In 2007, Citi then-CEO Chuck Prince famously said:
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.”
So it must have felt to many of those, in politics, business and capital markets, who danced to Donald Trump’s music over the past four years. They knew the music would stop, they knew it would hurt, but they could not bring themselves to leave the party.
On January 6th 2021, the music stopped brutally in the sanctity of the US Capitol.
With the violence of the democratic crisis at their doorstep, lawmakers who’d long abated Trump’s antics through vocal support but more often than not through the more comfortable ambiguity of silence, drastically changed their tune.
On January 6th, through the voice of the National Association of Manufacturers, leading American companies issued a stark statement, noting that ”the Vice President Pence…should seriously consider working with the Cabinet to invoke the 25th Amendment to preserve democracy.”
On January 7th, the Editorial Board of the Wall Street Journal invited the President to resign.
Institutional investors? Not so much. We have noted before, and reiterate today for lack of serious developments, that investors have been mostly silent since the election, seemingly unconcerned by the crisis of democratic institutions. There are notable exceptions: Earlier this week, Larry Fink of Blackrock was the only CEO among the top 20 US investment management firms to call for Congress to certify the election, via the Partnership for New York City’s statement. The International Corporate Governance Network also released a statement in the aftermath of the insurrection attempt.
And why should we speak up, investors ask. Markets, they say, are only here to optimize allocation of capital. We don’t get involved in politics, they say. What do I have to do with crazies rioting in DC, they ask?
There are good reasons to be cautious, and some validity in all these points. But they miss a larger picture. A larger picture which eludes us, but which many also try to elude, as they keep on dancing. That the conjunction of contemporary crises in the 21st century, from the one Chuck Prince failed to avoid to the one unfolding before our eyes, are inextricably linked to a dramatic series of shifts in the balance of power. That the crisis of democracy is simply a crisis of power.
That Trump, however much an accident of history, found a fertile terrain, not just for his personal antics, but also for his campaign calls to drain the swamp (never mind that it never happened.)
That it is one of several manifestations of the reflexive fears of people who for the past twenty years have seen the ground beneath their feet give way under the weight of shifting power dynamics: the debilitating triple American bubble of education, housing and healthcare. Debt. The mob rule of social media. Environmental insecurity. Retirement insecurity. Rising inequalities. Rising unemployment. Worsening employment conditions. The understanding that democratic choices are profoundly undermined by regulatory capture, gerrymandering, and an abundance of money in politics.
This is neither an apology of populism, nor an attempt at explaining everything that’s wrong with the world. We don’t underestimate the dominant racist context and it needs its own set of responses. But these issues are neither left nor right and this loss of power or control by individuals has been going in lock step with the rise of market power, regardless of how much wealth was created. More shareholder primacy, less individual agency. Cue 2020, the year of the pandemic, a year of sky high markets and record poverty.
Perhaps investors feel disconnected from all these issues – after all, they may very well be the ultimate keyboard warriors – and they might continue to do so, until the magic tap of liquidity comes to an end. Investor fiduciary duty is all about being a good steward of assets that belong to someone else. Unfortunately, the risks and costs of economic, political and systemic destabilization are primarily borne by fund beneficiaries; not by the fiduciary agents who rarely get left holding the bag with the consequences of their inaction – which aren’t easily measured by a market-relative performance benchmark.
So yes, markets and investors yield considerable power. We’re not making a homogenous, unethical blob of markets and lumping all investors into the amoral laundry bag. But perhaps investors should understand that to do God’s work, as Goldman Sachs then-CEO Lloyd Blankfein famously said in 2009, it helps to have stable democratic institutions in the United States of America.
This stability requires revisiting the balance of power, the role and shape of institutions, and the part investors play in it, through regulation, and through checks and balances, as the American Constitution reminds us so well.
Is it really investors’ fiduciary duty to support institutional destabilization? Can pension funds tell their members that they remained silent at the Capitol because…hey…it’s better for your retirement? Can they tell them that they support political obfuscation because it makes for better arbitrage opportunities?
If not, investors can choose to do:
For the past twenty years, investor responsibility has been synonymous with ESG. But power dynamics don’t fit neatly into the ESG (or impact investing) paradigm, whose narrow focus on the relationship between investors and companies ends up affirming their preeminence, at the expense of other forces, of society and the environment.
How one wields one’s power towards others is the most significant demonstration of responsibility. Market forces, including ESG incumbents, need to make way for a broader ethical paradigm.