioned that Blackrock is often the punching bag here. I 0:07:50.080 --> 0:07:50.480 thought that. 0:07:50.680 --> 0:07:52.480 Much more so than State Street and found here mostly 0:07:52.480 --> 0:07:54.880 because they've put out more cablic statements. One way or 0:07:54.880 --> 0:07:55.160 the other. 0:07:55.200 --> 0:07:59.480 That's true. And I mean Vanguard is just a passive beast, 0:07:59.800 --> 0:08:01.960 just passive animal. 0:08:01.720 --> 0:08:05.400 But that's not entirely. They're much less like public about it, 0:08:05.880 --> 0:08:08.520 and they are much more Their heritage is much more 0:08:08.520 --> 0:08:11.240 index funds versus Blackrock, like owns a lot of index funds, 0:08:11.240 --> 0:08:12.640 but it is also like you know, has more of 0:08:12.640 --> 0:08:14.280 a heritage an active bond manager. 0:08:14.760 --> 0:08:18.440 But yeah, you're right. You know, the conversation I've had 0:08:18.480 --> 0:08:21.160 with Vanguard as well that they're also in on the 0:08:21.200 --> 0:08:21.760 active game. 0:08:23.360 --> 0:08:26.240 Active I don't mean active investment. I mean like intentional 0:08:26.320 --> 0:08:28.760 stewardship of even their passive holdings. Right, if you are 0:08:28.760 --> 0:08:31.679 a massive index fund manager, you have to think about 0:08:31.720 --> 0:08:33.840 how you vote your shares, and you have to think about, 0:08:33.960 --> 0:08:36.080 you know, whether and how you engage with companies. And 0:08:36.080 --> 0:08:39.160 I think Vanguard does not say we do none of that, right, 0:08:39.160 --> 0:08:41.920 I mean, I think they have some sort of some 0:08:42.000 --> 0:08:44.559 of the same sorts of stewardship thoughts that like blackrockers. 0:08:45.080 --> 0:08:47.280 I do think it's interesting that something that's brought up 0:08:47.280 --> 0:08:50.160 in this lawsuit is the fact that the Big Three 0:08:50.240 --> 0:08:53.959 are part of these like various climate groups, some of 0:08:54.000 --> 0:08:56.840 them that are named or the Climate Action one hundred plus. 0:08:56.880 --> 0:09:01.120 There's also the Net Zero Asset Managers and NICHE. I mean, 0:09:01.120 --> 0:09:04.200 that's pointed to as proof that they formed a syndicate 0:09:04.200 --> 0:09:06.760 and agreed to use their collective holdings of publicly traded 0:09:06.800 --> 0:09:11.679 coal companies to introduce industry wide output reductions. For several 0:09:11.720 --> 0:09:15.480 of these groups. I mean, State Street, for example, quit 0:09:15.720 --> 0:09:19.800 a CAA one hundred plus in February. Vanguard left the 0:09:19.840 --> 0:09:23.120 Net Zero Asset Manager's Initiative in twenty twenty two. Was 0:09:23.120 --> 0:09:26.000 never a part of the previous group as well, and 0:09:26.000 --> 0:09:29.360 that's also acknowledged in the lawsuit that at least for 0:09:29.440 --> 0:09:32.480 several of these collectives, they're not even part of these anymore. 0:09:32.520 --> 0:09:34.760 But I don't know, it's a weird thing to point 0:09:34.800 --> 0:09:37.320 to as proof of something, and also I just don't 0:09:37.360 --> 0:09:39.240 know how much teeth is involved. 0:09:40.200 --> 0:09:41.800 I agree with that. I mean, I think the lawsuit 0:09:41.840 --> 0:09:44.319 has to mention this because one anti trust claim you 0:09:44.360 --> 0:09:47.360 could make is that Blackrock itself or you know, one 0:09:47.400 --> 0:09:49.959 of these three managers just by itself because it owns 0:09:50.000 --> 0:09:53.480 big stakes in all of these public companies, it has 0:09:53.559 --> 0:09:56.440 some incentive and some power to make those companies colude together. 0:09:56.480 --> 0:09:58.280 So like Blackrock itself could go to meetings at all 0:09:58.320 --> 0:10:01.080 the coal companies say cut to like boost the price 0:10:01.080 --> 0:10:03.080 of the other coal companies, and maybe that's an anti 0:10:03.080 --> 0:10:06.120 trust violation, but that is less compelling because Blackrock is 0:10:06.160 --> 0:10:08.640 a you know, passive minority shareholder and all these it's 0:10:08.679 --> 0:10:11.240 less compelling than saying, well, between them, the Big three 0:10:11.280 --> 0:10:13.280 owned thirty percent of all these coal companies, and so 0:10:13.280 --> 0:10:16.760 they have enormous power. And the fact is that for 0:10:16.800 --> 0:10:20.280 a while, the Big three asset managers all sort of 0:10:20.320 --> 0:10:23.440 made similar statements about being interested in ESG and being 0:10:23.440 --> 0:10:27.040 concerned about climate disclosure and talking to portfolio companies about 0:10:27.040 --> 0:10:31.880 how they think about climate change. And it's possible that 0:10:31.920 --> 0:10:35.400 those statements were all independent. Right, It's possible that if 0:10:35.440 --> 0:10:37.640 you're a coal company, you have a lot of shareholders 0:10:37.800 --> 0:10:41.480 who are separate, unrelated shareholders who are all interested in 0:10:41.520 --> 0:10:44.280 climate change and who're all worried about ESG issues, and 0:10:44.360 --> 0:10:46.840 so as a coal company CEO, you have to respond 0:10:46.880 --> 0:10:50.599 to your various shareholders who all care about ESGA or 0:10:50.640 --> 0:10:53.600 many of whom care about escha. But that's not an 0:10:53.640 --> 0:10:55.760 anti trust problem, right, Like, if all of your shareholders 0:10:55.800 --> 0:10:59.240 independently worry about climate change because it's like a fact 0:10:59.240 --> 0:11:02.000 in the world, then that's not an antrust problem. The 0:11:02.000 --> 0:11:03.680 a interrust problem is if they all get together in 0:11:03.720 --> 0:11:07.440 a group, right, And so that's why the lawsuits mentioned 0:11:07.440 --> 0:11:09.720 these groups. I agree with you, these groups don't seem 0:11:09.720 --> 0:11:10.960 like they have a ton of teeth, right, Like these 0:11:11.000 --> 0:11:13.520 are not literally like backroom meetings of the heads of 0:11:13.559 --> 0:11:15.960 Black Rock and Vanguard and States. She's saying, oh, that's 0:11:15.960 --> 0:11:18.040 got coal production, right, But like they are a group 0:11:18.040 --> 0:11:19.400 that you can point to where they all sort of 0:11:19.400 --> 0:11:21.200 got together and signed on to the same statement. 0:11:21.760 --> 0:11:24.000 Let's also talk about what they're trying to achieve, because 0:11:24.040 --> 0:11:26.360 this line caught my eye, and I think it leads 0:11:26.360 --> 0:11:29.360 in nicely to what we're going to be talking about next. 0:11:29.640 --> 0:11:32.560 So the States are asking the court to bar the 0:11:32.600 --> 0:11:36.560 three largest US investment firms from using their stock in 0:11:36.640 --> 0:11:41.040 coal companies to vote on shareholder resolutions, which I don't know, 0:11:41.120 --> 0:11:44.760 that doesn't seem very healthy and good. Just to remove 0:11:45.200 --> 0:11:50.080 the voting power of specifically these three altogether, I. 0:11:49.960 --> 0:11:53.040 Think a lot of people, not just that idea ischi 0:11:53.160 --> 0:11:58.080 people find it weird that so much of the voting 0:11:58.120 --> 0:12:02.640 power of stocks is controlled by literally Larry think right by, 0:12:02.720 --> 0:12:06.600 like the people in charge of stewardship at these three companies. 0:12:07.280 --> 0:12:10.600 And this is not the first suggestion I've seen that, oh, actually, 0:12:10.640 --> 0:12:12.520 just index ones shouldn't be able to vote. That would 0:12:12.559 --> 0:12:15.120 solve all the problems. I agree that it's a weird solution. 0:12:15.240 --> 0:12:16.920 I don't know that it solves all the problems. But 0:12:17.040 --> 0:12:20.680 saying these big firms shouldn't be allowed to vote their 0:12:20.720 --> 0:12:24.560 shares is not an uncommon proposed solution. Actually, it sort 0:12:24.559 --> 0:12:27.400 of crudely gets at the issue of like, hey, it's 0:12:27.440 --> 0:12:31.600 weird that they control so many votes, and they have 0:12:31.679 --> 0:12:35.080 sort of different motivations from other shareholders because they do 0:12:35.120 --> 0:12:38.599 own every company, and they do sort of represent a 0:12:38.600 --> 0:12:42.600 lot of passive investors who maybe don't supervise their voting 0:12:42.679 --> 0:12:43.520 choices that closely. 0:12:44.640 --> 0:12:48.880 Yeah, I mean, you tweet anything about Blackrock, or if 0:12:48.920 --> 0:12:51.280 you spend even five minutes on Twitter at least the 0:12:51.320 --> 0:12:54.200 circles that I run in, and you'll find a lot 0:12:54.240 --> 0:12:55.720 of conspiracy theories immediately. 0:12:55.800 --> 0:13:00.160 But they truly lend themselves to conspiracy theories, right. I mean, 0:13:00.200 --> 0:13:06.280 they're like a multi trillion dollar company that controls every company. 0:13:06.720 --> 0:13:08.280 Like if you're like, oh, there's a company that like 0:13:08.480 --> 0:13:11.280 is the biggest shareholder for every company in the world, Like, ooh, 0:13:12.080 --> 0:13:14.559 that's a good conspiracy. That's a good starting sentence for 0:13:14.600 --> 0:13:17.199 a conspiracy. And so they do attract a lot of conspiracy. 0:13:31.640 --> 0:13:35.200 We have a novel solution that's been proposed to sort 0:13:35.200 --> 0:13:37.680 of solve some of these issues. Do you think we 0:13:37.679 --> 0:13:38.600 should talk about it? 0:13:38.840 --> 0:13:40.040 We should talk about it. 0:13:40.640 --> 0:13:40.960 Okay. 0:13:41.440 --> 0:13:45.040 It's a proposal from Oliver Hart, Helene Landimore and Luigi's 0:13:45.080 --> 0:13:49.199 and Galas in Bloomberg Weekend about how to implement shareholder 0:13:49.280 --> 0:13:51.559 democracy using shareholder assemblies. 0:13:51.880 --> 0:13:54.040 Yeah, so this is interesting. We kind of compare it 0:13:54.080 --> 0:13:58.920 to basically a jury where you select a sample of 0:13:58.960 --> 0:14:02.360 the shareholders. It's like a sampling sort of technique and 0:14:02.400 --> 0:14:04.960 a bond index fund. Well, it's more like a lottery, 0:14:05.320 --> 0:14:09.559 but sure a lottery. Well, I mean it reminds you 0:14:09.559 --> 0:14:11.400 of a sampling technique just because you're not going to 0:14:11.440 --> 0:14:15.120 get all of the bonds in your index. So the 0:14:15.200 --> 0:14:18.760 hope is to pick a sample that sort of accurately 0:14:18.800 --> 0:14:21.680 represents the demographics or whatever. But you're right, they are 0:14:21.720 --> 0:14:22.560 picking randomly. 0:14:22.800 --> 0:14:24.640 Right. The idea is like there's like a million you know, 0:14:24.720 --> 0:14:27.720 shareholders and a mutual fund or whatever, and you give 0:14:27.760 --> 0:14:29.680 them each one lottery ticket for each share of the 0:14:29.680 --> 0:14:31.720 fund that they own, and then you choose you know, 0:14:31.720 --> 0:14:34.000 one hundred and fifty lottery tickets, and so you collect 0:14:34.240 --> 0:14:36.200 one hundred and fifty people who are in some sense 0:14:36.240 --> 0:14:39.080 representative investors in the fund, and then you get them 0:14:39.080 --> 0:14:42.840 together in a big room and they talk about what 0:14:42.880 --> 0:14:46.440 the funds voting policies should be, so that instead of 0:14:46.480 --> 0:14:50.760 like Larry think, deciding how Blackrock will vote its shares 0:14:51.240 --> 0:14:54.440 in coal companies, you have like, you know, some people 0:14:54.600 --> 0:14:57.200 in a room who are like ultimately the direct investors 0:14:57.200 --> 0:14:59.400 in like the Blackrock index fund, and they get together 0:14:59.440 --> 0:15:01.800 and they decide have Black Action vote its shares and 0:15:01.840 --> 0:15:06.200 then their decision, you know, after deliberation and consultation, is 0:15:06.280 --> 0:15:07.720 the new policy for Blackrock. 0:15:08.600 --> 0:15:11.960 And this is specific to mutual funds. And they do 0:15:12.040 --> 0:15:14.600 propose that you know, if you have a larger investment, 0:15:14.600 --> 0:15:17.640 you would have a higher chance of being drawn, but 0:15:17.840 --> 0:15:21.480 everyone would have an equal voice once actually in the assembly, 0:15:21.920 --> 0:15:26.640 which I also don't know how to think about that. Obviously, 0:15:26.720 --> 0:15:29.480 with a jury, that makes sense. But if you own 0:15:30.320 --> 0:15:33.360 a ton of shares in a mutual funds, shouldn't you 0:15:33.400 --> 0:15:34.600 have a bigger vote? 0:15:35.600 --> 0:15:37.000 Well, but most of the people who own the shares the 0:15:37.040 --> 0:15:39.040 mutual fund of zero voted in this propessal Right, it's 0:15:39.080 --> 0:15:42.560 not like a direct democracy. It's it's a random temple 0:15:42.640 --> 0:15:46.440 to get some people who seem vaguely representative and they 0:15:46.520 --> 0:15:48.960 hash out something that seems like it might be workable 0:15:48.960 --> 0:15:51.160 for everyone. Like, my impression is that there's like a 0:15:51.160 --> 0:15:54.200 lot of overstatement of the importance of shareholder voting. Like 0:15:54.280 --> 0:15:57.920 I don't think that like Blackrock is influential or that 0:15:58.200 --> 0:16:01.360 ESG is important because of how black Rock votes on 0:16:01.400 --> 0:16:03.960 shareholder proposals at coal companies, Like I don't think that's 0:16:04.000 --> 0:16:06.560 the thing that is driving anything, right, Like these shareholder 0:16:06.560 --> 0:16:11.120 proposals are frequently sort of symbolic, non binding proposals, and 0:16:11.200 --> 0:16:14.600 so it's nice for a company to win the votes 0:16:14.720 --> 0:16:17.920 against the sheralfter's proposal. That doesn't Like it's an annoying 0:16:18.000 --> 0:16:21.360 embarrassment to fight over these things, But it's not like 0:16:21.640 --> 0:16:24.640 the driving force behind Like you know, how the CEO 0:16:25.000 --> 0:16:27.040 lives her life or is paid or anything like that. Right, 0:16:27.240 --> 0:16:29.800 Like the thing that matters is, you know, voting in 0:16:29.800 --> 0:16:32.360 contested proxy fights and mergers. But it's also like the 0:16:32.400 --> 0:16:35.200 soft power of Vanguard coming in or of black Rock 0:16:35.240 --> 0:16:37.600 coming in and having a meeting and saying, hey, we'd 0:16:37.640 --> 0:16:39.960 really like you to dig up less coal or whatever. 0:16:40.400 --> 0:16:44.320 And I think that like what that means is that 0:16:44.360 --> 0:16:48.520 the sort of explicit voting policies are less important than 0:16:49.400 --> 0:16:53.680 the informal meetings and engagement that these firms can have. 0:16:54.040 --> 0:16:56.880 And you can only really have these assemblies to set 0:16:56.880 --> 0:16:59.720 the explicit voting policies, right, Like you have these meetings 0:16:59.720 --> 0:17:02.600 to say we will vote in favor of shareholder proposals 0:17:02.600 --> 0:17:05.040 to like disclose more about climate change or whatever, or 0:17:05.040 --> 0:17:06.719 against them or whatever. You know, like the people will 0:17:06.760 --> 0:17:10.000 get together into alot, but you can't have the assemblies 0:17:11.240 --> 0:17:13.080 show up at the meetings with the companies. Right. Like 0:17:13.119 --> 0:17:17.120 that's going to be the Blackrock Stewardship team, right, And 0:17:17.200 --> 0:17:20.480 like those people are going to continue to be those people, 0:17:20.520 --> 0:17:22.240 and they're going to be They're going to have the 0:17:22.520 --> 0:17:27.359 sort of professional biases that those people have, and the 0:17:27.440 --> 0:17:29.840 voting policy will be a sort of marginal change rather 0:17:29.880 --> 0:17:32.359 than like a real change in like how Blackrock operates itself. 0:17:32.480 --> 0:17:34.520 Now people really care about the voting stuff, right, and 0:17:34.560 --> 0:17:36.840 like there's a lot of like focus on you know, 0:17:36.880 --> 0:17:40.520 Blackrock is like a number of these funds, these big 0:17:40.520 --> 0:17:43.320 fund firms are like experimenting with pass through voting, where 0:17:43.359 --> 0:17:47.240 like the shareholders, the ultimate beneficiaries of the fund can 0:17:47.720 --> 0:17:51.840 vote their shares or they can choose from a menu 0:17:51.880 --> 0:17:54.560 of policies that will drive the votes, so they can 0:17:54.600 --> 0:17:57.680 be like a little bit more responsive to like the 0:17:57.760 --> 0:18:01.520 ultimate beneficiary's interests, And this is another way to do that. 0:18:01.800 --> 0:18:03.159 I just I just don't know how much any of 0:18:03.240 --> 0:18:05.159 this matters. Like the voting stuff is the sort of 0:18:05.200 --> 0:18:08.000 like showy, visible stuff, but I'm not sure how much 0:18:08.000 --> 0:18:08.439 it matters. 0:18:08.600 --> 0:18:10.280 And I'm sure there's people that would disagree. But the 0:18:10.320 --> 0:18:13.800 pass through voting doesn't seem like a terrible solution, especially 0:18:13.800 --> 0:18:17.160 when you consider sort of the logistical problems that would 0:18:17.160 --> 0:18:20.800 come with these shareholder or investor assemblies, Like. 0:18:20.800 --> 0:18:23.399 Well, the pastor voting is very logistically problematic. It's like 0:18:23.640 --> 0:18:27.520 because yeah, you have to vote, Like I think the 0:18:27.520 --> 0:18:29.400 way I actually implement it is like you choose from 0:18:29.400 --> 0:18:32.000 a menu of like three different voting policies and then 0:18:32.000 --> 0:18:33.960 they do the voting for you. It's not actually pass 0:18:34.000 --> 0:18:36.200 through voting in the sense that like, you know, yeah, 0:18:36.240 --> 0:18:38.280 black guy gets like a thousand proxy statements and you 0:18:38.560 --> 0:18:40.399 get to choose how you vote your little shares on 0:18:40.400 --> 0:18:41.000 each one of them. 0:18:41.720 --> 0:18:45.360 Yeah. In terms of though, what is being proposed by 0:18:45.359 --> 0:18:47.560 these three professors, they talk about, you know, gathering one 0:18:47.600 --> 0:18:49.960 hundred and fifty people in a room, and it sounds 0:18:50.000 --> 0:18:53.840 like a pretty intense process. And they say, you know, 0:18:53.920 --> 0:18:58.560 since participation would be voluntary, participants should be adequately paid, 0:18:58.920 --> 0:19:03.359 provided with child care, et cetera. Like that seems like 0:19:03.440 --> 0:19:05.320 quite quite an uphill battle. 0:19:05.480 --> 0:19:06.879 I don't know, man, that's a drop in the bucket 0:19:06.880 --> 0:19:09.840 compared to running trillions and trillions of dollars of money, 0:19:09.880 --> 0:19:13.399 and also like dropping the bucket compared to running trillions 0:19:13.440 --> 0:19:15.720 of dollars of money and getting in trouble with politicians 0:19:15.760 --> 0:19:18.560 because you're voting in a way that's different from if 0:19:18.600 --> 0:19:20.520 you have like a good way to sort of point at, 0:19:20.560 --> 0:19:21.439 like we have a good process. 0:19:21.640 --> 0:19:24.080 But just in terms of like who would actually agree 0:19:24.080 --> 0:19:26.960 to do that, Like who would take time because their 0:19:27.080 --> 0:19:31.720 life could participate? Yeah, exactly. They propose that to make 0:19:32.119 --> 0:19:32.639 people who. 0:19:32.520 --> 0:19:34.440 Participate in CHERYLD they're ready anyway, So it's like. 0:19:34.400 --> 0:19:38.000 Fun, that's true, that's true, but self selection obviously would 0:19:38.040 --> 0:19:39.720 still be a big problem here. 0:19:40.640 --> 0:19:43.159 I will say it reminds me of a paper by 0:19:43.240 --> 0:19:46.720 John Coates, the Harvard law professor. It's called the Problem 0:19:46.800 --> 0:19:49.000 of twelve, which is a great title. It's about the 0:19:49.000 --> 0:19:51.679 idea that like, like he says twelve, many people now 0:19:51.720 --> 0:19:55.720 say three. But there's some small number of asset managers 0:19:55.880 --> 0:19:57.760 who will end up controlling most of the votes at 0:19:57.760 --> 0:20:00.440 most of the companies in America. And one thing he 0:20:00.480 --> 0:20:04.200 writes about is like they've gotten to that position sort 0:20:04.240 --> 0:20:06.919 of like by accident, and there's no thought given to 0:20:06.920 --> 0:20:12.440 how they exercise that power. And we're now increasingly see 0:20:12.480 --> 0:20:15.440 people thinking about how they exercise that power. And one 0:20:15.440 --> 0:20:17.919 thing he proposed is like there's like all these rules 0:20:17.920 --> 0:20:21.560 of administrative law for how like US federal agencies should 0:20:21.600 --> 0:20:23.680 have to like make decisions, how they should like make 0:20:23.720 --> 0:20:26.119 new rules or they should make enforcement decisions. There's just 0:20:26.119 --> 0:20:29.919 a lot of like process around how federal agencies make decisions. 0:20:30.240 --> 0:20:33.600 And like, obviously the big asset managers have some process 0:20:33.640 --> 0:20:35.639 around how they make decisions, but like it's all internal, 0:20:35.680 --> 0:20:38.000 it's all voluntary. It's like, you know, their companies, and 0:20:38.040 --> 0:20:41.400