388 (25 September 2019)

Welcome!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription. 

(12 September 2019)Banks Are Finally Starting to Account for Climate Change RiskBloomberg Businessweek

——–“Behind the scenes at some of the world’s biggest banks, small teams of employees are busy trying to calculate what might prove to be one of the most important numbers any financial institution will ever disclose: how much the assets on their balance sheet are contributing to global warming.”  Climate change, it seems, is at last being recognized as one of the “unaccounted-for vulnerabilities” concealed by conventional balance sheets.  This topic is directly connected to the ongoing work of the Task Force on Climate-related Financial Disclosures

******** One of the things the article makes clear is that accounting for climate change is a very challenging problem.  Well-known environmentalist Bill McKibben is the author of a related article: “Money is the Oxygen On Which the Fire of Global Warming BurnsThe New Yorker.  McKibben suspects that “the key to disrupting the flow of carbon into the atmosphere may like in disruption the flow of money to coal and oil and gas.”  Toward that end he discusses the roles played by banking, asset managers, and insurers in funding carbon-based fuels.  He uses [American] football knowledge to good effect when he writes “The last minutes of a football game are different from the rest; if you are far enough behind, you dispense with caution.  Since gaining a few yards cannot help you, you resort to more desperate, lower-percentage plays.  You heave the ball and you hope, and, every once in a while, you win.”  It seems to be argued that we have reached this point in the climate change game.

(18 September 2019) Profits or the Public Interest: The Debate ContinuesThe New York Times

********Discussion continues about the recent statement of the Business Roundtable promoting a broader stakeholder value over the narrower shareholder value as the purpose of the corporation.  This piece adds a bit by sharing the views of Treasury Secretary Steven Mnuchin and Blackstone Chairman Stephen A. Schwarzman, as well as adding context about Milton Friedman’s oft-stated views about shareholder value.  The relevant article for Friedman’s thought is “The Social Responsibility of Business is to Increase its Profits.”  The article concludes with a sort of surprise, noting that Friedman held that “if corporate executives want to use their influence, ‘then they must be elected through a political process.’  In other words, he was suggesting that business should stay out of politics.”  It seems, then that Friedman had aspired to build some sort of wall between business and politics.  Certainly this is not the way things are.

********A related article of interest, by reporter Tim Wu, is “The Virtuous Corporation Is Not an Oxymoron” The New York Times.  It notes: “At a time when the federal government is doing little to nothing on matters of great public concern—gun control, paid parental leave, higher wages, you name it—the corporate sector has been urged, pushed and sometimes shamed to fill in the gaps. . . . It’s all part of a trend toward ‘corporate virtue.’  This is a loosely organized movement that encompasses various efforts to promote or make high-minded policy changes.  It also includes a commitment to so-called stakeholder capitalism.”  Some of those on the right hold with Milton Friedman’s that profit is the only thing that should matter to corporate executives, while some on the left view corporate expressions of stakeholder capitalism as a charade.  As Wu sees things, “the virtuous corporation is not an oxymoron but a necessity. . . . It is essential to dispel the myth that chief executives have a legal duty to maximize short-term profit and are therefore powerless to act responsibly.”  Wu makes an excellent point by bringing short-term profits into view.  An expression that one used to hear used a lot in bygone days—enlightened self-interest—seems to have been lost sight of.  It takes into consideration longer periods of time and, no doubt, the effects of one’s actions on others.  This is why, as Wu indicates, culture matters.

********Finally, the article “The New Capitalism Is Looking a Lot Like the Old Capitalism” Bloomberg.com, relates the findings from a survey distributed to the 181 signers of the Business Roundtable statement; roughly two dozen responded, all men.  The responses said: “Our companies are already run with customers, employees, suppliers and communities in mind.  And shareholders, of course.  Otherwise we’d have gone out of business long ago.” 

(22 September 2019) [SR]’That Will Never Work’ Review: Streaming AheadThe Wall Street Journal

——–“Starting a business is tough enough.  Why would any sane person choose to start a business in a dying industry?  One answer to that question can be found in ‘That Will Never Work” The Birth of Netflix  and the Amazing Life of an Idea,’ a charming first-person account of the early days of one of the most successful tech startups ever.  The author, Marc Randolph, co-founded Netflix and helped run the company from its inception in 1997 until 2003.  His book is a conversational exploration of the successes and missteps of those early days.”  The book “offers an engaging offers an engaging read that will engross any would be entrepreneur.” 

********Here is the link to the book.  The article makes clear that the initial idea that Randolph and Reed Hastings had was to send video tapes through the mail, which turned out to be a non-starter.  So they turned to DVDs, even though “neither Mr. Hastings nor Mr. Randolph had ever seen a DVD.”  What turned out to be the inspired idea was to use a “monthly subscription service.”  Not only would it make Netflix successful, the “subscription model would point many other internet-based companies to a reliable source of revenue.”  Finally, when streaming became the dominant mode of conveying programs, Netflix was. 

********Also interesting is the reason why Randolph left Netflix.  A serial entrepreneur, he knew that he was not cut out for a conventional management position.  Specifically, he said: “I missed the late nights and early mornings, the lawn chairs and card tables.  I missed the feeling of all hands on deck, and the expectation that every day you’d be working on a problem that wasn’t strictly tied to your job description.”

(23 September 2019) [SR]Meat Is Getting Pricier Because China Is Peckish for ProteinThe Wall Street Journal

——–“China is on a global meat-buying spree, pushing up beef, pork and poultry prices around the globe as the world’s most populous nation scrambles to fill a large void in its meat supply.”  The reason for surging prices is the swine disease that “hit hog farms across the country and reduced its pig herd—the world’s largest—by more than a third.”  Pork prices in China “have jumped as much as 50%” and there have been “some attempts by Chinese government officials to ration pork or encourage people to buy chicken and other meat instead.” 

********Nothing complicated about the market processes underlying these developments, but it is interested to see them at work.

May you have a good week!                                

Bruce

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