How conscious investors can turn up the heat and make companies change | Vinay Shandal

We love to engage on the issues of the day.

We love it.

We comment on the news,

we post our views on social media,

we march, we protest ...

But who among us is working on solutions,

big solutions to big issues,

like gun violence,

mistreatment of workers,

flood, famine, drought?

Who is on it?

Boom!

These guys.

(Laughter)

What? You were hoping for Peter Parker?

The Avengers?

You don't expect this beacon of diversity,

these good-looking, nicely dressed dudes just oozing charisma to solve the issues?

Well good, because they're actually not going to solve the issues.

But before you dismiss them,

let me say, they're not going to solve the issues,

but they will show us how.

So who are they?

They're activist investors:

Carl Icahn, Dan Loeb, Paul Singer, Barry Rosenstein.

These are the modern-day OGs of Wall Street.

(Laughter)

These are scary dudes.

I don't mean Green Goblin scary.

I mean real scary.

The fear they strike in the hearts of a company's CEO and board

when they enter its stock

is the same fear you feel when you hear a bear outside your tent,

and it's dark,

and you're sitting there with a mouthful of Doritos --

(Laughter)

that just moments ago,

you had snuck out of the tent to pull down from the bear hang,

because you had the munchies.

That fear.

And in that moment, you are praying,

"Oh Lord, please let this bear be passing through."

That bear is not passing through!

That bear made a detour for you.

Bears like Doritos!

(Laughter)

Activists like money.

Some activists also like Doritos, but they definitely want money.

And the way they make money, the way they create value,

is by getting management of corporations

to make changes.

Now, some will argue that the changes they create,

the value they create, is too short-term in nature.

And others will say the tactics they use are egregious.

I agree.

Long, drawn-out lawsuits,

public smear campaigns --

there is no need for that.

But I must say, there's a small handful of activists,

very small,

that go to great lengths to be constructive and collaborative.

And overall, we have to give credit where credit is due.

As a group, they have managed to catalyze large-scale change

in large corporations,

and that's no small feat.

Now, imagine a world

where all investors were working with management to make change,

not just to make more money,

but to improve the environment and society.

Imagine what a greener and better world this would be.

Now, why? Why would an investor bother?

And at first, blush I'm with you: Why would an investor care?

Because if doing well on ESG issues --

environmental, social and governance issues --

was just an act of good corporate citizenship,

then I agree, investors would not care.

But the good news,

and perhaps the saving grace for our collective futures,

is that it's so much more than an act of good corporate citizenship.

It's good business.

There's now enough evidence that shows a clear correlation

between ESG performance and financial performance.

Companies that do good for the environment and society

also do well financially.

And some of the best companies are catching on.

Like Adidas:

Adidas is cleaning up the ocean and making money in the process.

Adidas teamed up with an organization called Parley for the Oceans.

Parley goes out and collects plastic waste from the ocean.

Adidas uses the plastic waste to make shoes.

Shoes made with plastic from the ocean:

good for the environment and good for business.

Because if you know that rapidly growing consumer segment known as hipsters --

and I know you know hipsters --

then you know that a hipster faced with the choice between a no-name shoe

and an Adidas made with plastic from the ocean

will pick the Adidas every day of the week and twice on Sunday,

and then walk around like it's no big deal

but look for every opportunity to talk about them.

Like, in an Uber Pool.

(Laughter)

"Hey, I noticed you looking at my feet."

"What? Dude, no, I'm just making slides. I'm a consultant. I make slides.

I'm making PowerPoint slides, I'm not looking --"

"No, it's fine.

I get why you'd be looking.

The plastic on my shoe must be bothering you.

Well, let me talk about it for the rest of this ride.

You see, the plastic on my shoe is from the ocean,

on my feet, not in your fish,

being walked on, not being munched on.

Happy feet. Happy fish. Happy ocean.

Doing my part. I got eco-shoes. I got eco-shoes.

You need some eco-shoes?"

And so on, just cornering him. We've all been there.

"Hey, pass me your cell phone. I'll give you a discount code.

Let me give you a discount code."

We've all been --

Folks, I have jumped out of moving Uber Pools.

(Laughter)

Just, moving, highway, I'm out. I'm out.

But we've got to forgive the hipsters, we need to love the hipsters.

We need hipsters, and we need companies like Adidas,

and what we need most is for investors to convince other companies

to behave like Adidas.

And herein lies the challenge.

There's a growing group of investors, call them "conscious investors."

Conscious investors care about ESG issues.

And they talk a lot about engaging management on ESG issues.

But they don't actually get management to make changes

that will improve the environment and society.

And this is where conscious investors can take a page from the playbook

of the activist investors,

because the activist investors have no issues getting management to make changes.

They have no issues turning up the heat.

Take Paul Singer.

He's an old-school Wall Street OG,

now in his 70s, loves Doritos, loves making money.

Argentina owed Paul 600 million dollars

and would not pay.

Big mistake.

You can't take money from an OG and not pay it back.

Paul went to war with Argentina.

I am not inventing.

This is big. This was huge.

This was bigger than Tyson vs Holyfield,

Ali vs Foreman.

This was man vs country.

Paul Singer started going around the world trying to seize up Argentinian assets.

At one point, he tried to seize an Argentinian navy vessel

off the coast of Ghana.

He tried to take over a 350-foot ship

while big navy officers with big guns were on the ship.

He got the police in Ghana to show up with a crane

and threaten to board the ship,

and it wasn't until the navy officers drew their weapons

that they called off the operation.

That's what I call turning up the heat.

Now, you may say

Paul lost the battle.

And I'll say, Paul won the war,

because Paul didn't get paid one time,

he got paid 20 times his original investment.

Then you have Barry Rosenstein.

His fund, Jana Partners,

started stealth-mode buying up stock in Whole Foods,

at a time when Whole Foods was struggling.

They got to eight percent, came out,

and pushed Whole Foods to sell itself to Amazon,

and not because Barry wanted same-day delivery of his organic Doritos.

(Laughter)

He wanted to make some money.

Now, the CEO of Whole Foods, John Mackey, and the board

did not want to sell themselves to Amazon,

because that would be the prime example of selling out.

But in the end, they caved.

Why? Because Barry turned up the heat,

and he made 300 million dollars in the process.

And he did not leave a very nice impression on John.

You're not going to see John and Barry just hugging it out

at the Whole Foods café.

Let's take a very different example now:

the Chicago Teachers' Pension Fund,

a $10 billion conscious investor.

They recently came out hard against private prisons in the US,

and good for them.

As a new parent, I tell you, I am troubled by devastating images

of young children being ripped out of the arms of their parents

at the US border

and being placed in private detention facilities that did too little

to help the kids maintain contact with their parents.

So what did the Chicago teachers do?

Did they get management to make changes?

Did they turn up the heat?

Did they look management in the eye and say,

"This is no way to run a business.

There's a different way to do things. Let me show you"?

No. They just sold their stock.

Selling did nothing.

It's not like management woke up the next day

and had an epiphany and said,

"Gosh, the teachers sold their stock. We'd better be nice to the kids."

No. That didn't happen.

And despite a decade of several high-profile divestitures

in private prison stock in the US,

the stock has continued to climb.

The stock over that same period has outperformed the market.

And the biggest issue is,

we went from a set of conscious investors owning the stock

to it potentially being owned by investors who don't care about these issues

and don't care what you think about these issues.

And this is my issue with conscious investors.

Their MO is to divest

or divert money into ESG-focused funds.

You can't divest your way to a greener world.

You can divest your way to a greener portfolio,

not to a greener world.

So what's it going to take?

What's it going to take to flip the script,

to get conscious investors to go from divesting to engaging,

to go from talking about engaging to actually working with management

to make changes that will improve their ESG performance?

Because there's a lot suggesting they should and they could.

They should, given the clear correlation between ESG performance

and financial performance.

They could because the activists have shown us they could.

A shareholder can drive change in a company.

The difference is, Paul and Barry do what they do to make money.

The conscious investors would do it to improve society and the environment

and make money in the process

and do it a little more collaboratively and constructively.

And they have the backing of the some of the largest investors.

Vanguard and BlackRock -- together, they manage trillions.

They've been increasingly vocal about the importance of ESG.

The CEO of BlackRock has been increasingly vocal in his annual letters

about this issue.

Even Jana Partners, the same OGs that John called "greedy bastards,"

recently co-wrote an open letter to the board of Apple,

saying, "Hey, your smartphones are addictive for children.

Fix it."

Apple is working on it.

So what it's going to take is some pressure.

It's going to take some pressure on conscious investors

to, in turn, put some pressure on management

to make changes that will improve the environment and society.

And where do they start?

They start by picking an issue that matters to them

and taking a stand on it.

Take a stand on an issue that lines up with your purpose:

water preservation, labor rights, diversity.

As long as it lines up with your purpose, you are golden.

And the biggest unlock?

Get the senior-most investment professionals focused on this.

Today, when an activist shows up to a campaign,

it's the senior investment professional talking to the CEO and the board

and everyone hears about it.

When a conscious investor shows up to talk about an ESG issue,

it's some junior person in the risk department

talking to some junior person in the investor relations department,

and nobody hears about it, and that needs to change.

And it's not some massive leap.

Today, when a company underperforms financially,

who is on the hook?

The senior investment professional.

So what do they do?

They drop everything and work with management,

collaboratively and constructively,

to make changes to improve the company's financial performance.

The same should be true when the company underperforms on ESG issues.

And yes, that requires standardization on how we measure ESG,

but we're on it.

So folks, here's my call to action:

it's your money.

It's your pension fund,

it's your sovereign wealth fund.

it's your university's endowment.

It's your money.

And it's your right to have your money managed in line with your values.

So use your voice

and trust that it matters.

It was your voice that got the investors more conscious in the first place.

You protested for years,

because you didn't feel right about your money being invested

in companies whose values don't line up with yours.

It's time to use that voice again.

But this time, instead of pushing them to divest,

push them to engage, truly engage, truly work with management

to make changes that will improve their ESG performance.

You made them aware of the issues.

You can now focus them on fixing them.

Thank you.

(Applause)