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Jon Lukomnik: Moving Beyond Modern Portfolio Theory and the Evolution of Corporate Governance.
Episode 33
Published 5 years, 1 month ago
Description
- Intro.
- (1:37) - Start of interview
- (2:19) - Jon's "origin story." He started as a sports journalist, later became press secretary to then NYC Comptroller Jay Goldin. His transition to asset management, founding his firm Sinclair Capital and leading the Investor Responsibility Research Center Institute (IRRCi) (succeeded by the Weinberg Center) focused on ESG and capital market issues.
- (4:48) - His experience with the NYC pension funds, CII and how he addresses the different "stages of governance" described in his book "Moving Beyond Modern Portfolio Theory: Investing That Matters." His historical perspective on corporate governance from the Dutch East India Company (1602). HBS Professors Myles Mace: "Boards are ornaments on a corporate Christmas tree" and Peter Drucker: "The one thing that all boards have in common is that they do not work." His experience with Creditors Committee at WorldCom. Corporate governance in the 1980s changed for two reasons:
- In a capitalist society whoever has capital, has power. By the 1980s, institutional investors became very influential with more assets under management.
- This was prompted in part by the greenmail scandals. In one year (1983-1984) this practice extracted $4bn from US corporations
- That prompted the formation of the Council of Institutional Investors (1985).
- (13:04) - The disagreement is not over corporate governance, but rather over "optimal" corporate governance. This is so because capital is changing. "75%-94% of your returns is due to the systematic nature of the markets." The problem with MPT.
- (17:41) - The concept of "Beta Activism"
- (19:54) - The focus of his book "Moving Beyond MPT": "This is not a modest book: we are trying to redefine what investing is." "Stewardship for the benefit of the marketplace as a whole, to deal with systematic risk issues that that we can't deal with mere diversification." More holistic and long term vision of how to improve the risk return of the market as a whole.
- (21:41) - Shareholder activism on ESG and sustainability ("Beta Activism"). Examples: Engine No.1 on Exxon, Climate Change. "There will also be changes on how shareholder resolutions will be crafted." For example: Yum Brands on the systemic effects of the use of antibiotics in its supply chain by the end of 2021 (proposed by Paul Rissman and the Shareholder Commons). From individual companies to global/industry levels. Another example, new safety standards after the Vale scandals. "The problem is that somehow in the 1990s/2000s the shareholders figured out how to be first and last in the line."
- (26:16) - Debate on corporate purpose (shareholder primacy / st