TED@BCG Toronto
Vinay Shandal: How conscious investors can turn up the heat and make companies change
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In a talk that's equal parts funny and urgent, consultant Vinay Shandal shares stories of the world's top activist investors, showing how individuals and institutions can take a page from their playbook and put pressure on companies to drive positive change. "It's your right to have your money managed in line with your values," Shandal says. "Use your voice, and trust that it matters."
Vinay Shandal - Investment agitator
BCG's Vinay Shandal is passionate about the role of capital in creating impact. Full bio
BCG's Vinay Shandal is passionate about the role of capital in creating impact. Full bio
Double-click the English transcript below to play the video.
00:13
We love to engage
on the issues of the day.
on the issues of the day.
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We love it.
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We comment on the news,
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we post our views on social media,
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we march, we protest ...
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But who among us is working on solutions,
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big solutions to big issues,
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like gun violence,
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mistreatment of workers,
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flood, famine, drought?
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Who is on it?
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Boom!
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These guys.
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(Laughter)
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What? You were hoping for Peter Parker?
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The Avengers?
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You don't expect this beacon of diversity,
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these good-looking, nicely dressed dudes
just oozing charisma to solve the issues?
just oozing charisma to solve the issues?
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Well good, because they're actually
not going to solve the issues.
not going to solve the issues.
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But before you dismiss them,
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let me say, they're not going
to solve the issues,
to solve the issues,
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but they will show us how.
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So who are they?
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They're activist investors:
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Carl Icahn, Dan Loeb,
Paul Singer, Barry Rosenstein.
Paul Singer, Barry Rosenstein.
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These are the modern-day
OGs of Wall Street.
OGs of Wall Street.
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(Laughter)
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These are scary dudes.
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I don't mean Green Goblin scary.
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I mean real scary.
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The fear they strike in the hearts
of a company's CEO and board
of a company's CEO and board
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when they enter its stock
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is the same fear you feel
when you hear a bear outside your tent,
when you hear a bear outside your tent,
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and it's dark,
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and you're sitting there
with a mouthful of Doritos --
with a mouthful of Doritos --
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(Laughter)
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that just moments ago,
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you had snuck out of the tent
to pull down from the bear hang,
to pull down from the bear hang,
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because you had the munchies.
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That fear.
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And in that moment, you are praying,
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"Oh Lord, please let this bear
be passing through."
be passing through."
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That bear is not passing through!
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That bear made a detour for you.
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Bears like Doritos!
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(Laughter)
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Activists like money.
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Some activists also like Doritos,
but they definitely want money.
but they definitely want money.
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And the way they make money,
the way they create value,
the way they create value,
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is by getting management of corporations
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to make changes.
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Now, some will argue
that the changes they create,
that the changes they create,
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the value they create,
is too short-term in nature.
is too short-term in nature.
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And others will say the tactics
they use are egregious.
they use are egregious.
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I agree.
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Long, drawn-out lawsuits,
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public smear campaigns --
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there is no need for that.
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But I must say, there's
a small handful of activists,
a small handful of activists,
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very small,
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that go to great lengths
to be constructive and collaborative.
to be constructive and collaborative.
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And overall, we have to give credit
where credit is due.
where credit is due.
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As a group, they have managed
to catalyze large-scale change
to catalyze large-scale change
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in large corporations,
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and that's no small feat.
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Now, imagine a world
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where all investors were working
with management to make change,
with management to make change,
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not just to make more money,
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but to improve
the environment and society.
the environment and society.
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Imagine what a greener
and better world this would be.
and better world this would be.
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Now, why? Why would an investor bother?
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And at first, blush I'm with you:
Why would an investor care?
Why would an investor care?
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Because if doing well on ESG issues --
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environmental, social
and governance issues --
and governance issues --
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was just an act of good
corporate citizenship,
corporate citizenship,
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then I agree, investors would not care.
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But the good news,
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and perhaps the saving grace
for our collective futures,
for our collective futures,
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is that it's so much more than
an act of good corporate citizenship.
an act of good corporate citizenship.
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It's good business.
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There's now enough evidence
that shows a clear correlation
that shows a clear correlation
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between ESG performance
and financial performance.
and financial performance.
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Companies that do good
for the environment and society
for the environment and society
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also do well financially.
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And some of the best
companies are catching on.
companies are catching on.
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Like Adidas:
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Adidas is cleaning up the ocean
and making money in the process.
and making money in the process.
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Adidas teamed up with an organization
called Parley for the Oceans.
called Parley for the Oceans.
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Parley goes out and collects
plastic waste from the ocean.
plastic waste from the ocean.
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Adidas uses the plastic waste
to make shoes.
to make shoes.
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Shoes made with plastic from the ocean:
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good for the environment
and good for business.
and good for business.
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Because if you know that rapidly growing
consumer segment known as hipsters --
consumer segment known as hipsters --
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and I know you know hipsters --
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then you know that a hipster faced with
the choice between a no-name shoe
the choice between a no-name shoe
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and an Adidas made with
plastic from the ocean
plastic from the ocean
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will pick the Adidas every day
of the week and twice on Sunday,
of the week and twice on Sunday,
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and then walk around like it's no big deal
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but look for every opportunity
to talk about them.
to talk about them.
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Like, in an Uber Pool.
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(Laughter)
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"Hey, I noticed you looking at my feet."
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"What? Dude, no, I'm just making slides.
I'm a consultant. I make slides.
I'm a consultant. I make slides.
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I'm making PowerPoint slides,
I'm not looking --"
I'm not looking --"
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"No, it's fine.
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I get why you'd be looking.
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The plastic on my shoe
must be bothering you.
must be bothering you.
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Well, let me talk about it
for the rest of this ride.
for the rest of this ride.
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You see, the plastic on my shoe
is from the ocean,
is from the ocean,
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on my feet, not in your fish,
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being walked on, not being munched on.
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Happy feet. Happy fish. Happy ocean.
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Doing my part. I got eco-shoes.
I got eco-shoes.
I got eco-shoes.
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You need some eco-shoes?"
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And so on, just cornering him.
We've all been there.
We've all been there.
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"Hey, pass me your cell phone.
I'll give you a discount code.
I'll give you a discount code.
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Let me give you a discount code."
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We've all been --
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Folks, I have jumped out
of moving Uber Pools.
of moving Uber Pools.
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(Laughter)
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Just, moving, highway, I'm out. I'm out.
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But we've got to forgive the hipsters,
we need to love the hipsters.
we need to love the hipsters.
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We need hipsters,
and we need companies like Adidas,
and we need companies like Adidas,
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and what we need most is for investors
to convince other companies
to convince other companies
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to behave like Adidas.
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And herein lies the challenge.
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There's a growing group of investors,
call them "conscious investors."
call them "conscious investors."
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Conscious investors care about ESG issues.
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And they talk a lot about
engaging management on ESG issues.
engaging management on ESG issues.
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But they don't actually get
management to make changes
management to make changes
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that will improve
the environment and society.
the environment and society.
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And this is where conscious investors
can take a page from the playbook
can take a page from the playbook
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of the activist investors,
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because the activist investors have no
issues getting management to make changes.
issues getting management to make changes.
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They have no issues turning up the heat.
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Take Paul Singer.
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He's an old-school Wall Street OG,
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now in his 70s, loves Doritos,
loves making money.
loves making money.
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Argentina owed Paul 600 million dollars
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and would not pay.
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Big mistake.
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You can't take money from an OG
and not pay it back.
and not pay it back.
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Paul went to war with Argentina.
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I am not inventing.
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This is big. This was huge.
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This was bigger than Tyson vs Holyfield,
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Ali vs Foreman.
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This was man vs country.
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Paul Singer started going around the world
trying to seize up Argentinian assets.
trying to seize up Argentinian assets.
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At one point, he tried to seize
an Argentinian navy vessel
an Argentinian navy vessel
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off the coast of Ghana.
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He tried to take over a 350-foot ship
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while big navy officers
with big guns were on the ship.
with big guns were on the ship.
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He got the police in Ghana
to show up with a crane
to show up with a crane
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and threaten to board the ship,
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and it wasn't until
the navy officers drew their weapons
the navy officers drew their weapons
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that they called off the operation.
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That's what I call turning up the heat.
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Now, you may say
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Paul lost the battle.
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And I'll say, Paul won the war,
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because Paul didn't get paid one time,
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he got paid 20 times
his original investment.
his original investment.
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Then you have Barry Rosenstein.
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His fund, Jana Partners,
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started stealth-mode buying up
stock in Whole Foods,
stock in Whole Foods,
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at a time when Whole Foods was struggling.
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They got to eight percent, came out,
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and pushed Whole Foods
to sell itself to Amazon,
to sell itself to Amazon,
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and not because Barry wanted
same-day delivery of his organic Doritos.
same-day delivery of his organic Doritos.
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(Laughter)
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He wanted to make some money.
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Now, the CEO of Whole Foods,
John Mackey, and the board
John Mackey, and the board
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did not want to sell themselves to Amazon,
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because that would be
the prime example of selling out.
the prime example of selling out.
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But in the end, they caved.
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Why? Because Barry turned up the heat,
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and he made 300 million
dollars in the process.
dollars in the process.
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And he did not leave
a very nice impression on John.
a very nice impression on John.
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You're not going to see
John and Barry just hugging it out
John and Barry just hugging it out
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at the Whole Foods café.
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Let's take a very different example now:
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the Chicago Teachers' Pension Fund,
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a $10 billion conscious investor.
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They recently came out hard
against private prisons in the US,
against private prisons in the US,
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and good for them.
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As a new parent, I tell you,
I am troubled by devastating images
I am troubled by devastating images
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of young children being ripped
out of the arms of their parents
out of the arms of their parents
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at the US border
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and being placed in private
detention facilities that did too little
detention facilities that did too little
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to help the kids maintain
contact with their parents.
contact with their parents.
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So what did the Chicago teachers do?
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Did they get management to make changes?
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Did they turn up the heat?
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Did they look management
in the eye and say,
in the eye and say,
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"This is no way to run a business.
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There's a different way
to do things. Let me show you"?
to do things. Let me show you"?
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No. They just sold their stock.
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Selling did nothing.
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It's not like management
woke up the next day
woke up the next day
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and had an epiphany and said,
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"Gosh, the teachers sold their stock.
We'd better be nice to the kids."
We'd better be nice to the kids."
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No. That didn't happen.
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And despite a decade
of several high-profile divestitures
of several high-profile divestitures
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in private prison stock in the US,
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the stock has continued to climb.
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The stock over that same period
has outperformed the market.
has outperformed the market.
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And the biggest issue is,
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we went from a set of conscious
investors owning the stock
investors owning the stock
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to it potentially being owned by investors
who don't care about these issues
who don't care about these issues
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and don't care what you think
about these issues.
about these issues.
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And this is my issue
with conscious investors.
with conscious investors.
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Their MO is to divest
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or divert money into ESG-focused funds.
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You can't divest your way
to a greener world.
to a greener world.
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You can divest your way
to a greener portfolio,
to a greener portfolio,
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not to a greener world.
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So what's it going to take?
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What's it going to take
to flip the script,
to flip the script,
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to get conscious investors to go
from divesting to engaging,
from divesting to engaging,
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to go from talking about engaging
to actually working with management
to actually working with management
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to make changes that will improve
their ESG performance?
their ESG performance?
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Because there's a lot suggesting
they should and they could.
they should and they could.
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They should, given the clear correlation
between ESG performance
between ESG performance
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and financial performance.
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They could because the activists
have shown us they could.
have shown us they could.
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A shareholder can drive
change in a company.
change in a company.
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The difference is, Paul and Barry
do what they do to make money.
do what they do to make money.
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The conscious investors would do it
to improve society and the environment
to improve society and the environment
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and make money in the process
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and do it a little more
collaboratively and constructively.
collaboratively and constructively.
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And they have the backing
of the some of the largest investors.
of the some of the largest investors.
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Vanguard and BlackRock --
together, they manage trillions.
together, they manage trillions.
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They've been increasingly vocal
about the importance of ESG.
about the importance of ESG.
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The CEO of BlackRock has been
increasingly vocal in his annual letters
increasingly vocal in his annual letters
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about this issue.
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Even Jana Partners, the same OGs
that John called "greedy bastards,"
that John called "greedy bastards,"
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recently co-wrote an open letter
to the board of Apple,
to the board of Apple,
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saying, "Hey, your smartphones
are addictive for children.
are addictive for children.
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Fix it."
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Apple is working on it.
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So what it's going to take
is some pressure.
is some pressure.
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It's going to take some pressure
on conscious investors
on conscious investors
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to, in turn, put some pressure
on management
on management
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to make changes that will improve
the environment and society.
the environment and society.
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And where do they start?
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They start by picking an issue
that matters to them
that matters to them
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and taking a stand on it.
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Take a stand on an issue
that lines up with your purpose:
that lines up with your purpose:
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water preservation,
labor rights, diversity.
labor rights, diversity.
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As long as it lines up
with your purpose, you are golden.
with your purpose, you are golden.
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And the biggest unlock?
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Get the senior-most investment
professionals focused on this.
professionals focused on this.
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Today, when an activist
shows up to a campaign,
shows up to a campaign,
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it's the senior investment professional
talking to the CEO and the board
talking to the CEO and the board
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and everyone hears about it.
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When a conscious investor shows up
to talk about an ESG issue,
to talk about an ESG issue,
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it's some junior person
in the risk department
in the risk department
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talking to some junior person
in the investor relations department,
in the investor relations department,
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and nobody hears about it,
and that needs to change.
and that needs to change.
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And it's not some massive leap.
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Today, when a company
underperforms financially,
underperforms financially,
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who is on the hook?
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The senior investment professional.
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So what do they do?
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They drop everything
and work with management,
and work with management,
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collaboratively and constructively,
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to make changes to improve
the company's financial performance.
the company's financial performance.
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The same should be true when the company
underperforms on ESG issues.
underperforms on ESG issues.
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And yes, that requires standardization
on how we measure ESG,
on how we measure ESG,
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but we're on it.
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So folks, here's my call to action:
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it's your money.
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It's your pension fund,
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it's your sovereign wealth fund.
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it's your university's endowment.
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It's your money.
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And it's your right to have your money
managed in line with your values.
managed in line with your values.
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So use your voice
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and trust that it matters.
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It was your voice that got the investors
more conscious in the first place.
more conscious in the first place.
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You protested for years,
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because you didn't feel right
about your money being invested
about your money being invested
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in companies whose values
don't line up with yours.
don't line up with yours.
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It's time to use that voice again.
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But this time, instead of
pushing them to divest,
pushing them to divest,
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push them to engage, truly engage,
truly work with management
truly work with management
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to make changes that will improve
their ESG performance.
their ESG performance.
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You made them aware of the issues.
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You can now focus them on fixing them.
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Thank you.
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(Applause)
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ABOUT THE SPEAKER
Vinay Shandal - Investment agitatorBCG's Vinay Shandal is passionate about the role of capital in creating impact.
Why you should listen
A Partner in The Boston Consulting Group's Toronto office, Vinay Shandal leads BCG's Principal Investors and Private Equity practice in Canada. He also helps lead the global efforts on shareholder activism, a topic for which he developed passion while at Wachtell, Lipton, Rosen & Katz. Before becoming a consultant, Shandal practiced corporate law in New York and clerked at the Supreme Court of Canada in Ottawa.
Shandal has co-authored numerous BCG and other publications on various aspects of investing, shareholder activism and the role of capital in driving better societal outcomes.
As a leader at BCG's Centre for Canada's Future, Shandal is also invested in keeping tabs on and tackling some of the country’s most pressing issues. He is a board member of Capitalize 4 Kids, a nonprofit that aims to solve the toughest challenges in children's brain health and mental health. In his work, Shandal is most passionate about the role of capital in creating impact and most inspired by his wife, Christina, who is a respected social activist.
Vinay Shandal | Speaker | TED.com