Happy New Year
As we begin a new decade, there is ample reason to step back and reflect on the state of the world, our current capacity to meet the obvious challenges and opportunities, and to consider our own roles and responsibilities. In some ways there is a great deal to celebrate: millions of people have been lifted out of poverty and most measures of material well-being have improved during the last seventy-five years. At the same time, there is a great deal to be concerned about: biodiversitybio-diversity is collapsing, social justice issues in China, India, and the United States (US) claim the headlines, climate change is wreaking havoc on the “environmental services” that we need to support life (breathable air, potable water, and arable lands), and parochial, nativist politics define the global norm.
The US has led the world on many levels to accomplish the positive outcomes of the last seventy-five years. Anchoring multilateral institutions like the United Nations and supporting the evolution of groups like the World Bank and even the World Trade Organization, - the US has been a critical champion for the rights of corporations in support of economic growth and improved levels of material well-being. Large, multinational companies have converted enormous amounts of environmental and human capital into financial capital. The scale and scope of large corporate operations defines how we have converted non-financial capital stocks (environmental, human and civic capital) to produce the financial profits that have funded life saving drug therapies and staggering technological breakthroughs: all of which have transformed life for billions of people. Can capitalism continue to be a force for good, or will it devour its children?
The US history of the corporate charter is revealing in terms of how much has changed since the first state charters were crafted in the 18th century. The legal foundation of corporate capitalism has evolved in 200 years and this ascendent power has impacted our political culture enormously. Let’s review some groups’ efforts to reimagine the role of corporations and their relationship with political structures.
In 2019 the Business Roundtable announced a new Statement on the Purpose of the Corporation. This articulation of corporate purpose is a big deal. Since the Roundtable’s first statements of purpose drafted in 1978 and, informed and influenced by Milton Freidman’s Doctrine, US based CEO’s have come a long way - and we doubt that Milton Friedman would be pleased.
Concurrently a groundswell of political energy (locally, nationally and globally) is growing to address social justice and climate issues: the Green New Deal encapsulates this movement in the US. Activists, consumer groups and others are coalescing around holistic approaches to addressing the excess consumption that bedevils our world today. This behavioral shift is impacting both the US and nations around the world. If we combine the power of a 16 year old activist named Greta Thunberg and Instagram - we can only imagine where these shifts might lead us.
Will enlightened CEO’s change the behavior of corporations? Will citizens mobilizing in the streets and students striking their schools change the trajectory of over-consumption that is reducing our stocks of human, environmental and civic capital? Who else will apply pressure on the capitalist system to achieve a lasting change in our collective behaviors and practices?
What role and responsibility does accumulated wealth have to play here? From a recent Citi report, - we see that 8% of the world’s adults controlled over 82% of the world’s wealth in 2016.* Is it possible for these relatively few “wealth-holders” to apply their outsized financial and political “power” to achieve a broader social and ecological “good”? At TILT, we think that this question is the challenge facing the global capitalist system. Can owners of capital assume responsibility for their investments? By retaking decision making (away from investment advisors, tax planners, and accountants), wealthy institutions and individuals can reassert their influence. Of course, this presumes that people will seek to improve the collective well-being of people and ecosystems.
TILT believes that enlightened self-interest will prevail in this regard. If institutions and individuals align their capital investments to their mission and their unique goals, disregarding the orthodoxies of modern portfolio theory and benchmark centric return expectations, then this collective “purpose” can influence behaviors. Communities could see investment capital that supports their interests, alongside the wealth holder. Enterprises will be supported to “do the right thing” for employees, suppliers and neighbors. Perhaps wealth can ally with progressive CEO’s and citizen movements to reform the existing political economy.
We are grateful to our clients who are taking the first step on a lengthy journey to explore a new investment paradigm. These risk takers are helping to chart a new pathway for investing wealth that might protect the gains that capitalism has contributed over the last seventy-five years.
Happy New Year, we all have a lot of work to do. Let’s start by understanding where financial wealth comes from and by imagining how we might put it to work!
* Sources: Citi Business Advisory Services analysis based on Capgemini World Wealth Report 2017 for High Net Worth and Ultra High Net Worth individuals/assets and based on Credit Suisse Global Wealth Databook 2016 for individuals/assets below $1.0 million, Brookings Institute, US Center for Disease Control and Prevention