The following speech was given by Preventable Surprises Board Member John Rogers on 6 June at the Responsible Investor Europe Conference in London.
Today I’d like to talk about the psychology of fiduciary capitalism. My view is that the political and economic environment has changed to what I call the New Brutalism. We need to face this new environment with a fresh mindset. I am going to share with you three tools from the fields of psychology and philosophy. I am going to talk about existentialism, intersubjectivity, and left-handed power. These tools might be helpful in dealing with this New Brutalism. You can use them to engage with companies in which you invest. I will talk also about what it means to be a fiduciary capitalist in these very interesting times.
Here’s a personal note that might help explain why I have chosen this topic: I had a long career in institutional asset management, then 5 years as CEO of CFA Institute. I have been on corporate boards for 15 years now, and I really enjoy the work of governance. But I made a choice a few years ago to learn and practice some new skills, and so I have spent the last two years training to be a clinical mental health counselor. This has taken me deep into the world of psychology, the realm of personality and of interpersonal relations. I’m working with clients experiencing mental illness, I am learning more about motivation, about how we grow and change.
So, when I was asked to come speak, I wondered if this set of experiences as an institutional investor, at CFA Institute, as a public company director, and now as a mental health counselor might somehow come together. And so today, I want to share some slightly unorthodox perspectives on ways to “BE” as a responsible investor in these turbulent times.
I use the term “New Brutalism” — what do I mean? I think that we have entered a time, hopefully short-lived, of political and social brutalism. I borrow this term from architecture: Starting in the 1950’s, Le Corbusier expressed his contempt with modern society by designing raw, impersonal concrete structures. Seventy-five years later, in today’s social brutalism, we see unfolding the ugly and unanticipated consequence of the global financial crisis of 2007-08. We see this in populist, nationalistic backlash against basic humanistic ideas. The rise of authoritarianism in Turkey, the brutal crackdown on the Arab Spring, the ugly xenophobia we witnessed in the Brexit debate and in Donald Trump’s presidential campaign, are examples of this social brutalism. New Brutalism is embraced by political leaders in the United States, Russia, China, the Philippines, Venezuela, and many other countries.
This New Brutalism embodies a fundamental contempt for human dignity. It discriminates based on skin colour, religion, sexual orientation, gender, and national borders. New Brutalists generally place corporations ahead of people. From the perspective of the climate change issue, I don’t need to tell you that recent political trends are a big problem. Much of the public policy support for efforts to combat global warming is gone, certainly in the United States. That has a ripple effect on the private sector. Why? From a behavioural standpoint, most corporate boards and management teams are trend followers. When politicians deny climate change, as some have recently, business leaders sense that the pressure is off. So, in the absence of government pushing for corporate change, that responsibility falls on their customers and/or their owners. I think that is the state we are in today.
So, what does this mean for us as responsible investors? What does it mean for me as a public company director, as a fiduciary? Well, I would say that New Brutalism is evidence that the zeitgeist has shifted. It means that in my country and many others, government support for dealing with climate change and other ESG issues is either gone or seriously watered-down. For those of us formerly in the mainstream that delivered the Paris accord, it perhaps means we have a spell in the wilderness.
As I sit in my little corner of the world and contemplate this lurch into new brutalism, I struggle. There are days when I am engaged, fired up, optimistic. Then there are other days, more than I care to admit, when I wrestle with disengagement, with hopelessness. It helps to listen to the existentialists at times like this. I take some comfort and some courage from the words of Viktor Frankl, a psychiatrist and existentialist who survived 4 years in a Nazi concentration camp. He writes in his classic book, Man’s Search for Meaning: “When we are no longer able to change a situation… we are challenged to change ourselves.”
So, let’s talk psychology for a moment. In the work I have been doing in the mental health counseling field, I find myself applying existential theory quite a bit. To my surprise, I’ve also found existentialism to be helpful in dealing with the angst caused by this New Brutalism. Why might this be the case? One of the fundamental tenets of existentialism is that we humans are meaning-makers. As Rollo May suggests in The Discovery of Being, we must not ask: What is the meaning of life? Instead, we must ask: What is the life of meaning? Put another way, as Nietzsche wrote: “He who has a why to live for can bear almost any how.” Existentialists believe that we create meaning in three ways: through work, in encounter with another, and through our attitude toward inevitable suffering.
Let’s go a little deeper with this. I mentioned at the start that I am going to be discussing three main tools: existentialism, intersubjectivity, and left-handed power. I will take on each of these and their role in responsible investing in the next few minutes. Let’s continue with Existentialism. To quote Rollo May, “Existentialism is essentially concerned with… the science of being.” The heart of this being-ness is in the choices we make. And here’s the thing: we always have choices. Even in brutal times, we have options. Existentialism draws from the Buddhist’s view that suffering, or what existentialists call Thrownness, is unavoidable. The question therefore is not whether life hands us lemons — of course it does!, but of how we choose to handle those lemons. In other words, life’s meaning comes not in freedom from adversity. Life’s meaning is in how we choose to deal with that adversity. Our only true liberty is our freedom to choose how we respond to a situation. It comes down to our choice of attitude. Victor Frankl came to this realisation during his four years in a Nazi concentration camp, having lost every family member along the way. So, I think you can see why Existentialists would define work as a meaning-making activity.
And to now focus this on the topic of responsible investing, I propose that the work of engagement with the companies you own is the most important choice you can make today as investors. I want to make the case that direct, personal engagement with the C—suite and board of directors will be highly impactful. I assert this based on many years on corporate boards, and on my understanding of human nature. I can assure you that the vast majority of executives and company directors pay attention to what shareholders say to them. A letter from a significant shareholder to a CEO will almost certainly be shared with the Chair and the head of Investor Relations, as well as possibly the General Counsel. A letter to the Chair will go to the CEO, and possibly to other board members. A well-researched, well-argued letter from a shareholder with a meaningful stake will command a company’s attention.
So, this is an example of how we can make an existential choice to fight brutalism by engaging constructively with the circumstances in which we find ourselves now.
That is the “what.” The “how” part of this activism takes us back to psychology. Let me dive back in and introduce intersubjective theory. One of the big recent movements in psychology has been the rise of intersubjective theory. This school of thought has roots in Martin Buber’s depiction of the “I-Thou” relationship as a creative and universal force. Intersubjectivity holds that in any direct human interaction, both parties come away changed. So, in mental health counseling, the idea of a clinician dressed in a white lab coat “analyzing” a client’s psyche has been largely debunked. Instead, contemporary therapists collaborate in a growth and learning process in every interaction with a client. This is a post-modern way to think. It does not assume in human relationships that there is some objective “reality” out there. Instead, intersubjectivity holds that reality contains the experienced or subjective being of each individual. If you doubt this theory, just think about the last time you had an argument with your spouse or partner! Talk about a clash of subjective realities!
So, intersubjective theory says that reality is co-created through the meeting, to use Buber’s words, of I and Thou. Your subjective reality and mine, come together to create a new reality in that moment of encounter. Let’s consider that in light of our work as activists for change in corporate behaviour. I think we all know from personal experience that true behavioural change comes from a combination of cognitive processes and emotional experiences. Your brain can know something (for example, I need to stop checking my phone compulsively) without doing anything about it. It may take the emotional experience of your child saying “Daddy, please look at me” to help you change and unglue yourself from the emails.
The same holds in businesses. A CEO can objectively know that her company is a major greenhouse gas emitter, but she can somehow detach from that knowledge and argue up and down against regulations that might reduce those emissions. What mental health professionals have found is this: The best way to change the head and heart is to create an environment of safety, of trust, of space to hold the tension that accompanies change.
So that gets us to the question of how you engage in effective corporate activism. There is a place, when all else has failed, for aggressive, adversarial confrontation. But today, I am exploring other paths. The path that I am on today leads us next to Left-Handed Power. What is left-handed power? It is a concept that is familiar in faith traditions and in psychology. Robert Capon, an Anglican theologian, wrote extensively about it. He tells us that “Left-Handed power… is precisely paradoxical power: power that looks for all the world like weakness, intervention that seems indistinguishable from nonintervention. The only thing it does insure is that you will not have made the mistake of closing any interpersonal doors from your side.”
Left handed power is what happens when you let someone merge into traffic ahead of you. It’s when you don’t take credit for a great idea that your boss thinks was hers, but in fact you had originally proposed. It is not stooping to conquer. Mahatma Gandhi understood this, as did Martin Luther King, as, I expect, did most of our grandmothers.
Left handed power fits nicely with existential ways of being: The power to choose how to act, the power to absorb life’s unpleasant surprises, the power to do important deeds in collaboration with other people. It also fits nicely with intersubjectivity, because left-handed power ennobles the person being encountered and leaves open the possibility of that person’s growth and learning.
You may have encountered a version of Left-Handed Power if you have studied or practiced what is known as servant leadership. Servant leadership says that to serve is to lead. It turns the org chart upside down, with the CEO at the bottom, supporting the rest of the team. Now, doesn’t this sound warm and fuzzy? No wonder it’s not taught much in business schools!! But seriously, left-handed power comes, paradoxically, from a place of security, of serenity, of curiosity. And you might be surprised by how effective it is. Why Because the process of changing a mindset is not about winning or losing, it is about perturbing a system. More about this in a moment.
So, let’s connect all this psychology with the capital markets. The connecting piece is fiduciary capitalism. When I say fiduciary capitalism, what do I mean? There are 3 major pieces to Fiduciary Capitalism:
1. It is an economic system of investing financial resources.
2. These investment decisions are based on the long-term interests of beneficiaries.
3. These investment decisions are made by boards, employees, and agents of these beneficiaries, and all three of these parties are fiduciaries.
Fiduciary capitalism takes the pragmatic, market-oriented nature of finance and connects it up with issues that go beyond today’s bottom line. Externalities are brought inside the investment decision-making process. Stakeholders sit at the same table as shareholders.
As fiduciaries, we are charged with a duty of care that transcends the current moment in time. Our time horizons are long, so intergenerational equity matters. It is a sobering responsibility; many of you are involved in managing enormous pools of money that represent the hopes and dreams of future generations. Let me add a twist. Many fiduciary capitalists are also Universal Owners. Perhaps your organization fits this definition. Does it have the tyranny of size — in other words is the fund too big to trade? With Universal Owners, the assets end up being deployed, in effect, as a giant index fund. The Universal Owner is going to earn, more or less, the world’s economic outcome through time. And, over time, the universal owner is destined to own the all externalities. (By the way, index funds are in exactly the same position. I am mystified as to why they refuse to get more involved in governance issues.)
When there are problems with a sector, a company, or even a whole market, Universal Owners find it very hard to make a first order change (a change in their role in the system), for example through divestment. Instead, Universal Owners in search of a solution must attempt a second order change (a change in the system itself).
So, let’s come now to the issue of climate change. Here we have a perfect example of why fiduciary capitalists must act: Global warming is a disaster that will destroy the value of many assets through time, and will cause great harm to future generations. There is not an investment strategy on earth that will bridge across this catastrophe. My personal view is that divestment is a red herring. Universal owners can run, but they cannot hide.
We know that Universal owners are destined to own the consequences of climate policy. The imperative, therefore, is to create this second order, or systemic, change. And that requires engagement with companies, sectors, and with public policy. As fiduciary capitalists, as universal owners, let me suggest to you again that engagement with your investees, the companies you own, is the most direct and effective way to create this second order change. That means engagement at the strategic level with the board and C-suite. It means using the power of the proxy imaginatively.
Let me give you a specific example. In my work with Preventable Surprises, I have watched Raj Thamotheram and Carolyn Hayman pull together a group of what Raj calls “positive mavericks” with a “Think-Do” orientation. Our big project right now is focussed on utilities. We see this sector as the lynchpin in the climate battle, and we also foresee value destruction ahead for universal owners who are stuck with utility exposure. It’s clear from the IEA road map that to do their part to hold the 2-degree line, utilities must cut emissions from 34 to 15 gigatons of CO2 by 2050. That is obviously a huge transformation in how utilities generate their product.
So, my friends, as existentialist, intersubjective, left-handed power brokers, you each have a role to play. I propose that you engage the directors and CEOs of power generating companies in a discussion. Preventable Surprises has developed a blueprint for fiduciary capitalists to engage with these firms in moving beyond scenario analysis and onto 2C transition plans. It starts with 8 not so simple but reasonable questions you can pose in a letter to the Chair and CEO.
Now, it is true that you may not get what you ask for with such a letter. But this step is what is considered in psychology and chaos theory to be a strange attractor. What do I mean? The “butterfly effect” is a similar concept: in complex systems, a small perturbation can have an unexpected impact that is hard to predict. Your letter, especially if followed-up by a request for a meeting, sets a chain of events in motion. You can’t predict the impact or timing, but rest assured, something will happen. Dozens of such letters serve as a collective wake-up call.
The next thing to do is to seek to sit down with management or the board: the higher up the organization, the better. As a long-term investor, perhaps as a universal owner, you are stuck with each other for the duration in an owner/manager partnership. You may as well get to know one another. Your specific request: you want the company’s business plan to explicitly incorporate a strategy consistent with less than 2 degrees of global warming.
What happens next? Well, I don’t know exactly. But my curiosity is around the psychology of change that comes from your interactions with management and the board. I urge you to stay open to developing a relationship with these people. Be curious about what you are experiencing as you prepare, go through, and subsequently process the meetings. From what we know about human psychology, both you and the people you meet will come away changed, whether anyone acknowledges that change or not. The process of altering a mindset is not about winning or losing, it is about perturbing a system. By the mere action of your letter, your request for a meeting, and the meeting itself, you will have created that perturbation and have initiated a process of change. Remember, right handed power points at a problem and commands change. Left handed power inspires reflection and creates change from within.
One more point and I’m done. The existentialists tell us that to be truly alive is to choose. In Rollo May’s words: “If you do not have ‘courage to be’, you lose your own being.” In this spirit, one of the most inspirational stories I’ve read recently is about a group of 21 children, known as the “climate kids”, who have filed a lawsuit in US federal court. This suit makes the claim that the government’s promotion of hydrocarbon production and use, and its indifference to greenhouse gases and global warming have resulted in “a dangerous destabilizing climate system” that discriminates against them and future generations. A US District Court Judge ruled last fall that “the right to a climate system capable of sustaining human life is fundamental to a free and ordered society.” The Trump administration has promised to fight this all the way to the Supreme Court.
To me, these children are a beautiful example of the power to choose, and the courage to engage that affirms their state of being. The simplicity and clarity of their choice of action should makes us all pause and reflect on the choices we make in the face of these seemingly brutal conditions.
Capon, R. F. (2002). Kingdom, grace, judgment. Grand Rapids, MI: Eerdmans
Frankl, V.E. (1959). Man’s search for meaning. Boston, MA: Beacon Press
May, R. (1983). The discovery of being. New York, NY: W. W. Norton & Co.
Our Children’s Trust (2017). Landmark children’s federal lawsuit. Available at: