My Investing Journey (Part One)
I’m an accidental investor. I didn’t start out with an interest in investments or finance. But I did start out with a belief that things could be better. Now that I’ve spent the past 13 years in and around business — I’ve realized why I need to become a much more thoughtful and involved investor.
Primarily, I’m a dad trying to be faithful to the work of providing and building a better future for my kids. For me, to help my kids, and to help them have a chance at a better future for their kids, I’ve realized more of us need to think differently about where we put our money. Let me take you back to where it started for me when I was 22.
I was working on my senior thesis and trying to make sense of what I had learned in college. My advisor had opened up various schools of thought in “political economy” to deepen my analysis and encouraged me to use them.
My short version was that most of our environmental, human rights, and social justice challenges could largely be boiled down to problems with multi-national corporations. Their power was completely outsized compared to almost any other actor — governments included.
Perhaps I was overly influenced by the film The Corporation. In my distillation at the time, workers rights and basic human dignity, disease spread, droughts and floods leading to famine and hunger, refugee camps, problems with migration, destruction of the rainforest, pollution of water sources — could be directly attributed to a large publicly traded corporations or whole industries that used their power to slow responses to the human suffering in each of these situations. Perhaps I was also enamored with a hope that there were alternatives. This hope emerged from watching The Take, about the unemployed Argentinian auto-parts workers who return to their idle factory, refuse to leave, and restart the business themselves. And reading about Mondragon — the 100,000+ worker cooperative network originating from the Basque region in Spain.
Four months later, however, I found myself working for an elite energy research and consulting firm in Boston. It was the kind of place where the top executives got the corner offices with the best views of the Charles River and the young associates got the cubicles next to the noisy printers and farthest from any window.
To give you a sense of this world, I remember a couple weeks into the job when a colleague caught me looking at a set of powerpoint slides that had just come off the printer. “You know,” my colleague told me, “Dan’s getting paid $1 million to present those slides at the ExxonMobil Board meeting next week.”
Another awakening I had while in this new corporate environment: Our 200-person privately-held “insight” business had been purchased by a larger 2,000 person publicly-traded “data” business that wanted to become the leading purveyor of analysis to inform energy and related business decision-making. That included a 10% reduction in the workforce, which included many people whom I thought were more insightful (but not cheaper to employ) than me.
My investing turmoil began that year. It started when I realized I was complicit in the firing of those colleagues because I was a shareholder.
Shareholders — in aggregate — want one thing: a singular focus on returns, both now and in the future. The job of the Board of Directors is to oversee the executive and allocate capital to achieve investor returns. I’ve come to refer to this singular pursuit of “returns” or “profit” or “shareholder value” as Capital Supremacy.
What I mean by this phrase is that capital’s interests are always supreme over and above the interests of other stakeholders like the workers, the environment, or community. In publicly traded corporations the executives and the boards have pretty much one job: focus on capital’s interests.
You could basically summarize their job as “keep customers, workers, regulators, the public . . . other stakeholders” in their zone of tolerance, but work extra hard to make sure you keep your capital providers (investors) happy. (Obviously this is a simplification.)
But given the recent and growing attention being paid to how companies report on “Environment, Social, Governance” (ESG) considerations, perhaps it’s not that much of a simplification.
In many ways the shift in the past couple years to ask companies to provide ESG reports and for investor groups to give companies ESG scores seems to signal that investor culture is beginning to shift toward asking harder questions.
But the problem is: the fundamental dynamics will stay the same.
I recently spoke with Amelia Evans, an international human rights lawyer, founder of MSI-Integrity (a project that emerged from Harvard Law School’s Human Rights Program) who spent the last decade working on, facilitating, and studying multi-stakeholder initiatives between leading big business and corporate accountability groups (Human Rights Watch, Oxfam, Greenpeace). Here’s what she and her team concluded: “Unless we get substantial shifts to alternative governance and alternative ownership, we’re not going to see meaningful change.”
Their Beyond Corporations report is definitely worth a read and Equitable Entities hints at a path forward. So, what are the alternative governance and alternative ownership models Amelia is talking about?
Well, cooperatively owned businesses are one. Remember that food co-op or credit union your mom or dad went to? Co-ops are a distinct legal and tax entity whose governance is elected by their member-owners, which is usually their customers, their workers, community members, capital providers — or a mix.
As Greg Brodsky from Start.coop (an accelerator for cooperative businesses) notes: “Co-ops can be structured with a wide range of governance and ownership structures that create accountability, reciprocity between stakeholders, and mutualism.”
With that background, I’ll move on next time to the specific steps I’ve taken toward a new approach to investing and my recommendations on how to do the same!