NASDAQ — The Woke Exchange : vimarsana.com

Welcome to the Capital Note, a newsletter about business, finance, and economics. On the menu today: NASDAQ’s mission creep, COVID and cars, Washington State’s (proposed) wealth tax, France’s wind-power follies, and the Piggly Wiggly short squeeze. To sign up for the Capital Note, follow this link. NASDAQ’s Quota Regime A month or two I wrote an article describing how NASDAQ was looking to introduce quotas into the boardroom. I quoted from a the Wall Street Journal piece from December, from which this is an extract: Nasdaq Inc. is pushing to require the thousands of companies listed on its stock exchange to include women, racial minorities and LGBT individuals on their boards, in what would be one of the most forceful moves yet to bring greater diversity to U.S. corporations. The exchange operator filed a proposal with the Securities and Exchange Commission on Tuesday that would require listed companies to have at least one woman on their boards, in addition to a director who is a racial minority or one who self-identifies as lesbian, gay, bisexual, transgender or queer. Companies that don’t meet the standard would be required to justify their decision to remain listed on Nasdaq. At the time, I commented that: NASDAQ, a private institution, is, of course, entitled to set its own rules, just as (to quote the Journal) “banks and asset managers” are entitled to try to push their clients or portfolio companies to change their ways. Nevertheless, it is hard to miss the mission creep that is currently occurring across a wide range of institutions, some private, some parastatal (take a look at the effort central banks are increasingly making with regard to climate change) to impose different aspects of a “progressive” agenda on private companies without the bother of going through the usual democratic mechanisms. In effect, they are, in different ways, gnawing away at the right of shareholders to have the last word on the way that their companies are run. Traditionally, denying that last word to shareholders has been justified on prudential grounds directly related to the core function of the body that is setting the rules — it makes clear sense, for example, for NASDAQ to insist that listed companies satisfy certain disclosure requirements. It is, however, an entirely different matter when the reason for restricting the ultimate shareholder right of decision is, one way or another, political . . . Under the circumstances, I looked at this interview with NASDAQ’s CEO, Adena Friedman, in McKinsey & Co’s Quarterly. McKinsey, of course, is a firm that is (despite a recent slip-up in Moscow) itself a strong supporter of issues such as “socially responsible” investing (SRI), stakeholder capitalism, and so on. Much of the interview covers the ground that might be expected (growth, innovation, and the like), but an early promise that the interview would cover NASDAQ’s “thinking about environmental, social, and governance (ESG) issues” caught my eye. Scrolling on down a bit, I was not disappointed: Friedman: Our investor-relations business, for instance, is well established among corporate clients. They know they have to establish great investor-relations capabilities, and they know we have a lot of data and analytics that can help them target investors the right way. Many were less sure, however, that they would need advisory services around ESG. Still, we launched an ESG advisory practice in 2019. We took a risk in launching it ahead of the demand curve, but that business is now growing. One entertaining feature of SRI — at least for cynics — is the rich ecosystem that it has nourished: consultants here, new funds there, and fees scattered all over the place. Friedman: US companies have had to move very quickly to think about operating their companies in new, more sustainable ways, where they care about the communities around them, as well as their employees. In itself, that sentence carries the interesting implication that U.S. companies do not care about “the communities around them.” In fact, some do and some don’t, but in the reality that Friedman is peddling the definition of “caring” revolves around the word “sustainable,” which in this context, tends to mean caring about climate change (and what should be done about it) in, of course, the approved way. Friedman: Our focus on ESG falls into two different areas. One is providing companies the support and advisory work, as well as the technology and tools, they need to manage their ESG reporting. To repeat myself, I suspect that such work is not pro bono (my apologies if I am wrong). The second is somewhat more anodyne, at least in the beginning, but take a look at the last sentence (my emphasis added): In the Nordic countries, we have the green-bond exchange. We now have a sustainable-bond network in the US, too, where companies that are certified as green—or whose bonds and financial assets are certified as green—can be listed and that information made available to investors. That gives investors a kind of Good Housekeeping seal of approval on whether or not these are, in fact, sustainable bonds. Over time, we expect to launch ESG-oriented indexes and provide even more ESG services to clients, on the back of all the data that’s becoming available. Once again, those “additional ESG services” are unlikely to be pro bono. We hear often enough about Big Oil, but rather less about the financial interests that are now aligned behind today’s green agenda. And there is this. Friedman: The question for us is always, how do we preserve the best of capitalism and still recognize that we have a role to play in the communities around us, and not just a role to play for shareholders? For someone heading a major stock exchange to use a phrase that includes a reference to preserving the “best” of capitalism, suggests that that she is, at best, playing defense. Yes, capitalism does a decent job, but . . . In reality, most advocates of capitalism or, in particular, of free markets (the two are not the same), concede that capitalism may not be perfect, far from it (not least because trial and error lies at the heart of a market economy). However, the fact remains that, taken as a whole, capitalism has delivered more prosperity to more people, by a very long way, than any other system. As for the seeming subordination (that “just”) of shareholders (again, a strange qualifier from someone heading a stock exchange), that is consistent with the view of those who have embraced the ideology of stakeholder capitalism, and with it, the view that shareholders, mere owners of the company, are just one stakeholder among many. Friedman: We talk a lot about the idea of inclusive capitalism—an understanding that companies need to evaluate their businesses in the eyes of their clients, employees, suppliers, and the communities in which they operate. “We” do? This is a sentence built on the caricature of capitalism that is one of the cornerstones of a belief in stakeholder capitalism, a caricature that owes more to caricatures of the Gilded Age than, for the most part, any contemporary reality, at least in the West (broadly defined). There, at least, businesses that pay no attention to how they are seen by their clients, employees, suppliers, and, depending on what that phrase means, “the communities in which they operate” are unlikely to do well. The Quarterly: Nasdaq recently proposed that listing companies have two diversity candidates on their boards. What prompted that proposal? Friedman: Nasdaq has a specific role to play in the US economy as a self-regulatory organization. We are kind of a gatekeeper to public investors. In this role, we provide certain sets of rules that govern the companies that go public. The SEC [US Securities and Exchange Commission] does, too, but its rules are focused on business purpose, risks, and ensuring th