In his view, companies that operate with integrity rarely get enough credit for it from investors or the press. “You have people who are princes, who have good values, who treat people right. We don’t tend to pay a lot of attention; we don’t get a lot of stories about them. The surveys of the most admired businesses—how much do those evolve over time based on your market cap? What’s in vogue and in favor is ‘admired.’ ” He has watched, with chagrin, as Wall Street firms pocketed billions in fees and commissions by steering clients to bad deals that they dismiss as “O.P.M.”—Other People’s Money. “Talking about clients as though they are to be taken advantage of rather than to be honored, and respected, and cherished, as your lifeblood—it’s disgusting, but you see that in individual behavior.” He added, “When one person does that, it’s bad for all the rest of us.”
He told me, “I don’t think it’s too late for business leaders to start doing the right thing for their employees, their clients, and their communities.” And if they don’t? It could lead to regulations that, in his mind, would go too far in constraining corporate behavior. In his speech, he said, “When capitalism goes unchecked and unexamined, and management is seduced by a narrow and myopic perspective, the pendulum can quickly swing in directions where capitalism’s benefits are discounted, and its flaws exaggerated.” Klarman hopes that politicians in Washington will hear his message, but, more to the point, he wants fellow-practitioners to hear him. “If every businessperson, or enough businesspeople, don’t act as stewards of more than just the bottom line, somebody’s going to come along and do it for them.
The rising tide of progressives, socialists, unions, social justice advocates and totalitarians are all clambering for the mantle of biggest redistributionist in a crowded field. That’s not a trend individual to a single country, it’s a global phenomenon.
The majority of people subscribing to this service have been highly successful in life and are to varying degrees asset rich. The masses of people shouting “what about me” represent a risk because they have the capacity to vote themselves more money and that will be taken from the pockets of savers.
What Seth Klarman is effectively saying is there is now a political risk premium on the market that we did not have to contend with in decades past. It truly is best for companies to take remedial action today but it is unlikely because of first mover risk and the culture of quarterly earnings and maximising shareholder value is baked into the regulatory environment.
We have seen on numerous occasions the market rewarding right-wing populists in India, the USA and most recently in Brazil. Meanwhile the accession to power of left-wing populists in Italy and most recently in Mexico has been greeted with fear.
In the very simplest of terms, governance is everything. In my opinion that is one of the most acute insights David revealed. In a domestically and geopolitically charged environment that is truer than ever. Property rights, minority shareholder interests and a free judiciary are the hallmarks of good governance. When they come under threat it’s bad news for investors.Back to top