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  • Writer's pictureTimothy Henry

Rewind: Citizen Capitalism?

Citizen capitalism, Conscious, Impact Private Equity?

On this Conscious Capitalists Podcast Rewind we bring you a much loved conversation:

Listen to Private Equity investor Warren Valdmanis discuss the book he co-authored, Accountable: The Rise of Citizen Capitalism. In this week's episode, he explains these terms and more. Two Buffett paradox, anyone?

Listen to this episode on Apple Podcasts, Spotify, Stitcher, or wherever you get your podcasts.

(Originally release on December 15, 2020)


References & Resources:

Conscious Capitalism main website -

Valdmanis, W., O'Leary, M. (2020). Accountable: The Rise of Citizen Capitalism. Harper Business.

Mackey, J., Sisodia, R. (2014). Conscious Capitalism: Liberating the Heroic Spirit of Business. Harvard Business Review Press.

Sisodia, R., Henry, T., Eckschmidt, T. (2018). Conscious Capitalism Field Guide. Harvard Business Review Press.


Episode Transcript:

Timothy: Hello everybody, and welcome to episode 18 of The Conscious Capitalist with myself, Timothy Henry, and my partner in trying to make the world a better place for us all and specifically for better businesses, Raj Sisodia. Hi Raj.

Raj: Hi Timothy. Glad to be back with you. I can’t believe 2020 is ending. We’re going to miss this year, aren’t we?

Timothy: Oh, we are, we are. We are definitely going to miss this year, I can feel it in my bones.

Timothy: And today we have a very special guest with us, Warren Valdmanis, who is the co-author of a wonderful book called Accountable. Now I will give you the subtitle in a moment only because it’s interesting, it’s got a different subtitle in the U.S. than it does in the U.K., which I thought was interesting. One subtitle is Saving Capitalism and the other one is Saving Capitalism Through Citizen Capitalism or something like that, but Warren will set us straight on all of that. He’s a graduate of Harvard Business School, a longtime member of the Bain Capital side of things, and most recently he has started up an Impact Investment Fund at a hedge fund called Two Sigma. Welcome Warren.

Warren: Thank you Timothy and Raj. I’m very delighted to be here.

Timothy: Great. Well maybe start with telling us a little bit about the genesis of the book. I will preface it by saying that it’s one of the best books I’ve read that really lays out the gap between stock ownership and the sense of ownership and how we run businesses with a long-term perspective, among other things. That was one of the things that I really loved. But tell us a little bit about the genesis and how you came to be writing this book.

Warren: Well my co-author and I met at Bain Capital where we were both sort of regular way, non-impact investors for a long time. And when Governor Deval Patrick left the state house in Massachusetts to form really the first institutional grade social impact fund at a large alternative asset manager, Michael and I were invited to join that team to help him build that operation. And as someone who was new to capitalist reform issues, I set out to go read everything I could. So I read Conscious Capitalism, thanks you to Raj. I had subsequently read the Conscious Capitalism Field Guide, with thanks to you Timothy. But despite the fact that there were many interesting books out there on how to do more responsible ownership, the book that didn’t exist yet was a book that put into context how all these different efforts that were forming capitalism fit together. So divestment, impact investing, CSR, ESG, all the various efforts that government has tried over the years and continues to try. And even more so, there weren’t a lot that went straight to the root cause. You know, what is it – when we say capitalism needs some fixing, what exactly do we need? And so because Michael and I couldn’t find that book, we decided to write it, and it took us about three years and both of us have since left Bain Capital Double Impact, but we’re both still working in impact circles, but we’re really proud to have all of our thoughts in one place and to be able to share them with you all.

Timothy: I love it. So tell us what is the answer? What’s the place where it’s broken and we most need to fix it?

Warren: Well let me just start by saying I am very much a capitalist. I’m a big believer that this system has enormous power for good, indeed it has created enormous good. If you look at the world economy up to 1750, for 3,000 years, GDP per capita had basically been flat. No change in standard of living. Since 1750, GDP per capita has gone up by 37 times globally. You know, 37 times. So all these things, you know, life expectancy, medicine, abundant food in many places, all these things that have changed that we take for granted now many of us, those things didn’t happen by accident. They happened by capitalism. So we owe our system a lot, and just in the last 30 years alone, we’ve lifted a billion people worldwide out of poverty, so we should thank capitalism for its many benefits to us. At the same time, capitalism, as practiced in the last several decades, particularly in America and in the U.K. has led to some – has been really dangerously off course and has led to some really distorted outcomes. One of the more tragic figures that we cite in the book is the life expectancy gap between two adjacent neighborhoods in Boston where Michael and I worked, one rich, one poor, is now 33 years. Thirty-three years in America in 2020, and by the way, Boston is a little bit of an outlier, but there are similar gaps in other major cities across America, and a lot of that has to do with, you know, we talk a lot about inequality, but that is a startling statistic. And a lot of that has to do with the distorted results that capitalism is producing, and so we spent a whole bunch of time trying to get to what’s really happening here. What is it that’s led to these distorted outcomes?

Timothy: Well I love that and the part that I found really interesting, and I think you and I had a brief discussion about this, you know, sometimes they get involved with employee owned businesses, and the issue is we’re not only employee owned, we want to have a culture of ownership. And you know, a lot of corporations come and say, “We want to have our employees feel a sense of ownership,” and that means something in terms of the culture and the words they use, but then it’s fascinating because then you sort of turn towards the investment community and say, “Where’s your sense of ownership in anything that feels like or has any sense that somebody deep inside an organization could say, ‘Oh yeah, we have good owners.’” So say a little bit about that notion of ownership and the disintermediation of the people who are providing the capital.

Warren: Well it’s funny, this notion of ownership I think is critical. You know, our book rests on the thesis that the corporation is the single most important institution in modern society. I mean we tell a story of how many people interact with most of the companies in the Fortune 500, most of the top 10 companies in the Fortune 500 before they even arrived at work in the morning. And so, you know, the corporation, it is the air we breathe. You know, it’s everywhere we turn. And so if you accept that idea as important, and by the way, not everyone does, books like Piketty’s book on capitalism in the 21st century has more references to the French Revolution than it does to corporations, and so there are many books out there about capitalism that don’t talk about companies, but our view is that companies are critical.

And if you look at companies, the thing that’s happened with companies particularly over the last 40, 50 years, is that ownership has gotten very distance from companies. So, you know, capitalists love to talk about Adam Smith. He was writing in a world where just about every owner lived – you know, their company was in their local town, they lived next to their employees, they lived right next to their customers. If they polluted the local river, it was their river they were polluting. Folks were very close to the so-called externalities they created. Owners of capital were close to the externalities they created. Today owners can be very, very distant from those things.

And so the question for us, because we’re not going to return back to the land of Adam Smith in the 1700s, the question for us is how do we create ownership accountability in a highly disintermediated capital market system. And that is a tough problem to crack, but we believe it’s the root cause of the rudderlessness, the sort of valuelessness of companies these days.

Timothy: Well one of the things you bring up in the book that I think is a really interesting example is you contrast the ownership in a place like Germany with the Anglo-Saxon ownership in the U.S. and the U.K. And what I found fascinating was that doing a number of interviews with Boards of Directors this summer over this whole issue of accountability and ownership, and speaking to some people in Germany about it, they were like, “Well I don’t know what you mean, because you know, we’re in the Middlestandt,” and of course the owner, the major stockholder goes and has dinner at the local restaurant every week, and you know, if they’re messing up the river or messing things up, they’re going to hear it from their neighbors, and I thought that was a fascinating perspective versus a hedge fund on Wall Street that owns the stock for a week.

Warren: Well I do think that German is an interesting example for lots of reasons, but one of the things I love is that, you know, they incorporate worker voice very deliberately on boards, which is something that American companies don’t do a great job of, and one of the things I find fascinating about that is, you know, it can seem to Anglo-Saxons that having board representation for workers is a concession to workers, is in some ways a form of socialism. I actually think it’s a really interesting idea just from the point of view of adding a new perspective to board discussion. You know, we, in my new business, which is a private investment business, you know, in medium sized companies where we hope to generate better jobs through better workforce practices, we have found that in diligence for companies, when you talk to frontline workers, you learn new things, things you don’t hear in board rooms or from CEOs. And so this notion of worker voice I think is actually really important.

It’s important not just for that reason, but if you actually look at the root cause of inequality, I think you’ll find workforce issues at the base. One of my – another sort of terrifying statistic, between World War II and the early 70s, productivity and worker pay moved in lockstep. Since 1973, productivity has gone up by 250% and worker pay has barely budged. And so we’ve got a system that increasingly does not share the benefits of improvements productivity with workers. So if you want to ask why there’s lots of inequality around, maybe we could start there. And I think that’s detrimental not just to society, I think it’s detrimental to companies because one more stat for you, 50% of American workers describe themselves as disengaged, but 13%, that’s one in eight workers, is so disaffected by how they’re treated on the job, they actively work against the interests of the companies that employ them. One in eight workers. That is a huge drag in our economy and something that we would all well served to fix.

Raj: You know, it’s also what leads to revolutions, right? I mean this kind of what you just pointed out, the income being flat, I mean to me now, economic unrest, you know, all the populism that we see out there is a far bigger factor than terrorism and, you know, religious fundamentalism and all the things that we’ve been obsessing about for the last two decades. Meanwhile, we have this quietly growing cancer in our system, which unless we reverse it, does have tremendous societal consequences. As you point out, every system is perfectly designed to generate the outcomes that we get, and I think us in Conscious Capitalism, we are more focused at the company level, not as much at the system level. I mean there are those who are thinking about that more I think, so the question is what kind of systemic changes do we need, and one of the big ones in that, you know, the limited liability corporation of course is considered one of the great inventions in history. I think you have a nice quote about that. But the very idea of shielding yourself from the liability side while benefiting or getting all the benefits on the upside, do we need to rethink that? Do we need to reconfigure how we charter corporate liability?

Warren: Well it’s interesting that you ask that Raj because one of the things that I’ve learned in these last few years doing the work I’m doing is first of all, the power of rechartering, but I’ve also learned that corporations, when they initially were founded and they were given the privilege of limited liability, you know, the joint stock limited liability corporation is an invention, it’s not a state of nature, and it is the state conferring privileges on a group of folks to do things. But the state used to ask in return what’s the purpose of this corporation, and there was a standard there that, you know, the purpose had to be something that could be, you know, ascribed to the common good.

And today, it’s interesting, in the Articles of Incorporation, there is still a purpose clause, but most folks write to do what is lawful in the state of Delaware or something very close to that. In other words, in the charter, there is a purpose clause, but it means nothing today, and one of the things that you certify a corporation, if you go through the B Lab scoring process and you try to certify as a B corp, they ask you did you put your mission in your charter. And you may have seen Danon recently did that. They described I think it was something like to improve health through food to as many people as possible or something like that. That’s a hugely clarifying thing to do, and I’m a big believer in the idea of clarifying your mission, putting it in your charter and then communicating it and creating metrics and incentives around it.

Timothy: So I couldn’t agree with you more. I’m part of a moment here in the U.K. where we’re trying to make the U.K. the most friendly place or the place with the most purpose driven businesses, and one of the discussions is exactly that, do you need to have a purpose charter, do you need to publish it and then you have to update annually how are you doing on your purpose. Now we’re not at this point saying there’s any metrics, but we’re saying you at least have to have a paragraph that says how are you doing that, and then I think to your point about certification, somebody at some point has to come along and say, on a scale of one to five, you know, you’re a five on purpose, which means you’re great, you’re in the platinum club, or you know, you’re in the tin club down here at one. You’ve got a purpose, but it’s purpose washing.

So I think that on some level, the solutions are not rocket science, but what’s really interesting is how do you get that momentum into the marketplace, and what do you think is the role of government mandating that versus the market in some way demanding it, and it comes from the investor side of saying these are things we want to see.

Warren: Well I think Timothy there is clearly a role government. I mean as Governor Patrick used to say, government is the things we choose to do together, and I love that phrase because it takes it away from sort of this other, and it becomes a thing that, you know, is our collective will expressed through one of our institutions. You know, we express our collective will in lots of ways, but that’s one way. And one of the things I think is – you know, I think we try very hard to steer away from partisan politics and to get too deep into policy because the thing we know best is corporations and how they function, and so that’s where we tried to stay. But I do think as we wrote the book, we realized there are certain things that corporations should fix about capitalism that are in their own enlightened self-interest, that if we could just get folks to kind of get away from this meat headed short-termism that I think permeates certainly a lot of American companies, we would see that corporations would become more social responsibility for their own good purposes.

But if you think about kind of the things that corporations do that are harder to fix on their own, I always think of carbon, you know, it’s not really in any individual company’s interest to solve the carbon problem, to solve the emissions problems, and I think that government clearly could have role for making companies pay for the messes they make. I teach my kids, I teach my eight year old to clean up his messes. I don’t know why we can’t apply that standard to corporations too. Now I also know that when you try to solve a big problem like that, like they did in France you run into difficulties. These are easy issues to fix, but I think the general idea that corporations who clean up after themselves, is that shouldn’t be a partisan idea, that should just be a common sense idea.

Raj: It is shocking that that’s not a part of our system to the degree that it needs to be, right? I mean I remember in India in my mother’s village, when my brother showed me a Google Maps image of the region surrounding that area, right, and there’s this beautiful wide green river that flows downstream until it reaches that little town next to that village, and there’s a textile plant there that produces soap materials and all of those kinds of things. And then you can see so upstream everything is green surrounding the river, and the river is white and blue, and then downstream is a black trickle, and everything around the fields are kind of baron around it, , and a company was allowed to come in and do that. To destroy the lifeline that this river represents, right? And somehow we make that bargain. Now whether it is corrupt. I don’t know, the laws probably did not even exist, and to the extent they existed, they were not applied. So I think there’s a tragedy of the commons at large, right? Everybody, every corporation’s interest is to do as much as it can and then minimize the cost of alleviating those things.

So we really do need system solutions, and that’s where the government – and I was talking to Paul Polman recently, and he talked about he’s not doing what he – collective action, like getting a critical mass of CEOs from an industry together who can then collectively commit to certain standards and certain goals and then they have a high level of courage, right, this collective courage that comes when you’re not the only one that’s trying to do something, and you can’t solve that problem on your own. But when you come together with other players in the industry and then go work with the government, then I think you really start to make things happen.

Timothy: You know, it was interesting Raj, this week, Warren and I had a little email exchange. I sent him an article from The Financial Times Editorial page, and that was really saying stakeholder capitalism, and taking all stakeholders is really where you have to go, and he sent me back something that was the editorial from the Wall Street Journal, which said absolutely the opposite, that stakeholder capitalism is a distraction.

Raj: Oh yeah.

Timothy: Friedman had it right, we need to go back. Where do you stand on this? Where do we go.

Warren: You know, it’s funny, on some level though I don’t think impact investors and ESG proponents have always helped themselves in their own branding. You know, I think we impact investors have become easy marks in some ways because the spectrum of things we call impact runs from folks who are prepared to make no return or negative returns all the way through to folks who think impact can drive alpha. It runs across every possible social issue, it runs across every – and I think it’s easy for folks on the other side to get confused. ESG metrics, environmental, social and governance metrics are even more confusing. You know, some ESG standards providers directly contradict each other about which companies are the most virtuous. If you look at one magazine, their top five will be totally different from another magazine. And so I do think that on some level we as the folks who – me as a practitioner, we don’t help ourselves by generating all of this confusion. It then becomes fairly easy for, you know, folks who take the Milton Friedman point of view to poke holes in a reform effort. And this is why I would really believe that metrics are critical. In some ways it’s an eye roll of a topic. You know, a lot of times when you, you know, when you talk about metrics, you’re not exactly getting everyone’s blood, you know, pumping, but I do think it’s really important. You want to hold companies to account even if you’re an executive and you want to hold yourself to account, you don’t have a dashboard to look at that is reliable. It’s really hard to get to make real progress.

And so I really hope that all these folks out there who are talking a big game, the business round table says one thing and there’s a Davos Manifesto, there’s all these different things, and there’s over $100 trillion that have signed onto the UN Principles of Responsible Investment. All these things that so far haven’t generated much, and I really hope that as a first step, we’re going to see folks begin adopting a common set of ESG standards. The World Economic Forum in September released with the big four accounting firms a set of standards that could be implemented that I think are really, really encouraging. They could be implemented by large public companies, and if we’re able to turn this sort of COVID energy, this increasing ESG awareness into real metrics, that would be a huge step forward I think.

Raj: Well, you know, it’s interesting, I just became aware last week of a company that’s starting up. It’s called E-Countable. It’s kind of the name of your book but with an E, and the idea there is that they’ve got data on 6,000 companies on a variety of different, I think 28 different dimensions of ESG, and they’re now able to link that to your credit card and tell you everything based on everything that you’ve bought, right, what kind of businesses you’re supporting and what’s the overall impact that your spending is having, right, positive or negative through that. And then of course the next step is to say what are your values, what do you care most about and then they kind of nudge you and guide you away from certain things and towards certain things. So I think these kinds of mechanisms, you know, to create a pull from the other side, from the customer. People want to do this, but they don’t know how. It’s not easy to do it, right? So I think that would be an interesting approach to try to get [inaudible].

Warren: I love that because the reason why we called our book Accountable and then the subtitle, at least in the U.S. is The Rise of Citizen Capitalism, is because we think that, you know, there is a role for all of us to play in our various capacities as consumers, as you just described Raj, as investors. You know, it’s an area near and dear to my heart, as workers, and also as voters. I think we all inhabit those roles to some degree, and I think we can make a more effective use as citizens of those tools. It was interesting, we had a conversation with one of my friends, Chris Zook from Bain & Company, when we were writing the book, and he was challenging us and saying, “Is it really in company’s best interest to do the right thing from an ESG perspective?” And the answer is maybe, sometimes. You know, he said and, you know, for Gazprom in Russia, should it really be leading on, you know, environmental standards, and the answer is probably not because there’s not a lot of stuff around Gazprom in Russia to encourage it. But that’s decided by citizens. I mean here in America we get to decide whether those things are rewarded or not rewarded, and so I do think it’s important for all of us to – you know, if we can find more tools like E-Countable, I think that’s a wonderful, wonderful thing.

Raj: It is interesting how we have made it acceptable, right, that yeah, you can do it and it doesn’t matter if you cause harm. You know, that’s all like a choice. Now before this call, I was on a session with the Humanistic Management Association, right, and it struck me like what is the opposite of that or why do we need a humanistic manage – why shouldn’t all management, you know, be humanistic, right? It’s just like we have painted ourselves into this corner where somehow this really weird – if an alien came down and looked at our mental models around these things, they’d say, “You guys are heading straight down the cliff here,” right. It’s like we’re blind to the consequences of what we’re doing.

Timothy: So I’m interested Warren, as you pull on that string that Raj just pulled out for us, connect your business and how you’re doing things, your book’s point of view about good jobs and this notion of inequality and that the way we’ve got to try to address this inequality question is ultimately by getting more good jobs and how do you tie that to some of the things you’re doing with your day to day job now in the investment world?

Warren: Yeah, so I must say, one of the things that’s happened for me over the past few years as I’ve had the privilege of learning more about, you know, things like what you all are doing with Conscious Capitalism and what’s happening at divesting, and actually I was heavily influenced by a book by Jed Emerson called The Purpose of Capital, which allowed me to kind of step back and say what are we doing here, and we go back to Raj’s question. You know, I work in capital markets; what do I do each day really? Like what is the net effect of the things that I do? You know, it’s allowed, I think allowed me to kind of sort of get a broader perspective on, you know, the day to day of, you know, the daily impacts of what I do. And one of the things I’ve realized is that particularly in private equity, we have this huge blind spot for workers. We have this brand in private equity that, you know, we’re all about creating incentives for the top leaders and that everybody else is a cost to be reduced, and I think that there’s a tremendous amount of myopia that comes along with that. You know, if someone talks about, oh I invested in a technology or I built a factory, that’s investment, but if I train a worker or if I invest in worker safety, somehow that’s a cost. That’s just a cost.

And so I do think that there’s this broader perspective that’s come from being being forced to think about these issues. I think this allowed me and the group that I’m currently working with to see opportunity where others don’t, and so you know, for example, you know, we have spent a lot of time thinking about how to fix, you know, this issue in America where vocational training is just broken. We need a lot more middle skill workers. There’s a lot of folks who would love to have middle school jobs and middle income wages, and yet our education system doesn’t support that, companies aren’t good at training. Most training that’s provided by private sources is really expensive and questionably effective. We’ve managed to find a great company and invest our first investments into this, and since doing that, that’s doing it really effectively low cost, great jobs on the other end and we’re going to work with – we’re really lucky because we’ve got a backer in Two Sigma that is all about data science. And so we can actually use some of those tools to improve, you know, vocational training. That’s an example of the kind of work that we’re doing.

But we’re also looking at companies and trying to figure out how can we make companies themselves just have better human capital practices, just like think more about creating career paths for workers, think more about sharing upside, think more about motivating with mission, think more about employee listening. And I think that as a result, we have the chance, if we do our jobs well, we have the chance to prove that investing in workers can actually be just really good business, and if we can do that, maybe we can drive my industry a little bit in this direction, which I think would be fantastic.

Raj: Well there’s a book called The Good Job Strategy, are you familiar with Zeynep’s work?

Warren: She’s been a great partner. She also started a thing called the Good Jobs Institute.

Raj: Right.

Warren: Which is a not for profit that we’ve actually worked with a bunch and we’re huge fans of Zeynep.

Raj: So, you know, one of the things that I’ve observed in my last book is called the Healing Organizations, that the human cost of doing business is so extraordinary and we don’t factor that in anywhere, right. The fact that heart attacks are higher on Mondays, the fact that 600,000 Chinese die from overwork every year or 120,000 Americans die from stress connected to work. You know, that anxiety, depression, drug addiction and suicides are on the rise. I mean all of these things, I think it’s one of the largest costs that we have and yet we don’t account for that anywhere, and the fact is that if you operate in a different mode, not only do we not have to have those costs, we can eliminate or eradicate most of that suffering and we can actually make it a place of joy and fulfilment, right? So we have the opposite effect, we don’t diminish your lifespan, we actually extend it, right. We actually make you healthier in every dimension because of the way in which we work, but I think that’s such a huge blind spot for me.

We almost need like an audit of the suffering that we are inadvertently causing in the lives of not only those who work but their children and their families because everybody’s impacted by the way in which they are treated.

Warren: What’s funny, we know this. I didn’t know the stats you just cited, but I know the themes. The challenge we have is that the scoreboard that we all look at, it doesn’t include those things. You know, we look at a scoreboard that says GDP, but, you know, I think we all can acknowledge there’s a lot that, you know, get measured and not measured in GDP that doesn’t make sense. You know, we look at a scoreboard that says, you know, quarterly earnings and share price, and we think that means corporate value, but we all know that it doesn’t really, and we look at, you know, we look at our own quality of life through a lens that’s increasingly been monetized as well and we don’t look at these other things, and so I do think that it’s really challenging to measure these social things, but we got to try harder because unless we have a better scoreboard, I think it’s going to be really hard to make real progress.

Timothy: Let me press on that a little bit because this is an issue that I find just fascinating because – so we all agree something’s broken in the system, right? And I look at the Great Place to Work Institute, and I look at the Great Place to Work in America list that’s now been out for 25 years and after about 10 years, they started comparing the Russell Index versus if you’d invested in these top 100 companies, and the numbers were just clearly favoring the performance of those companies that were on the Great Place to Work list, and that’s been around for 20 years. And in Raj’s first book Firms of Endearment, there were the numbers. These companies performed this way because they’re operating in this different model, but even just to the workplace issue, the Great Place to Work really focuses on company culture. So we’ve known that, and investors, smart investors, some like our friends at Motley Fool and others who’ve been investing this way, have benefited hugely from it.

So the data is in a sense there, and yet we’re still having this conversation 20 years after the data first came out and we’re still feeling like we’re pioneers in some way. What’s the disconnect there Warren? What’s going on?

Warren: Well I’ll tell you that unfortunately I know through lived experience a little bit about what’s going on because I used to be an equity analyst briefly. So most of my career with this company is called Bain, but I did work briefly as an equity analyst covering radio stocks, and I remember I wanted to write a piece about how the internet might change, you know, the value of radio licenses, and my boss’s response was client’s focus on three to six month time horizons. They couldn’t care less about that. You can’t write the report. And so I think – and you can see evidence of that short-term, and that was a while ago, but you can see evidence of that short-termism today. You know, back when – I remember when Home Depot back in Q1 missed its first quarter profit targets because it started giving special bonuses to its workers and it started doing some workforce safety investments, and the market punished them savagely.

And if the market went back and read Zeynep Ton’s great book called The Good Job Strategy, they would know that when Home Depot tried to skimp on workers, you know, in the early 2000s under a GE transplant who looked at the [inaudible]…

Timothy: No one named at the moment, but yes, we know who you’re talking about.

Warren: The company languished for – the stock languished for a long period of time. Home Depot, a company built on the idea that we can actually have a better frontline workforce, a better service level for customers, they invested in employees and the sudden they get savagely punished. And I think – so I think it is a shame that we have such short memories, but again, I think that comes down to where does workforce investment show up on the balance sheet. Where can we look on the scoreboard to find the value that gets created from that. We all know there is some value to doing things like that. How do we measure it?

And this is one of the things I’m really proud of is that in this new business that we’re building, we decided to focus on one issue, not many issues. We’re not trying to tackle every ESG issue, we’re trying to tackle workforce, and what we’re really trying to look at is if we create good jobs inside the companies we own, you know, what is the long-term value result of that because it’s going to take some investment in the short-term. We know that, you know, but the question is what is the long-term value creation associated with it, and we’re going to be able to answer that question I think more precisely than other impact investors because we’re focused on a single issue, we’ll go in deep.

Timothy: I love that they’re getting to the data. I’m working with a client that’s got a living wage initiative they are a global frim, and the scores they’re getting back on engagement as they’re rolling out are clearly significant. Now if you’re in the retail business and you see your engagement going up, our friend Kip Tindell was on a couple of weeks ago, and he said, you know, if the employees don’t love the company, it’s going to be really hard to get the customer to experience love of your company when they walk into your store. That seems so obvious and straightforward, and yet we come back to data, and there is some data, but not enough data. I’m wondering what’s it going to take to get the Wall Street Journal to write a different editorial that says, “Oh of course we need to focus on the human capital side of these things because that’s the engine that drives the business.

Warren: You know, I really do think that first, I come back to it, I think the first step really is metrics. I’ve been talking to, as part of our work, I talked to a few folks in the hedge fund industry in the past few months who, and asked them the question, you know, “If you had good metrics on workforce health, would that be an investible theme for you?” And these were folks who are pretty hardnosed, you know, about their approach to kind of evaluating companies, these are really thoughtful, you know, capitalist folks, and their answer is yes. Their answer is “If I had good metrics, that would be investible. I would invest behind workforce health.” But unfortunately not only are the metrics not good today, but if I try to like actually do my own research inside the companies, I was tripping over regulations and all kinds of stuff, and so really, we’re flying blind. I think someone actually said that we’re flying blind on workforce issues, and so we don’t know how to invest one way or the other behind it.

And so if we had better metrics, if there was an entry somewhere on the balance sheet for investment in workers, I do think that that would be at least a step. It would not solve everything, but it would be a step in the right direction.

Raj: You know, one of the things I enjoyed about your book, Warren, is the way it’s great writing, which is always fun. It’s very witty, and there’s some phrases that you’ve coined here. I want you to explain those to our audience. You’ve got the Milgram/Nixon Syndrome. Now we know Milgram and we know Nixon, but we don’t know how they go together.

Warren: Yes. So that one we coined based on some ideas that we had seen, which we footnoted in the book, but the idea was Richard Nixon’s defense was, you know, “I’m the president of the United States. There’s a lot of stuff going on. How could I possibly know? You know, and how could I possibly be accountable for all the things that happened inside of my government? You know, Milgram of course ran those experiments where individuals were willing to – you know, if someone in a white lab coat told them to shock someone, they were willing to do that in most cases, you know, for reasons that, you know, had to do with science, and even when the person on the other side was screaming, at least they thought they were. And so there the accountability is well someone told me to. Someone in a white lab coat told me to do this, so how can I be accountable? And so we use those sort of stories as metaphors for how capitalist accountability works, which is if you’re a shareholder, you say, “How could I possibly know what all the companies do on my behalf? I own all these stocks, they’re an index fund that I have no I have no communication with board members. How could I possibly know?” And then if you’re a manager at a corporation, you say, “My board has told me I need to maximize next quarter’s profits. Even when I know that maybe I’m foregoing things that are good investments, I can’t make those investments today and those workers because it’s going to hurt next quarter’s profits, and that’s where all my incentives come from, that’s what I’m told to do.” So you have this world where accountability really exists nowhere, and so the Milgram/Nixon syndrome is a way that it sort of colorfully describe how that, you know, describe that idea.

The thing that’s interesting is I think there’s an opportunity to change all of that. You know, for me and private markets, we have this incredible privilege, and I think responsibility that comes with owning companies for years. We own them sometimes for five, six, seven years, and so we have the opportunity to invest in things that won’t pay off in the first quarter or the second quarter or the third quarter. And I was really proud of the work that we did at Bain Capital along these lines because we always ask the question is this in the best interest, the long-term best interest of the company? That was the primary guiding star for all the things that we did. And I say that, you know, in our new firm, we approach it in a similar way with of course workforce history’s paramount.

In a couple of markets, it’s harder, but there are groups out there. You know, my co-author’s involved in a group called Engine Number One. That is trying to – I think right now they’re pushing for, you know, changes in board representation at some large energy firms, and their idea is we can represent you, the shareholder, better by pushing more actively your values through the system, which I think is, unless owners express their values better, I think it’s, again, going to be really hard to make progress.

Timothy: You speak about long-term investment perspectives, and I’ll play off of Raj’s theme because there’s another great phrase you use. It’s called the Two Buffett Paradox. Now Warren Buffett’s got the reputation for being this long-term investor and value investor. Explain a little bit about the Two Buffett Paradox.

Warren: Well Warren Buffett has the benefit of being a really generous guy in terms of what he’s going to give once he’s gone, and he’s got the benefit of having a certain grandfatherly sort of image. And so I think most folks would say, most folks I think want to pass on some stuff. And of course, there’s nothing wrong with that. In fact, I think it should be praised, the idea of this giving pledge that he’s done with Gates and others to give away a large portion of their wealth upon their deaths. That being said, you know, Warren Buffett’s approach to accountability in his day-to-day job is quite different. In fact, he describes workers left behind as roadkill and says that that is something that government needs to clean up. In our book, we identify Warren Buffett’s grandson who’s a professor at Columbia who has a very different perspective on capitalism, who believes that your day job matters. You know, this idea that, you know, I’ll go make money during the week and then on weekends I’ll give it away, you know, Warren’s grandson, William, challenges that idea and says, you know, “We think that, you know, integrating your moral and economic lives is important.”

And I personally think this is critical. I mean America has given – America is a generous country that gives away I think it’s a couple of percent, I think it’s like 2% or 3% to charity each year, which puts it among the top countries. But at the 96%, 97%, whatever it is percent is pulling the other direction, no amount of philanthropy is going to lead to the outcomes that we hope to see.

Raj: Yeah, so it’s not how you spend your money, it’s how you make your money that ultimately makes the difference in the world, right? You know, I think that’s – what about these, it’s disheartening for me sometimes to see companies that are going in the other direction, like negative progress, you know? You had values, you had purpose, you had a sense of stakeholder orientation. When I look at Johnson & Johnson and the credo and everything they stood for, including as recently as the 80s with the Tylenol, what do you think happens there? How do companies lose their way, even though many companies never had it, right, but others had it and then they lost it. Like what happens there?

Warren: Yeah, I mean we talk a lot about Johnson & Johnson in the book because I thought the credo was probably one of the finest examples that we could find of a chart, a living charter. A charter that folks had to walk by every day in the lobby - their commitment to their patients first and foremost. And the act of walking by the credo in their lobby every day was at least one of the things that explained their response to the Tylenol crisis where they immediately launched a recall, even though they didn’t necessarily didn’t do the math on whether that was in their best interests or not, they just did it because it was the best thing for patients. And that was a really heartening example. It was crushing for us as we did our research to learn of some things that happened later because that was such an encouraging story, but I will tell you that what we learned from all of that was a credo chiseled into a lobby is great. A mission put into a charter is great. But unless you are doing things to actively support it, you know, it won’t live the way it can.

And I think the leadership of Johnson & Johnson leading up to Tylenol, they used to do things called the Credo Challenge and they’d get all their executives together and talk about their interpretations of it. This was not a thing that was just chiseled on a wall, it was part of the culture of the company. And so while I think missions and charters and credos are valuable, they’re only valuable if they’re taken seriously and used as tools inside of an organization.

Timothy: Well I love that because I think that comes back to one of the issues we’ve got with Conscious Capitalism is it’s about conscious leadership. You know, an organization can’t be more conscious than the level of consciousness of its leaders, and I think in the J&J example, in your book you give an example of someone who makes a decision under one leadership regime and then later is in a very senior level and makes a different set of decisions. So the leadership matters and on that note, I’m curious, about your personal leadership journey. Warren, what got you to care about these issues the way you do because clearly you’re passionate about it and you’re an effective advocate for it. What’s your story? How’d you get here?

Warren: Yeah, I mean I’d love to say that I always cared about these issues in the same way. That just isn’t true. I actually came out of college with a lot of college debt. I’d been schooled in what I thought was Adam Smith, and I had this perspective that was convenient for me at that time that, you know, if I do this certain role in capitalism, you know, narrowly defined, you know, then I’ll make money and that will be good for the world in some way. I don’t need to think about that too much. And gradually I began to lose my faith in that, but that took a while. It, you know, didn’t happen in business school. When I went to HBS, Harvard Business School, most of the sort of moral and ethical training there was related to things like trying to avoid going to jail, here’s a few tips on that. There wasn’t a lot. I know that Harvard’s changed a lot in the last few years on that dimension. You know, Rebecca Henderson, you know, we’re huge admirers of her and others there and the work that they’re doing, but I would say that that is – I think that Harvard’s evolved, I’ve evolved too, and the experience of joining Governor Patrick in Bain Capital Double Impact was really a watershed.

I did that mostly because I admired him and I liked business building, but it really did change my perspective on these issues dramatically, and I was lucky that Raj came to one of our early lunches, and I got to hear about Conscious Capitalism, and I got to challenge Raj on some stuff and hear, you know, the well thought out answers that really have, you know, cemented the new path for me. So I’m grateful to – I’m really grateful to both of you and particularly Governor Patrick for helping me to steer me in this new direction.

Timothy: I love it. Well Warren, thank you so much for your time and attention today. I think your book, Accountable, is a great book. It’s well written. You can read more about the Two Buffett Paradox and lots of other good things there. Thank you so much for joining us today.

Warren: Well thank you Timothy and thank you Raj. It was a real pleasure.

Timothy: Well thank you everybody for listening, and on whatever channel you’re listening to, there’s a subscribe button. Feel free to press that and subscribe to this, and if you’d like, come to our website,, and there’s a place there where you can leave a comment. If you want to hear more about Conscious Capitalism, Raj, where should they go.

Raj: is where you find out more about the movement and find the chapter near you and become part of this unfolding of business towards a higher plane.

Timothy: Well thank you Raj, thank you Warren, and listeners, we’ll see you next week.



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