More Motherf*%&ers – Where Are The Billionaire Sustainable Activist Investors?

This is Part 1 of a two-part series about shareholder activism in honor of it being Shareholder Meeting Season. This is the Season when corporations hold their annual meetings. During these meetings or via proxy voting, shareholders vote to approve or reject directors for the board, internal proposals, and external shareholder proposals.

“I asked … about TPG and people said ‘Oh they’re motherfuckers” … If we want to change things … we can’t be hippie-sh …. [Sustainable] investing has been an excuse for good people to do bad deals … and with TPG and the discipline this company brings … I think we can really unlock a lot of resources”. Bono – 2017

Sustainable Investing Is Evolving

Sustainable investing has been changing at a rapid pace. It has been almost three years since TPG, a global private equity firm, in partnership with Bono and Jeff Skoll, raised $2 billion for The Rise Fund. The Rise Fund is currently the largest private sustainable investing fund. Bank of America and UBS are investors. The Board includes renowned philanthropists like Laurene Powell Jobs, Mo Ibrahim, and Pierre Omidyar. The logic behind a partnership between philanthropists and corporate raiders like TPG to create The Rise Fund is best articulated by Bono’s words. Unfortunately, the biggest recent story about The Rise Fund was when co-founder Bill McGlashan was caught up in the college admissions cheating scandal. McGlashan’s transgressions aside, sustainable investing WOULD likely benefit from the discipline of private equity as well as other features from the traditional investing world.

Activist Investors

A group I feel would increase the credibility and success of sustainable investing are activist investors. Activist investors (or shareholders) attempt to gain control of a company in order to pressure its management into making changes or replace its management outright. Activist investors gain control through purchasing large numbers of public company shares and/or obtaining board seats. When certain activist investors target companies, the market can respond positively. For example, when Carl Icahn, a legendary activist investor, took a $3 billion stake in Apple (which represented less than 1% of the outstanding shares), the stock price went up.

While some consider activist investors as vultures, a slightly kinder term than motherfucker, a recent study from Columbia Business School has shown activists can make companies stronger by making companies leaner, more focused and innovative.  Activist investors like Elliott Management have even exposed emerging market corruption. The additional transparency from Elliott’s sovereign debt investment was not the fund’s ultimate goal. However, the example demonstrates how this form of investing can make companies and even countries better.

Ruthless Sustainability Challenges

The results would be incredible if there emerged activist investors who decided to be as ruthless about sustainability as Icahn or Elliott are ruthless about making money. However, there are several challenges which may hinder “ruthless sustainability”. These challenges may include:

• Timing – Activist investors build up their reputation over a number of successful investments. The early sustainable activist investor will have to demonstrate they can deliver returns and impact, which will take time.
• Credibility – Billionaire activist investors are not perceived as interested in sustainability. Conversely, the market may not respond to a sustainable investor in the same way it would respond to a “vulture” fund.
• Balance – Some investments may deliver more profit than impact. Others will have impact with a lower return on investment. A standard activist investor only has to worry about the bottom line.

Nevertheless, it’s exciting to imagine Carl Icahn or Paul Singer, the head of Elliot Management, bringing their talents to sustainable investing. Now is potentially a good time to start the ruthless sustainability trend. When corporations were desperate for cash in 2008, Warren Buffett was able to negotiate a deal with Goldman Sachs that would have been impossible in 2007. Today a similar situation exists with many companies desperate for liquidity. While sustainable investor activism doesn’t exist beyond sustainable shareholder resolutions, I’m hopeful that a reformed “vulture” will enter sustainable investing and fulfill Bono’s prophesy of motherfuckers unlocking resources.

Tune in tomorrow for Part 2 of the shareholder activism series.

About the author:
Isaac is the general manager for the Northwest and West Canada at Lime, the leading US smart mobility company. Before Lime, he worked for an emerging markets venture capital firm called Capria and for President Clinton's Health Access Initiative. Isaac has an MBA from London Business School and a BS in Psychology with Honors from Brown University. He lives in Seattle with his wife and son.