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Calling Bullshit

BlackRock: More Bull on Wall Street?

Calling Bullsh!t February 9, 2022 616


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Our guests

As+You+Sow+-+Circle+Bio+Photos
Andrew Behar

@andrewbehar

CEO of As You Sow & Author of “The Shareholder Action Guide: Unleash Your Hidden Powers to Hold Corporations Accountable

MatthewWW
Matthew Weatherley-White

@i3impact

Former Co-Founder & Managing Director of The CAPROCK Group

RRw9tk87_400x400
Tariq Fancy

@sosofancy

Founder & CEO of the Rumie Initiative, Former CIO of Sustainable Investing at BlackRock

BlackRock CEO Larry Fink has come out strongly in favor of purpose-led companies. Does he really mean it?

Stated Purpose: To help clients meet their social and financial objectives by linking sustainability with financial returns. 

$9,000,000,000,000. That’s the amount of money Larry Fink and his colleagues at BlackRock manage. Over the past few years, Mr. Fink has begun to use his powerful position to promote the need for all companies to become purpose-led and create positive social and environmental impact.

Can BlackRock drive real change? And to do so, who might they need to piss off? In this episode, we dive deep into the world’s largest asset manager to uncover the balance between Fink’s message and the constraints that might hold BlackRock back.

It’s like giving wheatgrass to a cancer patient. You’re not making them better and you’re delaying getting them real treatment.

– Tariq Fancy

BlackRock’s BS score is

Show notes

Episode Transcript

MUSIC: “Shit Got Real” BY Jess Fenton 

LARRY FINK CNBC DAVOS 2018 

[SOT Interviewer] Larry Fink of BlackRock, chairman and CEO joins us right now…

[SOT Larry Fink] I truly believe the purposeful companies they’re going to be focusing on the long term impact on climate change and how it impacts their company.

ANDREW BEHAR

It’s a total philosophical shift of what a corporation’s for. Everybody’s calling it greenwashing. And I disagree. 

TARIQ FANCY

When you have actions that sound good, but in effect, they don’t really amount to much in reality, it’s actually more dangerous than we think.

TY MONTAGUE INTRO (VO) 

 Welcome to Calling Bullshit, the  podcast about purpose-washing…the gap between what companies say they stand for and what they actually do — and what they would need to change to practice what they preach. I’m your host, Ty Montague and I’ve spent over a decade helping companies define what they stand for —  their purpose — and then helped them to use that purpose to drive transformation throughout their business.

Unfortunately, at a lot of companies and organizations today, there’s still a pretty wide gap between word and deed. That gap has a name: we call it Bullshit. 

But — and this is important — we believe that Bullshit is a treatable disease. So when the bullshit detector lights up, we’re going to explore things that a company should do to fix it. 

TY MONTAGUE (VO)

In this episode, we’re going to look at Blackrock  — the largest investment management company in the world.  They manage over nine TRILLION dollars in assets and their global influence is undeniable. 

In his annual letter to the heads of the S and P 500 companies, Larry Fink, BlackRock’s CEO has stated that their purpose is to help build a more equitable, financially resilient future — not just for their customers, but for the planet too. 

That’s an admirable and lofty goal. But is it true? That’s exactly what we’re going to explore in this episode. 

TY MONTAGUE (VO)

To really understand Blackrock’s story, we need to understand how American business has evolved over the last several decades. So we’re gonna go back in time… all the way back to the end of World War II, when the US economy began a period of rapid expansion.

Roosevelt Archival (Paid Stock Footage)

[SOT] President Roosevelt approves legislation to provide for America’s war veterans in the peace to come. By law, federal loans, free schooling, job insurance, and complete rehabilitation are among the benefits assured every man and woman in the service. 

TY MONTAGUE (VO)

The GI Bill helped a generation of returning soldiers go to college, secure good jobs, and buy homes. The manufacturing and service sectors grew…

1950s Dodge car commercial 

[SOT] Gonna take my two hands and build an automobile… 

TY MONTAGUE (VO)

and companies were eager to sell to an expanding American middle class. 

1950s Dodge car commercial 

[SOT] How many dreams can you shape in a minute? Ask the people at Dodge… 

TY MONTAGUE (VO)

There were a few other factors behind that postwar economic boom. First, many business leaders believed that they had wider responsibilities to people and communities, not just their shareholders. 

And second, the effective tax rates on individuals and corporations were higher, which meant that all of that wealth was being re-distributed more efficiently. 

In the 1950s, CEOs were only making about 20 times more than a typical worker. By 2020, that was 350 times more. And back in the 50s, Union membership was high, and upward mobility was real for many Americans.  

And then in 1970 it all came to a screeching halt. 

MILTON FRIEDMAN LECTURE 1 

[SOT] It gives me the great pleasure to present to you today Professor Milton Friedman.

TY MONTAGUE (VO)

The world-renowned economist Milton Friedman published an essay in the New York Times that had a colossal impact on American business. He introduced the concept of neoliberalism that rejected the idea that companies should have a “social conscience.” 

MILTON FRIEDMAN LECTURE 1

[SOT Student] In Ohio an old man failed to pay his electric bill – you may be familiar with the case – and the electric company turned off the electricity and he died. 

[SOT Milton Friedman] Who is responsible? Let’s suppose the electric company followed the practice of never turning off anybody’s electricity. Who would pay the cost? The responsibility really lies not on the electric company for turning it off but on those of this man’s neighbors and friends and associates who were not charitable enough to enable him as an individual to meet the electric bill. 

TY MONTAGUE (VO)

 Friedman believed a business had only one social responsibility: to make money for its shareholders. To him, an executive that wanted their company to “eliminate discrimination” or “avoid pollution” was,and I quote, “preaching pure unadalterated socialism.” 

Humanist capitalism, which said you had responsibilities to your workers, and your community — was out. Predatory capitalism — the dog-eat-dog, short-term approach to success — was in.

[SOT Gordon Gekko] The Point is ladies and gentlemen, that greed is good. 

TY MONTAGUE (VO)

In pursuit of bigger profits, corporate leaders began to hack away at internal costs… 

[SOT Gordon Gekko] Greed is right. Greed works. 

TY MONTAGUE (VO)

 …paying the lowest possible wages, providing less training, less paid time off., … or none at all. 

[SOT Gordon Gekko] Greed claries, cuts through and captures the essence of evolutionary spirit. 

TY MONTAGUE (VO)

But the really bad behavior happened at the regulatory level. Corporations lobbied relentlessly to lower the corporate tax rate and weaken environmental protections. Which is why humans are now facing the existential crisis of climate change. 

TY MONTAGUE (VO)

OK, so where does Blackrock fit into all this? More precisely, where does BlackRock CEO Larry Fink fit into all of this?

 Back in the height of the predatory capitalism days of the late 1980s, Larry and seven other finance executives had an idea to create a risk-reduced asset management company. Or, in plain English, a safer place for rich people and big institutions to park and grow their money.

TY MONTAGUE (VO)

At first, pursuing Friedman’s doctrine, Blackrock just wanted to get as big as possible, and they did — eventually becoming the largest investment manager in the world. 

But then, in 2014, Larry Fink did something really frickin bizarre…

He started talking about the responsibility businesses had to help solve the big issues of the world. He was advocating that businesses become purpose-led. An idea that was seemingly at odds with Friedman’s philosophy that had taken the Western world by storm back in 1970.

LARRY FINK FOX BUSINESS 2014

[SOT] BlackRock chairman and CEO Larry Fink, sending a letter to the CEOs of the S and P 500 companies…warning them not only about activism and short-termism but also calling on them to focus more on long term growth.

TY MONTAGUE (VO)

And when Larry talks, CEOs listen. And suddenly, he was saying stuff that would make Milton Friedman sit up in his grave.

LARRY FINK FOX BUSINESS 2014

[SOT] We are interested in long-term results, not short-term results..

TY MONTAGUE (VO)

Larry started talking about the need for companies to take care of stakeholders — and not just shareholders. And he began hammering CEOs to take a role in actively addressing climate change. 

LARRY FINK CNBC 2020

[SOT] Big news from BlackRock this morning… the world’s uh.. asset manager now announcing the firm will make investment decisions with environmental sustainability at its core……

TY MONTAGUE (VO)

And finally, in 2019, Larry led a coalition of CEOs of nearly 200 of the world’s largest corporations, called the Business Roundtable, to publish a letter re-defining the true “purpose” of a corporation.

LARRY FINK CNBC DAVOS 2018 

[SOT] You effectively suggested that it’s not just profit, that you’re after as an investor, but to get to that to get to that profit, you think that these companies need to have a social purpose, which is a little bit stepping out.

[SOT Larry Fink] Well, no, I don’t think it’s stepping out. I think I’m actually reconfirming what Milton Freidman said. If you read his whole essay that everyone talks about, he talks about that you need to be connected in your community. I believe the companies that have purpose are the best companies in the world, because it unites their employees. It connects the clients, it brings the organization onto a common plane. 

TY MONTAGUE (VO)

 Look I love that Larry Fink is saying this stuff, and putting videos like this on the Blackrock website… 

BLACKROCK PURPOSE VIDEO (00:37)

[SOT] We contribute to a more inclusive and resilient economy that benefits more people…This is how we remain true to our purpose of helping more and more people experience financial well-being.

TY MONTAGUE (VO)

…but what we need to get to the bottom of is, does he really mean it?  Or is it just a bunch of BS?

MUSIC: “Kid Kodi” by Skittle courtesy of Blue Dot Sessions

TY MONTAGUE (VO) 

So let’s start digging.

For more context on how investors — and investment managers like Blackrock — can push companies to clean up their act, I called up Andrew Behar. He’s the CEO of a nonprofit called As You Sow, which supports shareholder advocacy. That’s S-O-W, like the proverb, “As you sow, so shall you reap.” 

He’s also written a book called The Shareholder’s Action Guide: Unleash Your Hidden Powers to Hold Corporations Accountable. 

TY MONTAGUE

Andrew, thank you so much for being here.

ANDREW BEHAR

My pleasure. 

TY MONTAGUE

We’re here to talk about BlackRock, but having read your book, I wanted to start out today talking about the work you’re doing at As You Sow. 

ANDREW BEHAR 

Sure. So As You Sow is a 501c3 non-profit, we were founded in 1992, when you focus on corporate accountability from the viewpoint of shareholders. So we engage major companies, generally S and P 500 companies, as shareholders, and we bring to them a message around,really around material risk. And as shareholders, we want to see them improve…

…We’re advocating on behalf of the company, creating more environmental, social, and governance policies and practices. 

TY MONTAGUE 

Can you talk a little bit more about how shareholder advocacy works? Like, what the primary mechanism is?

ANDREW BEHAR 

Sure. So the SEC has a rule called 14a-8, which says that shareholders that have a certain amount of shares for a certain amount of time, have legal standing to ask the companies certain things. 

TY MONTAGUE (VO) 

For example, as shareholders, As You Sow approached Yum brands – the parent company of Taco Bell, Long John Silvers, and Pizza Hut…to advocate for the reduction of plastic in their restaurants that ultimately ended up in the ocean.

ANDREW BEHAR 

So we went to the company and said, our brand, Yum! Brands, is being associated with the destruction of the ocean ecosystem. And we have a solution. It’s a really very simple solution that’s going to actually cost us a lot less than this negative brand association. And we suggested this and the companies, they said, okay we’ll think about it. We escalated, we filed a shareholder resolution… 

TY MONTAGUE (VO) 

If you’re not familiar with that term, a shareholder resolution is a document a shareholder can file six months before a company’s annual meeting, which is then put to a vote.

ANDREW BEHAR 

There’s a whereas clause, which says, ‘whereas the company continues to use styrofoam and the styrofoam is finding its way into the ocean and it’s causing this destruction, whereas we have all this evidence and there’s footnotes about what this destruction is doing. Therefore, it’s resolved that the company will write a report about how this plastic use is impacting the ocean and potentially having a negative impact to our brand, which is a material issue for shareholders.’

TY MONTAGUE (VO) 

These resolutions for change can be a big pain in the butt for companies like Yum! brands … so there’s a real incentive to settle the issue before a vote.

ANDREW BEHAR 

So then what happens is the company then has a conversation with you and they say, we’d like you to withdraw. And you say, well, we’ll withdraw if you will pledge to change this practice. And sometimes the company says, okay, and sometimes they say no. And if they say no, You talk to press about it. You talk to other investors about it.

TY MONTAGUE (VO) 

To get a better understanding of the potential impact that shareholder advocacy can have – In 2021 alone, As You Sow met with 188 companies to discuss pressing global issues. 

ANDREW BEHAR 

climate change, ocean plastics, toxins in the food system, antibiotics in meat, racial justice, diversity, equity, inclusion, egregious CEO pay, all these different issues. And $1.7 trillion of assets were voted yes on As You Sow resolutions. 

TY MONTAGUE

Right. And one of the things that you pointed out in your book was that there was a time when it was pretty rare for shareholder resolutions to even get 10% of the vote. Today you said that they routinely get 20, 30, even 40% of the vote. So it seems like this is picking up momentum, would that be accurate?

ANDREW BEHAR

The institutional share owners are voting much more frequently and also much more, for the resolutions and against management than ever before. I mean, it kind of leads us into a BlackRock conversation. Just this year, BlackRock increased from a 17% voting against management to 34%. So when BlackRock flexes its power, it really ripples through the system. And the question I always have is why don’t you use it more often? Like for instance, Larry Fink’s letters points out that there is– every company should have a climate transition plan that is aligned with Paris, that has a 5% emissions reduction every year for the next 10 years. I mean, he puts it in his letter, but then he stopped short and never says, or we’ll vote against your board, or we’ll drop you from our managed funds. If he did that, every company would have a Paris-compliant transition plan overnight. 

TY MONTAGUE

Why should any other CEO listen to what Larry Fink has to say? What’s special about Larry Fink? 

ANDREW BEHAR

They own about 7 to 12% of every company. 

MUSIC: “Calisson” by Confectionery courtesy of Blue Dot Sessions

TY MONTAGUE (VO)  

Uh…In case you didn’t catch that, Andrew just said BlackRock owns about 7 to 12% of every company. He also goes on to say that historically Blackrock doesn’t share what they learn with other shareholder advocates. 

So, on the one hand, it seems like there’s problematic behavior on BlackRock’s part – from a shareholder advocacy standpoint. On the other hand, there’s also some good behavior, specifically what Larry Fink is addressing in his letters.  

TY MONTAGUE

And I’ve read his letters going back to 2015. And I guess it’s a fascinating read to read them in sequence because it feels like you’re watching the progression of Larry Fink’s thinking. He starts out talking mostly about the need for CEOs to make the mental shift from thinking quarter to quarter to thinking longer term. And that struck me as in itself, a pretty unusual stance for someone in finance. Would you call that accurate?

ANDREW BEHAR

People who truly understand finance, They acknowledge that, they acknowledge that it’s true, that really this whole idea of short-termism is an antiquated myth that needs to be overturned. And when Larry Fink says it, well, there’s a lot of gravitas behind when he puts it in the letter. So hopefully that’s starting to sink in, that actually what investors want to invest in is companies who disclose honestly, tell us exactly where you are, lay out a trajectory for where you want to go and then tell us, as you’re hitting your six month, one year, two year milestones, now if you don’t hit your milestones, tell us what course corrections you’re going to make. Investors will reward that.

ANDREW BEHAR

We’re tossing out Milton Friedman. Uncle Milton’s going under the bus. It’s a total philosophical shift of what a corporation’s for. Now what’s happened since then is everybody’s calling it greenwashing. And I disagree. It’s a philosophical shift that’s gonna take some time to implement. 

And I believe that what we’re seeing is the actual emergence of a new economy, a regenerative economy, based on justice and sustainability, that’s replacing our current economy that’s based on extraction and destruction. We’re right at this inflection point, right now, this minute and that’s why people feel so much turbulence. They don’t quite know what to do with it. It’s because we’re just in this birthing cycle–

TY MONTAGUE

And births are messy. You actually wrote a, I found, incredibly smart and very entertaining letter as a response to Larry Fink’s letters to CEOs. Could you talk a little bit about what you said in that letter and why you said it?

ANDREW BEHAR

Sure. So you know, I read his letters and I, in my mind, I think if only Larry had sent this to me before he published it, I would have marked it up for him and he would have done much better. So I took his letter. I literally put it into word. I did exactly what I would have done if Larry had said, ‘Hey, Andy, can you mark this up for me? ‘I finished his sentences. When he says companies should have a climate transition plan or report against it every year and have 50% emission reduction by 2030, I added or we’ll vote against your board. And if you don’t get it done in a year, we’ll remove you from our managed funds.

TY MONTAGUE

Right.

ANDREW BEHAR

I just concluded his sentences by adding action. I thought he brilliantly laid out the problem. And so I just helped him a little bit. 

TY MONTAGUE 

Oh, I thought it was great.

Andrew, we have a thing on Calling Bullshit called the BS scale. So, on a scale of 0 to 100– zero being bullshit which means the company means everything it says, and 100 being just complete BS, where would you rate BlackRock?

BS RATING THEME

ANDREW BEHAR 

Getting better? Larry’s letters have been instrumental in just awareness that climate change is this investing risk to the entire system. They’ve been instrumental in actually, this whole idea of stakeholder capitalism. So I have to commend him for what he’s done. My problem is you didn’t finish the sentence with, “or we’re going to vote against your board.” And if he did that, if he said, and we’re going to use our power, then I would give him square at zero, that’s what we need. 

So I don’t have an exact number for you, but I’d say it’s a work in process and they could do a lot more and they have the power to really make incredible change.

TY MONTAGUE  

So what is the one thing Andrew, that BlackRock needs to do or change to better align its actions with the purpose that Larry is talking about?

ANDREW BEHAR 

They need to stand with the other shareholders. Stand with the entire shareholder advocacy community to vote with us. We spent a lot of time and energy on this and yet, generally Blackrock says, well, we met with the company and we’re cool. Trust the shareholder advocacy community. Support us. That would be a shift in where we’re heading and the speed at which we can get there.

TY MONTAGUE 

Andrew, thank you so much for being here today.

ANDREW BEHAR

Thank you very much.

TY MONTAGUE (VO)

Folks, it is time to make the call: is Blackrock really taking action to contribute to a more equitable, financially resilient future for all? Based on what I’ve heard so far, I’m calling a qualified BS. I think there’s some bullshit here. But there are also some really positive signs. 

So what should Larry do now? Up next, we’ll hear solutions from some experts in impact investing, including a Blackrock insider and whistleblower.  

TY MONTAGUE (VO)

All right, before the break I called a qualified bullshit – there’s still a gap between what Larry Fink is saying Blackrock stands for and the actions they’re taking. 

So what should Larry and his leadership team do about that? In this podcast, we don’t just curse the darkness we also like to light a few candles, so I’ve invited two impact investing experts to propose some concrete things that Blackrock could change to actually do their story around sustainable investing. 

TY MONTAGUE 

First up, I’d like to welcome Matthew Weatherley-White. Matthew is a co-founder and former managing director of The CAPROCK Group, a multi-family office based in Boise, Idaho, advising over 3 billion dollars, roughly a third of which has been deployed with an eye toward impact investing, which they define as pursuing positive financial return while simultaneously creating durable, measurable, social, and environmental value. Welcome Matthew. It’s great to have you here.

MATTHEW WEATHERLEY-WHITE

Thanks for asking me to join this conversation. I’m totally excited.

TY MONTAGUE  

We are also joined by Tariq Fancy. Tariq has held multiple positions in finance at firms like Credit Suisse First Boston, MHR fund management, and the Canada pension plan investment board. And in 2017, Tariq joined BlackRock where he was the chief investment officer for sustainable investing. I actually love that he has this in his bio so I’m just gonna read it, after trying to make Wall Street more green from the inside, he realized that there was no real social impact happening. Rather just a bunch of marketing. Tariq, thank you so much for joining us today.

TARIQ FANCY

Glad to be here.

TY MONTAGUE 

Okay. So let’s get right into some ideas for BlackRock, Matthew in two minutes or less, What’s the number one thing BlackRock should do to better do their story?

MATTHEW WEATHERLEY-WHITE

I think that you teed it up beautifully, there’s this gap between what Larry Fink is saying very publicly in his annual letters and what BlackRock appears to be doing. And that really begs the question, is that gap structural, institutional, or operational? And I think it’s a little bit of all three, right? If I were Larry Fink I would do one really simple thing, I would change the new client form to require investors, to opt out of sustainable and impact investing and instead opt in….

Because I think if you make it that explicit rather than forcing people to opt into a more inclusive regenerative, equitable style of investing, if instead you make people opt out, I think the proportion of people who would choose to opt in to that sort of the negative shadow world of investing, which is now the ubiquitous approach, right? Everybody does that because everybody’s being asked to opt in to sustainable impact investing, I think the messaging alone would give Larry Fink so much power, so much sort of political capital to force change within the organization that that institutional, operational hesitation slash resistance slash intractability– I think it would sort of collapse by on its own weight. when you look at organ donation, for example, and the percentage of people that opt into organ donation versus opt out of organ donation, it depends entirely upon how the form is structured. And if you have to opt in, it’s like 15% of the people who are signing it opt in to have their organs donated. But if you make them opt out, it’s like 85 or 90%. 

TY MONTAGUE 

So just change the default setting, essentially?

MATTHEW WEATHERLEY-WHITE

It’s one of those really simple, really deceptive. And I’m guessing that Tariq will say totally not possible, but I feel like there’s one thing I would do…

TY MONTAGUE 

Yeah, no, I think that’s a super cool idea.

MATTHEW WEATHERLEY-WHITE 

Reframe the whole conversation.

TY MONTAGUE 

Matthew, that was great. Thank you. Okay, Tariq your turn. In two minutes or less, what’s your idea to get BlackRock’s actions better aligned with their stated purpose?

TARIQ FANCY 

Well, I mean, I obviously know BlackRock from the inside. I know Larry personally and worked for him and I think he’s extremely intelligent and talented. What I think he should do is actually be honest about the limitations of what business and financial markets can do without government regulation. And what do I mean by that? I don’t think that the financial markets right now are structured in any kind of way where they can address the climate threat because people are still able to pollute and they don’t pay the cost of that pollution. The biggest issues surround the fact that the entire system is structured to chase yield and profitability. That’s not just BlackRock, that’s every single firm, including all the ones I’ve worked at. And that’s not a bad thing,I’m not disparaging it. I’m being realistic about a system that has been built with a chain of legal and financial obligations that Larry himself can’t intervene in, and they’re all around chasing profit.  think the most important thing that you can do is actually look and say, listen, you know, we, business leaders will lead as much as we can, but we need referees just like a competitive sports game has competition and there are rules and people compete on a playing field. Well, right now, the idea that I think that the players will figure it out all on their own, through good sportsmanship is the idea he’s peddling. And I think it’s ridiculous to be honest. And I think that it’s burning valuable time,We clearly need updated rules and referees for capitalism. And I worry that instead of doing that, we’re beholden to a set of neoliberal theses that emerged in the eighties and have convinced us that we don’t need regulation that the free market will figure it all out and that is, to a large extent, what impact investing in ESG is all about. These are all based on free market self-correct theories. And I think that the sooner he accepts that we don’t have time for that, and the experts are telling us, we need systemic reforms, the faster we can actually create some real change.

TY MONTAGUE

Right. love that idea also. Thank you, Tariq. So it’s my turn. And you know, I approach this with some trepidation because you guys are the experts here, but um my perspective is that BlackRock has done two important things. 

The first is the act of actually publishing the letters that call for CEOs to think longer term, to become purpose-led to tackle specific problems like climate change. The second important thing that BlackRock has done is getting members of the Business Roundtable, which for our listeners is 200 CEOs from the world’s largest corporations, to basically publicly say that Milton Friedman was wrong. And that the purpose of a corporation has to change from, you know, merely enriching shareholders to seeing to the needs of broader stakeholders. And I think the issue right now is that nobody knows what to do next. And so Larry Fink, having started this conversation now needs to lead it into action. And from my perspective, that means using BlackRock’s money as a hammer to create change forcing fund managers to get transparent about where they’re invested for instance. And I think it means making sure that the entire financial industry has a set of measurements that are adopted as the final answer for ESG investments. I think BlackRock needs to lead this and in a way, I think they need to designate themselves as sheriff and actually start policing some of those metrics– calling folks out who don’t measure up, calling some out who do measure up and probably most importantly, calling themselves out when BlackRock itself doesn’t measure up. I think that would go a long way toward building trust.

TARIQ FANCY

Can I jump in and disagree with that? 

TY MONTAGUE

Of course, yes. Please.

TARIQ FANCY 

I think that the worst thing possible for society is that BlackRock plays sheriff. 

TY MONTAGUE 

Mm. Why is that?

TARIQ FANCY 

Because, I mean, how would it have worked if we allowed, in the subprime crisis and the financial crisis, you know, 10, 15 years ago, if we had said, hey, let’s let the financial banks and all be their own sheriffs? We tried that, it’s called self-regulation. It doesn’t work because when their incentives, which are extraordinarily short-term, right, they’re focused towards the next few years and their bonuses. When those incentives don’t align with the long-term public interest, for example, for long-term sustainability issues, you can be sure that a system like that is going to put the capital where their incentives are and not where we needed to go as a society. A hundred years ago an economist called Arthur Pigou started coming up with the theory of externalities. And the idea was that if you’re creating private profit in a way that hurts the public interest, you have to pay the cost of it. In other words, you’re polluting. You have to pay tax for that pollution or fine or something. That is what changes incentives. That’s a market-based mechanism because now you’ve just fixed the rules of the game. The players within that compete to score as many points or profits as they can within a new paradigm. 

TY MONTAGUE

Well, okay, I hear that Tariq. And, I just want to clarify, cause I’m not saying that BlackRock should be able to regulate the entire industry. What I am saying is that the industry needs a set of metrics that everyone is aligned on to define what is meant by ESG investing and what the metrics are that the industry is going to align on. And if, BlackRock took leadership in developing those metrics and then policed those metrics, they would be seen to be truly leading the action that needs to happen, as opposed to saying it, but not doing really anything about it.

TARIQ FANCY 

That’s a fair point. The only thing I’d say though, is that the issue isn’t that Larry can do a whole bunch of things to address climate change, but he’s not. The issue is that he can’t do that and he’s saying he can, that’s the issue, what I saw inside the system was that all the portfolio managers and capital allocators are doing exactly what they should be doing, they’re chasing the highest yield they’re chasing the most profitability. They should be doing that because that’s not Larry Fink’s money. The nine and a half trillion that BlackRock manages is on behalf of clients. Most of it’s retirement money from you know, average people. And so that money, he can’t do what he wants with it. That has to be invested to maximize return measured in dollar value, not social values. That’s a legal construct, it’s the idea of fiduciary duty, there’s no choice to have around that. 

MATTHEW WEATHERLEY-WHITE

Is there evidence that says by incorporating environmental or social consequences, we are by definition generating below market returns?

TARIQ FANCY 

I can tell you as a trained investor who was integrating environmental and social considerations into the largest pool of assets in capitalism, that generally speaking, the idea that ESG is beneficial to returns is for the most part a fantasy. Let me give you an example. cause this happened— I’m a portfolio manager and I have to allocate capital and it could be to renewable power, or it could be to fossil fuels. Now absent a carbon tax, and we know Nobel prize winning economists telling us we need a carbon, we need something to correct the market failure, absent that? The portfolio managers going to invest more in fossil fuels than we need for them to, right. So we need a carbon tax. What Larry’s out there saying is, which sounds similar to the sort of the broader thesis, is that ESG is good. And if you have the right tools and you have the right data, then you’re going to do the right thing and invest in it. And what I’m telling you is that when it’s more profitable for companies to underpay their workers, to not invest in renewable power, to not make long term sustainability investments, and you have the executives, who’s going to top that system with very short-term incentives. They’re not paid to care about long-term issues. They’re just not going to do it. it’s not because they’re bad people, it’s because the system is not built for them to do it. So they can consider ESG. But the issue is– the ESG thesis at its core says, ESG is good for returns, which is financial jargon proxy for saying, being a good responsible company is better for your profits. The problem is that’s not true. if the ESG data tells you that you should invest in a company that’s less responsible, they’ll do that because they’re fiduciaries, they have to do that. Think of that sports analogy, right? You’re on the field to score as many points as you can. Now, what would figure it out is that dirty play, actually scores more points. 

MATTHEW WEATHERLEY-WHITE

You raise Milton Friedman, right? he wrote, “in a free enterprise, private property system, a corporate executive is an employee of the owners of the business. So to your point, the future responsibility comes in from that regard, et cetera, he has direct responsibility to his employers. That responsibility is to conduct a business in accord with their desires, which generally will be to make as much money as possible”– and here’s where it gets interesting– “while conforming to the basic rules of society, both those embodied in law and of those embodied in ethical custom.” 

And I think that that little phrase, like it undermines so much of what we say Milton Friedman said, because to your point earlier, Tariq, if the government changes the rules and poses a carbon tax,  Enforces gender parity in the C-suite, like whatever the rule is, capitalism will adapt and reflect that immediately. That’s what capitalism does really, really well. But to say that in the absence of that, it’s not designed to do it. I totally call bullshit on that. I think capitalism is an extraordinary optimization mechanism.

TARIQ FANCY 

So you’re saying that the market will self-correct itself on climate change? Because that’s effectively what you’re saying cause otherwise you need a rule change.

MATTHEW WEATHERLEY-WHITE

No, no I’m saying that the market will reflect– given the conformance, the basic rules the society goes embedded in law that’s embedded in ethical customs. That’s why I think that opt out idea is interesting because the ethical custom has no way of expressing itself in the markets right now. There is no way for the general public to say, hey, we think that corporations should be thinking more about climate change absent selling some shares with, you know, whatever, that’s still not going to work. 

But if there was this way to message the ethical custom and back it up with the standards and bodies in law, suddenly I think Wall Street changes on a dime.  I think that, Tariq, for you to say that Larry Fink sort of can’t act in accordance with his values or his stated objectives in his letters, because the regulatory framework doesn’t let him, I think that is effectively inviting regulation that he’s writing reregulation or something, because it seemed like I really want to do this, but I can’t, therefore I need government to act so that I can do this. I don’t know if he’s saying that, but that’s sort of the framework that I hear.

TARIQ FANCY

He’s not saying that, but I mean, that’s what even portfolio managers have told me. So their point was, listen, I’ll reduce my carbon footprint if someone puts a tax on carbon, everyone will, even if you don’t believe in climate change. But asking them to voluntarily do it when the reality of the economics is that it’s actually profitable for them to do things we don’t want them to do as a society just doesn’t work. It’s not because they’re bad people, it’s because the system was built according to incentives and legal obligations. And they’re not set up to give us the outcomes that we need.

TY MONTAGUE

What’s wrong with the idea though, of BlackRock getting on offense and spearheading a drive to change government regulation here?

TARIQ FANCY 

So he could say, listen, our experts in society tell us we need systemic reform, so those are going to have to come through government, because that’s the only way we’ll flatten the curve fast enough. And you know, what we’re going to do is both come out and say that, which he hasn’t done. And again, if he doesn’t say that, it misleads the public and number two, say, hey, we’re going to start using our lobbying efforts to actually say, hey, we need a price on carbon. If he did that, I would say, hey, you know what? I think he actually wants to fight climate change. 

TY MONTAGUE

Right. I want to pivot for just a second to a couple of other ideas. In his letters, Larry talks about net zero as being the goal, that essentially getting our carbon production to zero. from producing more carbon than is absorbed to producing the same amount of carbon that the planet absorbs currently. So that net zero carbon is being added to the atmosphere. What do either of you think about net zero as a concept? 

TARIQ FANCY

The average CEO gets paid 320 times the worker in that industry. That’s the highest it’s been in decades. The average CEO also spends five years in their role, that’s the shortest it’s been in decades. So what you’re saying is that the average CEO gets paid a hell of a lot of money in a very short period of time, in five years, what they might’ve gotten 10 or 15 or whatever years before. When you have very short-term incentives like that and then you say, okay, the goal is net zero by 2050, and it’s 2021, I mean, call me a skeptic but….

TY MONTAGUE 

Yeah…Matthew, you did a Ted Talk a little while back in which you say that you believe that in the future, all investing will be ESG investing. I’d love to hear you talk about where you think we are on that transition because it’s certainly grown in popularity since you made that statement. 

MATTHEW WEATHERLEY-WHITE 

Yeah so my optimist’s hat goes back to what I would have Larry Fink do, right? Which is really a gigantic public statement of values. When I put my pessimist hat on, I say, well, if 10 years ago you would, you would have said to me, well, by 2022, we’re going to have trillions of dollars pointed towards ESG, we’re going to have hundreds of billions of dollars towards pointing towards climate resiliency, the issues of gender parity and pay equity and underrepresented minorities is all going to be sort of on the table. I would have said, holy shit. Like, well, if that’s all there in 10 years, we would’ve won. We’re there. We’re good. 

TY MONTAGUE

Right.

MATTHEW WEATHERLEY-WHITE 

Quite to the contrary, the problems are more acute now than they were a decade ago. And so I think to sort of pick up a thread that Tariq laid down, earlier, the failures are disorienting. I mean, they’re so persistent that it’s dispiriting to me. So yes, I do think that I do think that eventually particularly relative to climate resiliency, it will simply be unacceptable to make investments at some point with utter disregard to the environmental consequences and just pretend that they don’t exist. Like I think that will be eventually just unacceptable behavior in much the same way that, slavery was rendered unacceptable or colonialism was rendered unacceptable, right? And yet the timeframe is so compressed right now around climate change that I really worry whether or not the market response mechanism, blunted as it is by a regulatory framework and ethical framework on Wall Street, is even remotely able to respond in the timeframe that we need it to. 

TY MONTAGUE 

Right. but I also, I was reading an article in preparing for this discussion about an attempt to classify investment, green investing essentially, in the EU. And they have three classifications, but it’s essentially dark green, light green, and then everything else. They were saying in the current investing environment, everyone wants to position themselves as either light green or dark green and because of that, it raises the specter of just ongoing purpose washing. 

TARIQ FANCY 

Absent any regulation on what is a green fund or not, there’s going to be a race to the bottom because you’d be insane not to call your fund green if everybody else is, right? So the EU taxonomy does help in that sense because at least you have some rules around what it means to be green because otherwise it’s not just funds, it’s anything, right? Imagine you go to the grocery store or anything else, if there’s an environmentally green product, it looks nice, people will pay more for it and prefer it. But the challenge is no one’s actually going and saying, but is this detergent truly sustainable, right?

MATTHEW WEATHERLEY-WHITE

I think one of the biggest challenges in the whole attempt to taxonomize and categorize impact is that everyone’s sort of competing for market share based on their own new taxonomy. And so we have this huge dispersion of frameworks and measurement systems and et cetera. To go back to Tariq’s idea that we need regulation, that’s what drives a lot of this. I totally agree. And I’m not like a huge fan of over-regulating everything, but we, it has to happen.

TY MONTAGUE

I want to go back to BlackRock a little bit. Earlier in this episode, I interviewed a guy named Andrew Behar, who is the CEO of an organization called As You Sow. And he pointed out that at the 2020 BlackRock general shareholder meeting, he challenged Larry Fink to actually implement some of the great ideas that he talks about in his letters. And Larry’s response was, we are fully implemented.

MATTHEW WEATHERLEY-WHITE

[laughing].

TY MONTAGUE

And that, that, that gave me pause. That’s one of the reasons that I decided to feature BlackRock is that seems like bullshit to me. 

MATTHEW WEATHERLEY-WHITE

That’s bullshit.

TY MONTAGUE

Right. Tariq, I assume you would agree with that. 

TARIQ FANCY

I don’t think it’s necessarily bullshit because this is the point I’m trying to make is that there’s limits on what he can do.You don’t have a thesis to say, you should do it because it’s good for the world. You can’t do that. You have to do it in, in shareholder interests. And if the shareholder interests is that you can make more profit in the next few years, dumping chemicals in the river. And there’s no reason to ever believe that anyone’s going to make them pay the cost of that. There’s no referee coming in saying, you can’t do that, you’re going to pay a fine. Then technically as a fiduciary, you should be doing that.

MATTHEW WEATHERLEY-WHITE 

And to your point, Tariq, that’s actually where the bullshit lies, that he’s not giving the full context around his answer.

TARIQ FANCY 

Going out there and implying that you can do lots of amazing things… I realized it wasn’t going to work and I left. This is like giving wheat grass to a cancer patient, right? It’s really nicely marketed. It sounds great. but there’s no reason to think it’s going to stop the cancer. And if the rest of world doesn’t know that and it’s going to take them a few years to figure it out, then it’s much worse because we’re burning time, right? you’re giving wheat grass to a cancer patient and then you can clearly see clearly that the cancer patient’s delaying chemotherapy. 

TY MONTAGUE 

Yep. I like that. Okay, gentlemen, this has been fantastic. I want to thank you both for being here today and to wrap this discussion up, I want to ask each of you to give BlackRock a BS score. So on a scale of 0 to 100, 100 being the worst, total BS, and zero being the best 0 BS, what would you give BlackRock? Matthew, why don’t you start?

BS RATING THEME

MATTHEW WEATHERLEY-WHITE  

During the course of this conversation, I have to admit that my perspective has shifted. 

TY MONTAGUE

That’s good. That’s what we’re here to do. 

MATTHEW WEATHERLEY-WHITE 

Yeah, I’m gonna give, I’m going to give Tariq a nod there. And It is a perspective that’s shifted along two axes. 

First, I feel like my Bullshit rating has gone up [ha] because what I see now is Larry Fink is actually exploiting his role as a perceived leader while knowing full well without disclosing it, that he can’t do anything, right? And so on one level my BS meters pinned at a hundred. But on the other hand, I’m sort of more empathetic than I have been to structural impediments, I wasn’t quite willing to give Larry Fink or the leaders at BlackRock a little bit of room, a little bit of empathy I guess to work within a system that’s just simply intractable. And so I’m going to split my score [ha] and go 100 slash like 40.

TY MONTAGUE

Fair enough. We’ll work with that. 

MATTHEW WEATHERLEY-WHITE 

[laughing]

TY MONTAGUE 

Tariq, what do you reckon?

TARIQ FANCY 

Ah. I would say that it’s closer to a hundred than it is to zero, but I would also add that I don’t think it’s BlackRock specific, right? If it’s, let’s say it’s 75 for BlackRock, then I would argue the rest of the industry, And I mean the financial services industry, Goldman Sachs, list all of them, they’re all in the same boat. Right? Because they’re all effectively saying the same things. I think where I’d single them out is by saying that you’re the largest one. And if that voice is being used to peddle narratives that effectively just serve to delay tax regulation that none of us want, I mean, I’m a capitalist I don’t love tax and regulation, but like at some point, you know, even Milton Friedman I’m certain would have said, we need a carbon tax because he’s not stupid. Right? Like watch the planet get destroyed. And I would challenge them to rethink what responsible business means through the lens of your own younger employees. Are you serving their interests? I think capitalism can solve these issues. But I also think that capitalists themselves need to debate how that comes about and not let there be one sort of version of it being peddled from a few people top that could actually be endangering the entire system. The majority of millennials today don’t believe in capitalism. That concerns me, right, that concerns all of us.

TY MONTAGUE 

Right. That should concern everybody.

TARIQ FANCY

Exactly. And I don’t blame them, right? Unless they see a system that is producing better social and environmental outcomes and addressing the problems we have, they’re going to lose faith in the system and it endangers an entire edifice.

TY MONTAGUE  

Okay. Tariq Fancy. Thank you so much for being here today. Really appreciate you taking the time.

TARIQ FANCY 

Thank you, I enjoyed this chat. 

TY MONTAGUE 

And Matthew Weatherley-White, thank you for being here today, really appreciate it.

MATTHEW WEATHERLEY-WHITE

Really fun.

TY MONTAGUE (VO)

OK, it’s time for my official bullshit score. Because there seems to be some intent to change, but they definitely aren’t there yet, I’m giving Blackrock a 59. 

To weigh in with your own score visit our website, callingbullshitpodcast.com. We’ll track their behavior over time and see if they can’t bring that score down.  You’ll also be able to see where Blackrock ranks on Bullshit compared to other companies we feature on this show.

So if you’re running a purpose-led business, or you’re thinking of beginning the journey of transformation to become one, here are three things that you need to take away from this episode: 

1) Defining a purpose is an important step, but it’s the beginning, not an ending.  Once you define it, it needs to define the actions you take, both internally and externally. 

2) Those actions can take many forms. In Blackrock’s case we’ve heard suggested actions like changing the default settings on investment recommendations to ESG compliant unless the client “opts out” and actions like Blackrock actually lobbying for a carbon tax, or partnering with shareholder advocates like Andrew Behar to drive real change in the governance of the companies and funds they invest in. The actions for your company would undoubtedly be different, but the point is, it’s the actions that make your purpose real for people.

And 3) Transparency is a key aspect of being purpose-led.  In Larry’s case, being super clear about what Blackrock can and can’t do is another key to building trust that he really means what he’s saying.  

And Larry, if you ever want to come on the show to discuss anything we’ve touched on in this episode, I want you to know, you have an open invitation. 

CREDITS MUSIC: “Bonanza” by Majk Jutbo courtesy of Epidemic Sound

TY MONTAGUE (VO)

Thank you for joining us today, Andrew Behar, Matthew Weatherly-White and Tariq Fancy. You can find them all on social media — we’ve got all their handles on our website: callingbullshitpodcast.com. And Check out Andrew’s book, The Shareholder Action Guide. Unleash Your Hidden Powers to Hold Corporations Accountable. And if you have ideas for companies or organizations we should consider for future episodes, you can submit them on the site too. 

If our stock went up with you today, subscribe to the Calling Bullshit podcast on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. 

And Thanks to our production team: Susie Armitage , Hannah Beal, Amanda Ginzburg, Andy Kim, D.S. Moss, Mikaela Reid, Lena Bech Sillesen, Jess Fenton, and Basil Soper. 

Calling Bullshit was created by co:collective and is hosted by me, Ty Montague. Thanks for listening. 

Agree or disagree with our Bullshit Score? Give us your take.

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