Stakeholder Capitalism Starts With Each of Us

"Injustice anywhere is a threat to justice everywhere" – Martin Luther King, Letter from Birmingham Jail, 1963.

Martin Luther King famously made this observation nearly 60 years ago and at a very young age. I find it fascinating that he knew his purpose so early and devoted his life to it- a life that was unfortunately cut short just a few years later. I often wonder what he would think about where we are today on issues of race and justice. As we take stock of where we are as a nation many decades later, there is perhaps as much reason for optimism as for continued skepticism about what lies ahead and whether we can truly conquer our demons.

The tremendous outpouring of support and rage in the aftermath of the killing of George Floyd has certainly done more to galvanize a national conversation around racial equity than perhaps at any other time in a generation. While the conversation ensues, hardships resulting from the pandemic have had a disproportionate negative impact on the lives of women and people of color. It is now clearer than ever that issues of race and class are central to the biggest social and environmental challenges whether it’s economic hardship, climate change or access to healthcare.

The question is: can we sustain the conversation? And will it finally lead to the change so many of us want to see? We have been here before as a society and have seen many grand pronouncements that ultimately result in very little, such as those in 2019 by the Business Roundtable.

As impact investors, we recognize that the levers of capital are some of the most impactful ways to drive change, but we need more than expressions of good intentions. We continue to hear from our clients and friends of Align of your desire to be part of this change – whether through investments, a redirection of where capital is parked, or steps taken in your personal lives to make a difference.

What questions should we be asking of ourselves and what actions can we each take to ensure that we turn words and good intentions into real change?

Using your capital to create a more diverse and inclusive society

We firmly believe that stakeholder capitalism starts at home – that each of us can make a difference. Below are some of our thoughts on how you can make decisions with your capital through a diversity, equity, and inclusion (DEI) lens - whether you’re investing in the public or private markets; and whether you’re acting as a company shareholder or public citizen.

Public Market Investments

Knowing what you own- The first step is knowing what you own and whether your portfolio is helping drive capital towards female and Black, Indigenous and People of Color (BIPOC) asset managers. In the roughly $70 trillion asset management industry only 1.3% of these assets are managed by women and BIPOC. What kind of investments are your managers making on your behalf? How are your managers addressing DEI? A place to start is asking your managers to share DEI statistics (like ownership and management by women or the BIPOC community) – about their firm as well as the underlying investments they are making. But this goes beyond just who manages your assets -it’s also about how you allocate your capital. Investing with a DEI lens is about much more than just “doing the right thing”. In their recent “One Million Black Women” announcement to allocate $10 Billion of investment capital to impact the lives of black women, Goldman Sachs cited research showing that if we invested to reduce the earnings gap among black women, we could create as many as 1.7 million new jobs and add $450 Million to our GDP.

On that note, another question you can ask is what the companies in your investment portfolio are doing to close the earnings gap – not just in terms of race, but gender as well.

Shareholder Engagement – Shareholder engagement represents the best opportunity to have a direct impact in public markets as it gives investors the opportunity to use their position as owners to drive real-world change around specific issues (like DEI) while improving shareholder value. As racial equity has risen to the top of the societal agenda, companies are increasingly being asked by shareholders to report on gender and racial diversity and pay equity, and to share insights into their diversity programs. Investors can file shareholder resolutions to ask companies to improve their disclosure around a certain issue, to make changes to their governance structures, or to make changes to key policies that impact the companies’ various stakeholders.

Investors can also invest their capital with managers who engage with companies on behalf of their clients. This includes proxy voting, but many managers also have direct access to company management and can use their leverage as a large shareholder to influence corporate decision-making. Another option is to support non-profit organizations, like As You Sow, which specialize in using shareholder engagement as a tool for addressing some of the world’s most pressing social and environmental challenges.

Investors and philanthropists that want to make a difference with their dollars around DEI issues need look no further for inspiration than the success philanthropists are having using their financial muscle to pressure banks to confront climate change and stop financing fossil fuels. We can make DEI the next frontier of shareholder activism.

Private Markets

For those investing in private markets, challenge your unconscious bias. Are you supporting female or BIPOC managers through your investments? If not, what practices would you or your advisor(s) need to change in order to do so? What might be holding you back?

Increasingly, asset managers and allocators are coming to recognize that we need to rethink some of the industry’s engrained and reflexive allocation habits that continue to hold back BIPOC asset managers - like high AUM thresholds, three-year plus track records, and first-time fund allocation prohibitions. For those who would like to dive into this area and learn more, the Due Diligence 2.0 Commitment, of which Align is a signatory, recommends nine specific shifts that allocators can make tin their due diligence processes to remove systemic barriers to allocations to BIPOC managers without sacrificing performance.

We can be the changemakers and stop history from repeating itself

There are many signs that we are making progress. Significant actors in capital markets appear to be committing themselves with new resolve to DEI. At the end of 2020, Nasdaq proposed new listing requirements upping gender and diversity representation on boards for all of its listed companies. Netflix, Twitter, and Square are among large corporations that have recently announced $100 Million commitments to DEI.

Perhaps just as significantly, major corporations like PayPal, Salesforce and Samsung appear to be taking steps with commitments to minority-owned venture capital funds and entrepreneurs that seem to view inclusivity as more than just a moral imperative and as a way to drive innovation.

If we look back to what sparked this national conversation, the family of George Floyd just won a $27 Million settlement from the city of Minneapolis over his death - by far the largest such award per the family’s attorneys.

For those of us who care deeply about issues of racial and social injustice, these are all reasons for optimism. Let’s not have this conversation again a few years from now. The only way to prevent history from repeating itself is to take action and keep this conversation at the forefront of our national debate and consciousness. This is up to each of us - and together we can make a difference! Let’s inspire one another to be the change through our action!

With gratitude and in partnership,
Jenn and the entire Align Team.

Stakeholder Capitalism Starts With Each of Us

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