Larry Fink (BlackRock), Marc Benioff (Salesforce), and others claim that good stakeholder policy can be good for shareholder returns. They point to changing shareholder sentiment, ESG requirements by the SEC, changing consumer interest, and the long-term viability of companies. In their calculation, better shareholder returns, in the long run, will be delivered with some focus on CSR and ESG. Their interest is long-term, sustainable profitability and viability of the corporations they are entrusted to run.
Bluebell Capital Partners doesn’t like that. Here we go again, stakeholder vs. shareholder capitalism. The Friedman doctrine is clear that we as business leaders should focus our efforts solely on profit regardless of the impact on other stakeholders like our employees, suppliers, and our community. It goes on to make the argument that the shareholders can take care of the social problems with the profits returned to them, but in the priorities that they each see fit, and not imposed on them by the management of the company.
So Bluebell, as with most investment advisories, are focused on one thing only; returns they can show to their clients. They are measured by returns because of ratings and rankings. They promote their “active” investor style as their value-add and sell to funds and advisors that look for the highest returns for their respective clients in turn. There is a large distance between the actual stock and the final (last in line) beneficiary of those returns.
Since they are primarily brokers, and selling to brokers or advisors, they don’t really care about the long term of any company, and hence of their employees or community. Indeed, if one company starts floundering for any reason, they can liquidate that position and go on to the next promising firm, or in their case, the next firm they can reconstruct to squeeze out more profits. If they see that a company is spending money on doing good, or being responsible, they see it as a short-term cost, and not a long-term benefit. So, they can actively make it more profitable now, the long-term viability is of no consequence. Their calculation is that if these companies they invest in don’t fare well later, no problem They are ready, and already working on the next one they can mine.
This is not too different to the mindset of the arbitrage trader. Look for a quick buck from some inefficiency in the market in financial terms only. Bluebell actively makes it more efficient, just like that trader does that by buying undervalued stocks and raising the price to squeeze out the inefficiencies, then selling for a profit. Arbitrage is generally healthy for a fair market, but in Bluebell’s case, they are actively hurting the other stakeholders, including the society and environment in which those companies operate.
You might say, “Good! This is what capital markets are supposed to do.” Capitalism is based on the belief that we act in our own interest which allows competitive pricing and free competition. We capitalists believe that the best society is the result. So, it comes down to what is “our own interest.” If we interpret that to mean that we are doing this for the benefit of a stable, sustainable, society, then neither the intent of capitalism nor the plight of the community becomes compromised.
Are we willing to build our wealth for only for a few at the expense of the others? We all want to do better but few of us want to actively take it from our lower income neighbors or from our future generation. Rising stock prices don’t raise all boats. Fifty percent of us have no exposure to the stock markets, while most who do, have less than 10% of their wealth invested through 401k’s. And future generations who depend on a stable income from sustainable companies and who depend on the global environment don’t have a seat at the table unless we stand for them.
Larry Fink’s definition of “in our own interest” provides us as shareholders with the best return.
He needs to stay.
