You can buy Dambisa's new book, How Boards Work: And How They Can Work Better in a Chaotic World, on Amazon here.
Merryn Somerset Webb: Hello, and welcome to the MoneyWeek magazine podcast. I am Merryn Somerset Webb, editor in chief of the magazine and with me today I have a special treat for you readers: Dambisa Moyo.
Dambisa is an economist and an author. Several of you – well not several of you, thousands of you – will have heard me talking to her before about her various books. I think the one we last discussed on this was Edge of Chaos: Why Democracy Is Failing To Deliver Economic Growth. I think we did a quite a fun video on that one. And I also once talked to you about Dead Aid: Why Aid Is Not Working and how there is a better way for Africa, which was equally brilliant.
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Coming up, you have a new book coming out –How Boards Work – on May the 4th. So we'll talk a little bit about that. But thank you so much for joining us today.
Dambisa Moyo: It's a pleasure. Thank you, Merryn, good to hear from you.
MSW: Yes, ages since we talked. How about we start by just talking a little bit about your book? Interestingly, you have sat on a lot of fairly significant boards along the way. This book is based on both your experience of the past and your expectations of the future.
DM: Yes, that is absolutely right. This book is written after over ten years of serving on large global and complex boards. The book looks at the 21st century role of the corporation in the post Covid economic recovery.
And of course, while facing de-globalisation and digitisation, it’s going in to the questions around the allocation of capital and labour at a time when companies are facing enormous trade offs on issues such as climate change, and gender and race equality, data privacy, worker advocacy, etc.
So I was motivated to write this book to really reassert the importance of corporations, but also to basically help the reader understand just what challenge corporations are facing. And what levers boards have to basically help chaperone and shepherd corporations into the future.
MSW: It's interesting, isn't it? Because I guess everybody rather thinks that the role of corporations, whether it is changing, and it certainly should change, and if we think about the companies of the past, the idea – and this is not not entirely true, by the way – but there is an idea that in the past the corporation has been fully focused on shareholder rights and not making profits, etc. Whereas now, the corporation, in particular the large corporation, should have much more of a social role than it’s had in the past.
DM: Yes. First of all, Milton Friedman, who's been seen as the godfather of the financial shareholder – I think he's been largely misquoted. If you read his 1970 article, where he does assert the importance of financial shareholders as a priority, he did not say that everything else is irrelevant, as sometimes he's cast as.
Even before we entered in a world where ESG – environmental, social and governance – issues were important, in the last decade or so, corporations were already playing an important role in terms of being a tax provider, in terms of innovation, which is important for society and job creation, as well as helping to contribute to public goods such as infrastructure.
Of course, now, partly because government time and time again is disappointing in its own ability to deliver on public goods, we are seeing a greater role and greater expectation in society and how corporations operate and their responsibility to society writ large.
MSW: It seems when I look at that Milton Friedman article – I was it rereading myself a couple months ago, 1970s New York Times, wasn't it? – I read it as though it's been taken as saying all that matters is what shareholders want, and all that shareholders want is profit. And, of course, I see that's not always what shareholders want, not always what owners want.
This is one of the really interesting things that's coming out over the last couple of years – this idea that the shareholder, him or herself, doesn't necessarily just want their company to make money in the short term, they want their company to behave in such a way that will produce sustainable profits over the long term, which is a very different thing. Right?
DM: Absolutely, and this is why ESG in that respect is an existential crisis for corporations, because going back to Henry Ford, the 1930s, the creation of the motorcar, he recognised very early on – and this sounds very utility maximising – but he recognised that if you didn't pay your workers a living wage, they wouldn't be able to afford your product. Even in the most cynical view, that is an approach that companies take around a whole host of issues. If you don't have a healthy community around you, you don't have an educated community around you, your business is not going to be viable. And of course, infrastructure as well.
And so this notion that somehow corporations are so cynical and sinister, that they don't really care about the communities in which they work, or broader societal issues just doesn't comport with businesses that want to be around over the long term.
MSW: And you can see this in the way that institutional investors are beginning to demand more and more from boards. This is one of the things that you write about in the book.
The classic of course is Larry Fink, the CEO of BlackRock, and the letters that he publishes every year to CEOs where he tells them what it is that he expects them to focus on over the next year. He's called for new ways of shareholder engagement, he's called for companies to fulfil various purposes and responsibilities to shareholders.
And lots of the other big pension funds and institutional investors are doing the same. They're calling on companies to commit to particular ways of improving society and dealing with the issues of their workforce and their communities. So the question then is how boards react to that, and how this changes the way boards work.
DM: Yes, I think two things. At a very superficial level boards have conversations on an ongoing basis, not just with asset managers like BlackRock, but also the asset owners, the actual pension funds and insurance companies that are actually holding these pools of capital, we have direct contact with them, the family offices and we have engaged with them over multiple decades.
I think the more important point to stress here is that these types of campaigns or letters, while they do have a role, they do tend to sweep over the trade offs, that boards are forced to analyse, and opine on, in all these areas of ESG.
So if I can maybe just give you some quick examples. On the one hand we're facing calls to defund fossil fuel companies. But you know, very scarcely do we hear people talk about the fact that 1.5 billion people do not have access to energy –what is the role of a company that produces energy in that realm?
Another example is on the one hand, people say, we want more ESG compliance, and that's wonderful. That's a laudable goal. But you know, nobody wants to really talk about what does that mean, versus investing in China? Are these two things that are at odds? What does that mean for portfolios? What does that mean for capital allocation for companies?
Data privacy: we all want a vaccine ASAP, we want cancer cures yesterday. But then we now also know from scientists that having bigger datasets, more information can help us get to better answers faster. People bristle at the idea of investing in China, where, again, in China, the rules on data privacy might be much lower. This is just a few examples of these challenges and trade offs, and essentially landmines that boards have to navigate.
And then, whether it's on pay equity, gender and racial equity, we have on the one hand fully subscribed to looking at data today, and the notion that having more diverse workforce is a great thing, that doesn't seem to be controversial. But how we implement it can't be a situation where you're fighting inequality with inequality, ie, we start to now discriminate inadvertently against white males.
These are all very challenging issues, worker advocacy issues. In the West, we're obsessed with work life balance, and that's great. But in China, they have a 996 approach, which is where people work from nine to nine, six days a week. How does a global company manage those types of differences across cultures?
So yes on all of these issues, on paper, they're not really refutable. But as a practical matter, there's very little discussion about how challenging it actually is to navigate this ESG agenda.
MSW: But I suspect that the Larry Finks of the world know perfectly well how much nuance there is in there and how complicated is, but it's an excellent look for them to make it sound very simple and straightforward and to place the responsibility for dealing with all these issues at the door of boards rather than maybe their own doors.
DM: Exactly. And look, honestly Merryn, I think it also says a lot about society. I very much hope that we can engage in a more sophisticated discourse around these issues, recognising that even on something like climate change, we are not going to be successful without there being a multi pronged approach, it can't just be public policy that bans fossil fuels, it has to be about innovation, it has to be about bringing on China and India, these large economies to the table to have this discussion.
And it's true for every other ESG issue, whether it's obesity, guns, etc, we've got to have a much more cool head in terms of how we address these if we're looking for sustainable solutions, and not solutions that might look attractive in the short term, but actually, are essentially making things worse.
MSW: I was interested in one of the things that you mentioned in the book that I always keep a vague eye on as well, and I'm writing about some of this stuff myself at the moment too, this consistent fall in the trust that people have in big companies.
There's this constant idea that there's something bad about big corporations, something untrustworthy about them. And this constant flow of scandal around big corporations is something that adds to that. But there's another side to that, that is when people get to know a company very well, you see data that shows that their trust in it goes up. So people trust companies that they know, they trust companies around them.
And one of the interesting data points that I've seen over the last year is that people have put a huge amount of trust in their employers during the pandemic. So the closer people get to companies, the data suggests, the more they trust them, it's the distance that they find difficult.
Which brings me to something that you just said about asset owners, who are the owners of the assets, and you referred to pension funds and family offices and this kind of thing. But of course, the end owners are the retail investor, are the ordinary person, the pensioner and the saver. And one of the things that I'm interested in is how do boards connect or reconnect, not just necessarily with the pension funds who have the votes, but with the end owners, us, the man on the street.
DM: Yes. If I may just say a couple of things on everything that you said, which I agree with. First of all, we do get carried away by the news headlines. But fundamentally, every single day, billions of goods and services are transported over borders and delivered without incident. Whether it's your IKEA box, you open it up and all the pieces are in there; or you go to a restaurant, as many people do around the world, and they don't leave with food poisoning. So fundamentally, corporations are doing a great job.
Yes, we do have scandals and cases of bad behaviour. Of course we do. Inthe book, I talk about how in just 18 months, we have over 400 senior business leaders leave because of Me Too and ethical issues. So of course, there are flashpoints and problems. But this notion that corporations are just a bad Boogeyman, I think, is well overdone.
You touched on this point about trust. And it's critical, because business, if you look at something like the Edelman barometer of trust, which comes out every year, business is actually considered more trustworthy than even government. That says a lot.
Picking up on the point that you're raising in your question, though, about how we engage with individual retail shareholders is a good one. And we do – at a minimum, every single year, we have annual general meetings where our full body of shareholders is invited. And it's not just a compliment of institutional investors, you have retail investors there also.
But the other thing that I think has become much more useful is that we are in an era of technology. I've talked about this in the book, but if you look at tools such as GlassDoor, or The Blind, or The Layoff, these are all tools that give us more granular information, not just about how our employees are feeling, but also about how our retail investors are feeling.
And this notion of a provenance, this idea that people, consumers, regulators, the broader stakeholders and civil society are interested in how companies are producing the goods and services that they are producing, whether it's how much water you're using, how much CO2 you've expended, what the average wages are of your employee base, that information is, within the next five to ten years, I believe, and to some extent in some companies already exists, at the fingertips of our consumers. We're able to stay much closer because technology is allowing and enabling that.
MSW: Interesting. I wonder, do you ever think that maybe we are beginning as a society to ask too much of companies, perhaps we asked too little of big corporations in the past, but now looking at what you and I have been talking about for the last 15 minutes, the things that we're asking a company to do, to think about every kind of social issue and take it into account in the way they behave, when in the past, you might have looked at these issues and said that these are issues for government to deal with. Governments set parameters and set a regulatory environment. These are not things that CEOs and boards should have to think about – are we asking too much?
DM: Well I don't know whether too much is the point. Of course, society should demand and expect a certain level of standard or behaviour of all agencies, whether it's government, NGOs –we've seen scandals in the past in that area – broader civil society, and, of course, corporations.
But in what you are asking about in terms of broader purview, I do think that the fact that corporations are now laden with responsibilities around health care, around education, around infrastructure; these areas, which are traditionally the purview of government, says a lot about how society no longer, or in less of a fashion, is relying on government. I think that is absolutely a problem.
If you look at government in the past, it was not only a partner of business, but it was also very much a visionary. If you go back into the United States, in the 1950s, the government was at the heart of the Manhattan Project, the development of Silicon Valley, and DARPA. And now we find that a lot of governments tend to be much more reactionary, and much less visionary. And I think that that is a problem.
Because we see a lot of grasping towards progressive values, things like more taxation, more redistribution, things that are not going to grow the GDP pie, they rather are going to redistribute the existing pie. And that worries me a lot.
We need much more of a conversation around digitisation and innovation, the idea of essentially going where the pot is going, and I worry that government is not doing their job, and therefore they're looking for, we are all looking for someone else to take that step, and being data driven, and really forward leaning with measured outcomes and not corrupt, and it used to be the government. But now more and more it is corporations, whether we like it or not.
MSW: I know that's an interesting one, it also brings us to a conversation –which we won't have now – which is how much power is too much power. For example, some of the big fund managers. So if the world's largest asset manager is managing $9trn worth of assets, which then gives it an extraordinary amount of power over boards and corporates everywhere, have we got a problem with where power lies inside of our communities and inside our economies? Maybe we'll leave that one.
DM: Yes. Well I think at the very, very high level, this is an issue that boards are dealing with, and this is very well known. But in the United States, the three largest institutional investors – BlackRock, Vanguard, State Street –they hold as much as 20%, sometimes more of a particular company, this has material effects for for M&A. And at a time when half of the number of companies are trading on public stock markets as they were ten years ago.
But you know, you're right, we as individual citizens should have more power, we should be able to say, hey, wait a minute, we don't want you to invest in bitcoin, we want you to invest in infrastructure, that is a societal good. We don't want you to invest in short-term things – it's our capital. And we want to see those types of investments. And I think this balance of power issue is something that's going to dominate going forward.
MSW: Interesting. OK, let's go back. You were talking about GDP growth and how a lot of things that governments do at the moment are not –redistribution might be nice, but it's not going to get us anywhere in the long term in terms of building growth and building our economies in a long term sustainable way. But if we look around right now, at say, the US and the UK economies maybe there's a little more difficulty with this vaccine rollout, etc.
But here, we do seem kind of super primed for a genuinely amazing recovery. And what we will say at the magazine is that we have never in our careers before seeing genuine pent-up demand. We've seen real demand, which is when people want stuff and they can afford to pay it. And we've seen false demand, when people would like to have stuff but they can't afford to pay for it. But we very rarely seen, in fact, never seen a situation where people have wanted to have a pile of stuff, mainly lunch in restaurants in my case, and not been allowed to have it even though they can afford it.
And suddenly we're releasing all that pent-up demand into an environment where there's been a vast amount of stimulus as well. And it looks like we're about to see a very, very strong recovery which could be quite exciting. Or might it, and I suspect you might feel this, might it just be a flash in the pan, given the long term structural problems that exist inside Western economies?
DM: So it's the latter for me. There's no doubt that we have a rebound in train, as you say we had an aggregate demand shock, we've all been at home for 18 months, we're all desperate to get out there. Add in that stimulus as you touched on, at least 20% for the big US and large, developed country balance sheets, there is a wall of money, a wall of pent-up demand, and that should be a formula for insane success.
And we're having a conversation with China at a time when China just announced 18% GDP numbers. I mean, this is absolutely a rebound. And every single day you wake up and the markets are clearing new highs. But this is not a recovery as far as I'm concerned.
A recovery would have to address all the structural problems that I talked about, you and I talked about, in my last book, Edge of Chaos, things like technology and the risk of a jobless underclass, we haven't addressed that. And in fact, if anything, I think Covid has been an accelerant, a catalyst to seeing more technological diminution of jobs. By that I mean we're going to see more automation, more job losses.
The book also talks about headwinds such as climate change, environmental concerns, which we have not addressed. We have not addressed demographic shifts, both in terms of the quality and the quantity of the world's population and workforce as it's changing.
We have not addressed issues of debt. In fact, if anything, again, Covid has been catalytic in driving us to those end points that the Congressional Budget Office and others have talked about being real risk places, with more debt, not both at government level, but also at corporate household, a student and auto loan level. So to me, yes, we've definitely seen a rebound, but we are not seeing a recovery. The structural drags on economic growth remain. And if you look at the IMF forecasts going out beyond this year, we start to see that drag kick in.
One last point about vaccines is we should not lose sight of the fact that countries like India are not expected to reach anywhere near herd immunity before 2023. So globally, we might see aggregate demand improve at a less fast pace, slower pace, than the sort of uptake that we'll see in some countries like the UK as well as the United States this year. So I think that there's more nuance.
And we haven't even mentioned the word inflation, which could really take the wheels off of a lot of the story.
MSW: That's exactly what I was about to ask you next in terms of this recovery now and the enormous levels of debt both public and private around the world. Although, of course, in the US and UK in particular, the household sector has done a great job of repairing its balance sheet during the pandemic, but public debt has just gone completely berserk. Does that lead in your mind to an inflationary endgame or a deflationary endgame?
DM: So about six months ago, I was very much in the camp that if you looked at disaggregated data, there was a lot of deflation to be seen. Deflation in England, prices have gone down absolutely, because of technology, in areas of food production, in areas of communications, transportation, etc. But I sit on boards, and I can assure you that we are already seeing inflation in logistics, we are seeing inflation in raw materials, we're seeing inflation in labour costs.
As somebody who's publishing my book, How Boards Work in May, just weeks away now, and even there, we're seeing that a lot of companies have gone out of business – printing companies, paper companies – that's also creating inflationary pressures. And this is not a big secret.
So do I expect there's no way, let me put it this way, that we're going to be able to get out of jail for free here, with the amount of stimulus and the sort of aggregate demand shock that has left a number of businesses and industries back footed by shut downs.
So I think we will see inflation, how much and how soon, of course, is the perennial question. You know, all I will say is that companies are seeing it already. And you know, how companies react, how public policy reacts in terms of interest rates will be critical in going back to the question about whether this is going to be just a rebound, a flash in the pan, or more fundamentally, a recovery.
MSW: When you say how companies react, how should they react?
DM: Well, in the boards on which I serve, I probably am much more about risk mitigation than upside leverage at this point. 20% of American companies are zombies. By that I mean they're not even able to use their cash flows to cover the interest payments on the debt that they serve. The fact that the United States Federal Reserve had to step in to lend money to sub investment grade corporations, I think tells you that we should be worried. This is a house of cards.
In some respects, I think there are many layers to this question: is this productive investment that's been going on? You see Archegos, the hedge fund that just blew up a few weeks ago, those types of things – or family office, I should say – those types of pockets of risk do lead me to pause, because even Greensill in Australia, because it does suggest that there might be pockets of risk around the world, fuelled by debt, whether it's bitcoin, or SPACs, that could create a much more vulnerable system than we are led to believe.
MSW: Yes, it does feel like that, doesn't it? Let's see if we can find some good news. You said earlier that one of the things that pandemic has done is operated as an accelerant, and then you suggested various bad things that it might have accelerated. Do you see anything out there, because I hear a lot from people that the pandemic has also acted as an accelerant in a good way. It's brought forward some interesting trends –digitalisation, etc – that will have a long-term positive effect on companies and economies.
DM: Yes. I tend to ask myself, what do I know that will be true in the next 20 to 50 years? And to me, there are three things: one is China, China's not going away, you wake up and you see 18% growth. That is the only large economy that did not go into a recession. China to me is going to be a big story. I think China is where the United States was a fifth in the 1950s. You got big government flows, lots of commitment, a massive consumer who really wants to get involved. So I'm very pro China as being a piece of this sort of turnaround positive story.
They are leading in technologies, which is the second area, technology. Not just technology in terms of consumerism and social networks, I'm talking about what technology will do in public goods like health care and education. I think we've just seen a sliver of that around the vaccine, I think technology is going to be huge and massively transformative. And that's good news for society.
The last thing is the green transition economy. I think that is another area, addressing climate change will be a massive input to economic success and human progress, how we do it, I think if it leans into innovation, as opposed to just, here and now, quick public policy that shuts down fossil fuels, I think we'll have better up upside, if it is much more based on innovation.
And so those are three areas that I'm investing in and I think are interesting, from a structural long term perspective. I happen to also serve on the Oxford University endowment, and when we are thinking about long term, these are the areas that we think are most attractive here and now and also in the future.
MSW: OK, interesting. So when you talk about you investing in these areas yourself, the growth of China, is investing in China about investing in the Chinese stockmarket?
DM: It is, but a lot of private equity also. It's the stockmarket with a lot of private equity opportunities, as well as thinking about these broader trends around consumption, around investment, but for me, really technology, there's a big venture capital base now that is doing pretty well.
But I think that there are lots of ways now to get involved in China, and we do, but I think that there's also a blind spot, or some reluctance. You know, if you look at American, again, pension funds and large institutional investors, their exposures, about 2% of their portfolio is into China. I expect that will change when people start objectively speaking, the p/e ratios and a lot of the multiples in general, around and also the nascency of the capital markets there. It's changing rapidly, but it's very, very low compared to Western markets. And I think that once we see more momentum in there, we'll see a change in terms of appetite.
MSW: Interesting, the other market that we keep looking at in the magazine and saying, of course it’s too cheap, is the UK market. It remains one of the cheapest markets in the world. And Brexit is not completely sorted out, but it’s early there. We've been very ahead on the vaccine, the economy is going to reopen earlier than others. Is this an economy you can see international investors coming back into?
DM: The short answer is yes. I I thought you were going to ask me about Europe, which I'm a little bit more bearish on. When I think about the UK –and, I should say, full disclosure, I'm on the board of the Department for International Trade for the UK, so I am quite close to the data. We did see a shock, if you look at the data of about -50% decline in global investment.
The UK has a very compelling story, it's got high education, if you look at the education in rankings every year, British universities are at the top there. They have invested in technology as a tool going beyond the, as I said earlier, consumerism and the network. They have infrastructure, they've got a great location, they've obviously got the language, they're very keen on some of these areas such as green. So I think that they have a great hand to play.
And unlike other places in Europe, continental Europe, their approach to immigration, which is going to be a key story, has been much more open. And in that respect, I am a buyer of the UK.
Yes, you're right. It has been cheap. It has been, there has been a drag for some time. And I think a lot of that has been obviously catalysed by the whole Brexit debate. But I'm much more constructive about there being some upside here.
MSW: Brilliant. But as you say, you're more bearish on Europe?
DM: Absolutely. Europe is fragmented. They have a much harder story in terms of job and business opportunities, I find that they tend to be a leader in areas such as regulation, which is not a bad thing. But to me, that's a mindset that is much more focused on risk mitigation than upside opportunities. And we all know that government, so countries as well as corporations cannot grow themselves, or shrink themselves to growth, if that makes sense. They have to have an agenda that recognises risks but is really driven by upside.
The demographics are poor. They've been declining for some time. And I just think that there's a much more complex mishmash of a story there, the language barriers, and you know, really, Britain leaving the EU, really was in many respects an adult leaving the room. They have the debt overhang in a way that I think is going to be hard to grow out of. But you know, it's well known challenges that we all know regarding Europe.
MSW: Yes. Dambisa, thank you so much. It's all incredibly interesting. I wish we could talk for another half hour, another hour actually. And I'm very much looking forward to the day when I can leave Scotland, come to London, meet you there and actually sit in one of these restaurants we were discussing earlier.
DM: Yes, anytime.
MSW: Thank you so much for joining us.
DM: Thank you. It's been a pleasure, good to see you.
MSW: Anyone who would like to hear more from the magazine you can get all of our work at moneyweek.com, if you'd like to sign up for our daily email written by the excellent John Stepek, please do so there it's called Money Morning. Otherwise you can follow me on Twitter at @MerrynSW, you can follow the magazine @MoneyWeek, you can follow John at @john_stepek, and Dambisa what's your Twitter handle? Because I know that you're often very interesting on Twitter.
DM: @DambisaMoyo, that's it. Very simple.
MSW: Simple, now that's fame for you. Thank you so much for joining us. Oh, and one more thing, listeners if you enjoy the podcast, please do review it on your chosen podcast platform positively. Thank you very much.
DM: Buy my book! May 4.
MSW: And buy the book, of course! Buy the book, coming out May 4, How Boards Work. I have had an advanced glimpse and I can tell you it's very good indeed. You'll enjoy it.
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