Speaker 0 00:00:00 Hello everyone, and welcome to Morals and Markets, the podcast sponsored by the Atlas Society and hosted by Atlas Society, Senior Scholar and professor of Political Economy at Duke University, Dr. Richard Salzman. Dr. Salzman is one of the leading proponents of the moral defensive capitalism left in our country. He's a former banker on Wall Street and currently professor at Duke University, where he began hosting morals and markets for graduates of his classes who wanted to continue to have engaging conversations outside of class. In this engaging episode, we are discussing the ESG virus in its takeover of corporate America. So, without further ado, I will pass things off to Richard
Speaker 1 00:00:39 Abby. Thank you. And I hate to talk about yet another virus people, but there's an ESG virus out there spreading very quickly. Uh, it's not really new, but it's spreading as way worse, way worse than covid, uh, esg, if you don't know. Uh, it stands for environmental, social and governance Issues. Um, by the way, the woke anti capitalists love their acronyms and, uh, ESG is one of them. But if you know, DEI is another one, you got that one yet. Have you committed that to memory yet? Dei it's actually part of this discussion, Diversity, equity, and inclusion. And by the way, there's also, uh, sdg, have you memorized that one yet? SDG That's Sustainable Development Goals or the G HG protocol. Do you know what the GHG protocol is yet? Unfortunately, I've studied all these things in the last three months. Uh, the Greenhouse Gas Protocol, um, there's also a pr I have you, uh, studied that yet.
Speaker 1 00:01:47 The I is a principles for responsible investing. So if you're up on ESG and you know your dei, you'll also incorporate the SDG into the G HG to incorporate an advanced P. All right, let's break some of this craziness down. We living in a world, by the way, where concepts mean whatever people think, they mean, what's a woman? I don't know. Nobody can define it. What's a recession? That's not really a recession. People are just making up stuff, but they, it doesn't stop them from making up acronyms. I recently did a Morals and Markets, and I think I've done a clubhouse on the stakeholder theory of capitals. ESG is part of that. ESG is a Trojan horse, kind of like stakeholder capitalism is. If you know your history, you know, a Trojan horse is a way to attack something, attacks something surreptitiously, attacks something under the guise of something that seems perfectly reasonable.
Speaker 1 00:02:54 Um, in the military, they sometimes call this a false flag operation. So I'm gonna unveil this fakeness, this falsity, this scam. And there's good news and bad news about this. Well, I'll start with the bad news, but there is good news people fighting back against it. Uh, but the stakeholder model, as I've outlined previously, is a, an attempt to dilute the ownership of companies. That is the bottom line to dilute and dissipate the direct ownership of companies. Now what do I mean by that? Under capitalism, the shareholder model is, shares are owned by people who invest in companies. That's why they call 'em shareholders. They have a share of the company. They don't own the whole company. But when you buy and sell a share in ibm, you're a part owner of ibm, you own a share in ibm, you own an ownership stake in ibm, it's a legal title, just like a title to your home.
Speaker 1 00:03:59 If you own one, what do you get in return returns, You get dividends, you get possibly stock appreciation. So you're a capitalist. A capitalist is someone who owns the means of production. You may not be Henry Ford owning entirely Henry Ford's company, but, um, the great beauty of capitalism is when companies got so big that even individual wealthy people couldn't own the whole company, they, uh, sold shares to the general public. All right, So that's called the shareholder model. And now think of this, managers of companies, CEOs are agents serving the owners. They're hired agents, they're smart people, they're productive people. But the model under capitalism is managers, to the extent they don't own the company, are obligated. They have a fiduciary duty, not in a con sense of duty on chosen, but an actual contractual arrangement to maximize the value of what the shareholders own, meaning manage the company in a rational, efficient, productive way that maximizes profits.
Speaker 1 00:05:15 And here profits are not in the marks of sense stolen. They're earned. They're earnings. They're called earnings on Wall Street. They're truly earned. Now, the stakeholder model rejects all of this, and it's not all that new. It's about 70 years old. Uh, but it got very prominent in the seventies and it's become intensified more recently. The stakeholder model says that corporate executives should not primarily serve the owners of the company. They should swear their fiduciary duty and serve other entities. <affirmative>, what other entities? Employees, customers, suppliers, local government officials, the environment, the planet. I, I don't know if they've included intergalactic EBA yet, but that could be part of the list. Someone, business school professor, once scoured the literature looking for all the stakeholders. She counted 430 separate special interest groups claiming that they should be served by corporate executives. So it's a model which amounts to the following, instead of the Marxist view of the workers violently seizing the means of production.
Speaker 1 00:06:40 And instead of the British model of Fabian Socialism, where people would vote for socialist labor party leaders who would nationalize industries, this is a third method. This is the method that says, have a dilution of the shareholder model and institute either by pressuring CEOs or pressuring investment companies, or definitely the government pressuring the s e C and others. We'll talk about this, pressuring these executives to, again, abdicate their responsibilities, their legal, moral, financial responsibilities to the owners of companies in the service of others. So it is a, that's why I call it a Trojan horse. It's a model which says, we gotta find some way to bastardize and undermine the corporate mission. So the corporate mission no longer can be one, serve the actual owners of the damn company. Two, maximize profits and dividends to those owners. No, no, no. That's, that's evil according to the socialists.
Speaker 1 00:07:51 That's evil. To have private ownership of the means of production. And if they can't have the workers seize it, and if they can't have, like labor party officials seize it, both models, which have either not happened or failed by the way, then they'll just have ESG and stakeholder models diluted gradually over time, often with the concurrence of irresponsible CEOs. So I, I am not gonna make a CEO defense here other than the CEOs who are fighting this now, esg. Let's break it down. They're telling corporate executives, you need to follow these standards. Standards established by whom? By environmentalists and socialists. That's it. The environmental standard is minimize your carbon footprint. Minimize CO2 emissions. CO2 emissions are pollutants. Your dastardly if you affect, uh, the climate in any way, by the way, in any way, <laugh> up or down, they have everything covered. You know, it used to be we worried about, they said global cooling.
Speaker 1 00:09:03 That was the 1970s. Then they worried about global warming. That was the 1980s and nineties when their forecasts worked out so terribly badly. They just changed the criteria to be climate change. So if you can't forecast correctly, lower temperatures and you can't forecast, collect correctly, higher temperatures, guess what? You can forecast changing temperatures and you'll always be right cuz the temperature is always changing. And not just that, it's not just temperature. Climate includes not just temperature to the extent it's measured globally. Climate concludes, uh, hurricanes and volcanoes and tsunamis and floods and, and the weather. Brilliant. It's brilliant cause the weather changes all the time. So you have climate deniers to the max. Why are they climate change deniers? Because the climate always changes. The climate has always changed. It's now changing. It will forever change. And by the way, regardless of human influence. And so they want to make it not change.
Speaker 1 00:10:17 They want climate constancy. They're like a king canoe trying to prevent the tides from coming in on the beach. They're literally defying reality. And they accuse you of being climate change deniers. They deny that the climate can change. They're trying to make it not change. By the way, the only place the climate does not change is within, uh, capitalist created rooms and buildings. It's called, um, room temperature. So go look, look at your thermostat. I'm li I'm working in a room right now at 70 degrees. As far as I know, the climate has not changed in here in the last three or four months. So I have no climate change, but it's due entirely to a capitalist creation, a setting of air conditioning and heating that keeps the climate constant. But they're actually against that. They're against the fuels that make climate constantly possible within human habitats anyway, what would they target?
Speaker 1 00:11:26 Fossil fuel companies, Oil and gas companies, Exxon, Shell, others. What else? It's not just that. They also have a list of sin companies. S Im very bad companies, very bad companies beyond environmental sinners, tobacco companies, alcohol companies, gambling companies, defense contractors, private prison companies. Oh, private, they hate private prisons, fast food chains, McDonald's and Burger. Why? Because they're killing cows and causing flat chillins. Uh, this is crazy stuff, but it's not psychological really. It's philosophical. By the way. Anytime you see someone saying, this is crazy, these people are out of their minds. It's never psychological. It's philosophical. They have a philosophical, cultish attitude toward capitalism that makes them seem crazy. But it's really philosophy. Always go to philosophy. It's philosophy at Ruth. Social Gs, uh, excuse me, esg, what's the s part? Social. It's a grab bag of things having to do with, you really should hire people. Not on the basis of aptitude and merit, but on race, gender, and a whole bunch of other things. That's what they're demanding that companies do.
Speaker 1 00:13:03 Uh, I'll skip over that cuz it's so in aim now, governance, the G N E ESG is governance. Now. Governance is basically how CEOs interact with shareholders. How CEOs are paid, how the board is put together, whether the board of directors is, um, focused on what, what they're focused on. So many other things associated with this. But when you think about it, the shareholder model would be that the proper board and the proper executive suite would serve shareholders. They're trying to change G entirely. They're trying to say that governance shouldn't, as I said before, should be stakeholder driven, not shareholder driven for exa. So for example, more recently they pressured Exxon. I blame Exxon's board for putting up with this. Esg People pressured Exxon to put two people on the board who were against oil and gas. Now, why would Exxon have board members that are against what Exxon makes?
Speaker 1 00:14:05 Because they're a, a cancer and Exxon through, uh, part cowardice, part pressure allows this kind of thing. Now, esg, the social part, subsumes, I hate to use these acronyms, but they subsume dei now. Now what is dei? This is under the social part. It's like a subset of the social diversity, equity, inclusion. If you look up dei, this is the movement also a cancer, which is demanding by the way, not just in business, but everywhere. Everywhere in academia, in the hiring at political level, that people be judged on the basis of their race and their gender. That's and their sexual orientation. That's it. That's the push. It is an irrational, uh, obsession with non-essentials. Non by non-essentials, I mean things that you have no choice over. You do have no choice about your birth status, your race, your gender. By their own measures. By the way they would say this, and yet that's what they want.
Speaker 1 00:15:27 Corporate, political, academic and other decisions based on, uh, a couple of things. There is a two part influence going on here, which is very sad. On the one hand, what's known as woke CEOs are signing onto this. Now, some of them are not, don't believe in it. They're hypocrites. So they don't have the backbone or courage to basically say, f you, I'm not gonna do this. But on the other hand, there is a huge influence coming from what's called asset managers who are asset managers. Asset managers are f are equivalent to investment managers. So in other words, suppose you send money into a mutual fund, or suppose you contribute to a pension fund as part of your retirement savings. That money is invested by professionals called investment managers. And the most famous ones, the biggest ones really are, um, BlackRock Financial. They're based in New York, headed by a guy appropriately named, uh, Larry Fink <laugh>, the State Street global Advisors up in Boston.
Speaker 1 00:16:54 Ssga a Vanguard. You've heard of Vanguard, probably the Vanguard Index Funds in, uh, Valley Forge, Pennsylvania, I think, and Invesco. Those are the top four. Invesco I think is in Denver. They hold and control now get this 70% of US equities. How? Cuz you sent them money. The American people and pension has sent them money saying, invested for me. That's okay. There's nothing wrong with professional investors. And you hire them and you pay them a fee. But they have signed on to this wokeness and they are pressuring companies mostly without people's knowledge. They're proxy voting. Your shares. You every, every quarter you're supposed to, uh, is personally, every year you're supposed to vote on certain things at the corporate level. And most people who send their money to Vanguard and don't even bother to vote, but Vanguard votes for you. And they tell these companies to do esg. They tell these companies to follow the woke model.
Speaker 1 00:18:01 So they're really not following your interest. If your interest is now, get it as an investor, what's your interest? Maximizing returns, maximizing the investment gains and returns you get on your investments. They don't care about that. They claim to care about that, but their focus is on politico politicized movements. Right? That is not necessarily investment oriented. Just to give you an example, if you would invested all your money in these terrible companies, ones they call terrible in the last year, oil and gas companies, defense contractors, uh, fast food chains, your your gains would be something like 30%. What do you think the broader stock market has done? Minus 30%. So their own portfolio investment posture has cost you a 60% percentage under performance or worse. Um, so woke CEOs are in on this scam. The ones who aren't courageous enough to resist the in these huge investment managers are, by the way, notice what I'm saying. If you didn't know the context or you didn't know my background, it would sound anti-corporate. What I'm saying sounds like anti-corporate, anti-capitalist screed against Wall Street. That's not really what I'm saying. I'm saying Wall Street is abdicated its responsibility to be capitalists, capitalists not only financially but capitalist ideologically. You gotta be both. You gotta be for the system of private property entrepreneurship and profit making that makes investment returns robust. Uh, and you need to be a financial capitalist. You need to be astute as to how to invest people's money and not screw them over.
Speaker 1 00:20:00 Business school professors are teaching this. The CFA Institute, which I'm a charter member of, you have to be as a charter member of the cfa, is the professionals who invest, who, uh, research securities. All the stocks analysts on Wall Street are CFAs. It's like the CPA of investment CPAs are certified public accountants. Now, as I said before, this wouldn't be so bad if it was just voluntary. It would be people voluntarily doing the wrong thing. But this is also being codified and mandated politically. So the s e c is getting in on this. It's not only requesting that people report, not people that companies report on, whether they're behaving ESG standards or not. Here's another, So that's government mandating it. Um, the beginnings of a mandate system by requiring disclosure. So companies are forced to disclose their carbon footprint, forced to disclose how they're affecting the climate, forced to disclose even how their suppliers might be affecting the climate. This is gonna be an opportunity for massive lawsuits over the coming years. Companies will be sued for not properly reporting how they damage the environment or how they fail to hire on the basis of race and gender.
Speaker 1 00:21:24 Now here's another influence. Public pension funds. What's a public pension fund? If you work for the government, if you're a firefighter, if you're a teacher, if you're a policeman, you have a pension. But it's called a public pension. And it's run by public officials usually politicized. They're forcing companies to be woke. They're mandating that the companies they invest in, uh, follow ESG principles. The US Department of Labor isn't on this. In 1974, the Employment Retirement Income Security Administration, ERISA was formed on the grounds that pension plans weren't being properly managed. That was the claim in 1970s. Private pension plans. So rules were established to make sure that the managers of these pension funds obeyed a fiduciary duty to the employees and the pension fund. Okay, there nothing wrong with that. It was basically trying to prevent fraud and it was upholding the fiduciary standard of money managers of pension funds. Well, the Department of Labor over the last few administrations has shifted to saying, We now allow ESG as a standard. They've been sued over this. By the way, the people are naturally suing them, saying You are screwing over shareholders cuz you are surrendering the fiduciary duty to maximize their returns. You're excluding whole parts of the stock market cuz you don't like them politically and therefore you are preventing pensioners from profiting and enjoying their retirement by investing in these very profitable things.
Speaker 1 00:23:15 All right, let me spend a couple more minutes, only five more minutes or so then I'll stop on the good news. There's about 15 attorney generals and state treasurers around the US who have sued either the Department of Labor or have yanked their money from these investment managers on the grounds that they're screwing over pensioners or shareholders. It's a very good trend. So, so an example would be the, um, controller in Texas. So there's a guy in charge of the money of the Texas pension pots and he hates ESG as he should. And he is publicly announced, We're not gonna let BlackRock manage our money. We're not gonna let State Street manage any of this money. So he is going right back at these investment managers and they will lose business and they will lose money and they will be less profitable. And I suppose we could say to them, So what profit is not the primary thing anymore?
Speaker 1 00:24:29 Why should you complain BlackRock and others? Uh, so this is a good pushback. Governor Des Sanders in Florida did the same thing. He got the legislature to pass a resolution saying, uh, ESG focused investment managers cannot manage, are not allowed to manage the assets in the pensions of Florida public employees. I have to do a shout out also to, uh, Vive Ram Swee, V I V E K, Ram Swee. Vivek is a fabulous, I don't agree with him on everything, but he's a fabulous, courageous, former money manager who has started a company called Strive Asset Management. And VAC has wrote, written a book called Woke Inc. Has written another one more recently. But Woke Inc exposed this whole scam, uh, for what it is, but then did more than that. He said, We're going to start investment funds that invest in precisely the things that the ESG cultists hate and invest money with us, and we will outperform these bastards. And so far actually has done so. So one of 'em, one of his funds is called Drill aptly, named Drill dri ll. It invests in oil and gas companies. I think so far it has 270 million in assets under management. So if you want, if you believe it, send your money to drill and fight ESG that way.
Speaker 1 00:26:15 Um, so there is a backlash. Wall Street Journal last August, quote, The ESG investing backlash has arrived so bad as things may be understand and recognize. There is a pushback to this. There are people who still believe in capitalism, who still believe in the shareholder model, who believe these alternatives are eroding and undermining and hurting and damaging those who prosper from capitalism, which is everyone, and not just that who are adopting very interesting practical methods for fighting back, namely, setting up investment funds where you go counter to what the woke people are advocating. But I would say deeper, especially being at the Atla Society and us focusing on philosophy, the deeper pushback here really has to become an ideological one, not so much a mechanical one. Um, the case has to be made for unvarnished, let's say fair capital. The private property model, the model we're moving toward is we still have private ownership, but not private control of the means of production.
Speaker 1 00:27:40 We have increasingly public state woke control of the means of production, which is a hybrid system. I've talked about this before. Capitalism is private ownership and control. Socialism is public or state ownership and control. But if you have private ownership in title but not in control, that's a fascistic model. The stakeholder model is fascistic, esg, dei, and all these others are just ways to implement, very surreptitiously, but very cleverly to implement the stakeholder model to, in other words, push and implement the fascistic model. We have to fight it at every possible turn, philosophical, economic, and political. So I'll stop there.
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