Fund Shack Private Equity Podcast

Carl Bradshaw is a partner in the law firm Goodwin’s private equity group. He has advised European, American and Asian private equity sponsors on cross border LBOs, public to privates, co-investments and special situations. We talked in late March 2021 about deal appetite going into the second quarter of 2021 new deal-making processes and the rise of the special purpose acquisition company.  Ross Butler: You’re listening to Fund Shack. I’m talking with Carl Bradshaw, a partner in the law firm. Goodwin’s private equity group. Carl is based in London and has advised European American and Asian private equity sponsors on […] Learn more about your ad choices. Visit megaphone.fm/adchoices

Patrick Sheehan of ETF Partners talks to Fund Shack's Ross Butler about creating sustainable prosperity with venture capital. Learn more about your ad choices. Visit megaphone.fm/adchoices

Demystifying private equity on Fund Shack, with Oxford Said's John Gilligan and the ICAEW Corporate Finance Faculty's David Petrie Learn more about your ad choices. Visit megaphone.fm/adchoices

Subscribe on Apple Podcasts | Spotify  Hendrik Brandis is co-founder and partner at Earlybird Venture Capital Learn more about your ad choices. Visit megaphone.fm/adchoices

Vania Schlogel of Atwater Capital talks to Fund Shack's Ross Butler about bridging the world's of big buyouts and creative industries Learn more about your ad choices. Visit megaphone.fm/adchoices

Subscribe on Apple Podcasts | Spotify  World leading thinkers join Fund Shack’s 50th anniversary debate on Milton Friedman’s article The Social Responsibility of Business is to Increase Profits.   Ross Butler: It’s half a century since Nobel prize winning economist, Milton Friedman wrote an AR opinion. Article entitled the social responsibility of business is to increase profits. With me to discuss this are four of the world’s former thinkers on the subject. Professor John Kay is one of Britain’s leading economists his work centers around the interplay between economics, finance, business and society. His most recent book is Radical Uncertainty written with Sir Mervyn King. Joanne Ciulla is a professor at Rutgers’s business school of which I think Milton Friedman was an alumni, correct me if I’m mistaken. She is the director for the Institute of ethical leadership and she’s founding faculty member at the Jepson school of leadership studies at the university of Richmond, where she teaches courses on ethics, critical thinking and leadership. Brad Cornell is professor of finance UCLA and has been involved in a number of challenging involving the application of finance theory and his research applies financial economic models of incomplete information to the problem of ethnic discrimination among other things. Guido Palazzo is a professor of business ethics at the university of Losan in his research. He is passionate about the dark side of the force, which I like and examines an unethical unethical decision making from various angles. His studies include those on human rights violations in global supply chains. The article represents in my mind an argument against corporate social responsibility, perhaps not in its entirety, but certainly broadly in the last 50 years, of course terminologies have changed somewhat. So CSR has been to some extent replaced by ESG, but I’d say that they’re broadly similar enough. And what I hope to do is have a first principles debate so that we can get beneath, these concepts and hopefully provide some form of bedrock for corporate executives to use in their ethical decision making. Before I turn to the panel, I’d like to do a quick poll. Do you broadly agree with Milton Friedman’s article entitled the social responsibility of business is to increase profits? Yes. I broadly agree. No overall I am opposed or that’s what I’m here to decide and everyone’s voting. Interesting. So 17% broadly agree. 69% are overall opposed and 14% are here to decide. Great. So I’m going to start by asking each of the panelists in turn to provide some uninterrupted opening remarks on the Friedman doctrine. So, if I could ask Brad for you to kick us off, please Brad Cornell: Well, I think I’m probably in that 17%, but let me start with something where I do slightly disagree with professor Friedman and that is his characterization of maximizing profit. That’s not the way we in financial economics think of it anymore because profit is too ill defined profit win profit next year, profit five years from now, profit 10 years from now and so forth. The way we approach this problem is to say that in a free enterprise economy, what companies are trying to do is maximize shareholder value and shareholder value value is really the present value of the stream of all future profits. And when you think of it that way value is by definition a long-term concept. There can’t be any short-term value because all future profits enter and to maximize the value of a company executives must take account of long, the run impacts of their decisions. Brad Cornell: And that means that if, for example, if they treat their employees poorly this year they’re gonna lose employees and that’s gonna win the long run, destroy value. If they don’t respect their customers, privacy, they’ll lose customers and that will reduce their long run value. And if they fail to account, let’s say of environmental impacts of their decisions that may bring down regulatory limitations, and that will reduce the long run value. So when we think of the right criterion, which is maximize shareholder value, some of this distinction between pursuing ESG type goals and pursuing value maximization disappears, but it doesn’t disappear entirely. So let me take us to a, a short thought experiment, which hopefully will, will be interesting to the, the attendees and my colleagues can comment on it. Here’s the way this thought experiment works. It’s a very simple company, it’s a delivery company and the only decision it has to make, and I’m focusing on the E part of ESG. Brad Cornell: The only decision it has to make is whether to use gas or electric delivery vehicles. The company can compute the total cost of either one. And the question is, does the company fall the Friedman doctrine of maximizing shareholder value, or does it diverge from that in order to take account of environmental issues. And, and I’ve got three scenarios to run through here in the first scenario, they do their valuation analysis us and the electric vehicles are cheaper. Well, if the electric vehicles are cheaper, value maximization says, use the electric vehicles. And in that case, there’s no conflict with broader corporate executives that take account of let’s say CO2 emissions, because they both lead to the same conclusion. Use the electric vehicles. That’s scenario one, scenario two, there is a carbon tax that reflects the external cost of burning fossil fuels. Brad Cornell: Let’s say that William is the prime minister of this country. He’s figured out what the social cost, the burning fossil fuels is, and it’s reflected in the tax. But even after the tax, the gas vehicles are still cheaper. So value maximization says use the gas vehicles. Some of my students say, but ESG says use the electric vehicles. That is not correct from a purely economic point of view, from a purely economic point of view, even taking account of the social effects, it’s better to use the gas vehicles that’s because the government will collect the revenues from the carbon tax. And that can go to other benefits. And even after reflecting these external costs, it’s still better to use the gas vehicles. So once again, from an economic standpoint, there’s no dispute here. If the external cost of the fossil fuels is reflected in prices, then value maximization works. Brad Cornell: And, and it’s what people should follow now, where it gets confusing. And I’m sure my colleagues will wanna weigh in on this is scenario three in scenario three, the gas vehicles are cheaper, but there, there is no tax that reflects the cost of using them. There are social externalities, which are not priced. And in fact, in some countries, there may even be subsidies to using fossil fuels. So value maximization of course says, use the cheaper one, use the gas vehicles, but a broader ESG objective may say use the more expensive vehicles, even though you’re gonna damage shareholders because of the social benefits of it. And this is where I think the rubber meets the road where value maximization and a broader social criterion diverge. Brad Cornell: But here are the problems that arise if you’re gonna tax shareholders. And if you actually tax employees and customers as well, if you use the more expensive electric vehicles, because they’ll bear part of the cost, how much customer money should be used to subsidize these electric vehicles. Second, what training do senior managers have to make decisions regarding the cost and benefits of climate change and other externalities Associa with fossil fuels. If I’m running a social media company my godsend runs the social media company, snap. He’s incredibly busy with his job. How’s he gonna know how to take account of climate change? Three. What if different managers reach different conclusions? Some may be socialists and think the environmental impact is very important. Others may be right wing of free market people who think it shouldn’t be paid any attention at all. How do you reach a consensus ? Brad Cornell: Four, what right do corporate management have to make social policy that’s in effect what they’re doing when they’re taxing their shareholders to promote the electric vehicles they’ve but not been elected or appointed. So my conclusion, and this is why I’m part of the 17%, I suppose, the managers who believe that we do not have a so appropriate rules of the game that we do not properly price externalities should definitely take that view and attempt to make it part of social policy. They should vote for candidates. They think will promote the right policy. They should attempt to get taxes levied if that’s the appropriate policy, but somehow making corporations, the philosopher Kings that are going to decide public policy on their own in my view is a mistake. So ultimately I would agree with professor Friedman, the rules of the game have to be set through a fair democratic process. And then once the rules have been properly set private corporations should go back to attempting to maximize shareholder value. And that does it for me, Ross, at least my opening comments. Thank you. Ross Butler: Great, thanks. Thanks Brad. That’s very clear. Say from an economist and segues quite nicely to Joan more on the philosophical side of things, Joan, can I pass to you? Joanne Ciulla: Yes. Thank you. And, and Brad, thank you. That was a, a really nice defense of some of the points in Freedman. I’m a floser. So I’m gonna look at it in a somewhat different way. I actually took us is questioned seriously, and looked at the argument itself. I’ve been teaching this argument for many, many years, and it’s a fascinating one, and there are some really strong things in it that are important to the field of business ethics. When I started working in this area over 35 years ago it, it Friedman raises some of the most fundamental questions in business ethics. First of all, a question of what are the responsibilities of businesses what is the kind of, what kind of moral agency does a corporation have? Those were very important parts, especially in the early days of business ethics to ask. Joanne Ciulla: The second thing that’s interesting about this is the context of it. It’s a newspaper article by a very brilliant economist, and I think there are some faults in it because it is a much more casual writing than probably the more sophisticated work in economics. We have to ask ourselves, to what extent is this a period piece? What does the historical context have to say about this kind of argument? And that of course is the other question of, is there something about the period of time that he was writing that a stronger argument than perhaps today, but the strength, the other great strength of the piece is it forces us to consider who ought to be responsible for what as was pointed out by Brad, there’s a lot of dangers in business making social policy, not only their knowledge, but the political questions in a democracy of whether they ought to be doing it. Joanne Ciulla: And I would add a third, somewhat economic consideration that if, if businesses had social responsibilities, such as let’s say, running schools that could be very dangerous because what happens when the business goes out of business we want our wellbeing of society to be contingent on government because it is supposed to be something that goes on over time and businesses as we know, come and go. So I wouldn’t want to rely on business to take care of the public. Good. And I think Friedman’s exactly right about that. But the question is as we go on is Freeman’s article always seems to assume a zero sum gain that social responsibilities must always go against the interests of employers and profits. And he gives examples about, and I love by the way in, in today’s world, I cannot imagine a business thinking that they can’t raise their prices, cuz it might contribute to inflation. Joanne Ciulla: Obviously we think of inflation in a different way today, but it just strikes me as a strange argument. The second one he says is, you know, imagine reducing pollution more than necessary. He seems to who assume that if you do that in a business, it’s going to have all sorts of bad effects, lowering wages, increasing prices, affecting consumers, lowering profits, affecting owners, and all sorts of horrible things will Enue and his central notion is that you’re spending other people’s money. Well, it, the, it’s kind of interesting to look at that the idea of reducing pollution more than necessary because in, in business ethics, there are several sort of classic cases about businesses that did exactly that and commons engine, by the way, that’s one of the more famous old cases in business ethics. And what’s compelling about that case is the fact that Cummins did reduce pollution more than necessary. Joanne Ciulla: And it turned out to be a competitive advantage because they had the foresight, the strategic foresight to see that it would eventually come around that there would be regulations, which is really speaks to one of the points. I think Brad was trying to make with his examples. So there are ways in which social responsibilities are related to corporate strategy. Now the question is you know, does this, does it always make them money? And of course that I think is a tricky thing. People who have been doing research in business ethics for many years have tried to show that ethics pays and we can’t always show that. So that of course is a problem. I find it amusing that he mentions the GM crusade in this. I, I always found that a fascinating case for those of you who aren’t familiar with it. Joanne Ciulla: This was a crusade by Ralph Nader and Nader’s Raiders. And it was about a car that they produced called the Corver that was very unsafe on the road. And Nader went in to GM stockholders meetings and tried to make the company tried to have proxy, tried to get stockholders, to make the company decide to focus on safer and cleaner cars. GM didn’t go for this and neither did the stockholders and they spent their money on having Nader followed around by a private detective. They got sued by Nader. They lost money and of course, Nader prevailed and all sorts of legislation came into play about auto safety. So there’s a lot of ways in which Friedman argues that social responsibility is shortsighted. But when we look at actual cases, we see that that strategic social responsibility is farsighted. Joanne Ciulla: So what Freeman wants us to do is stay at the moral minimum and that moral minimum is, as I said, strategically unwise in many cases now here’s where I get to the part of the argument that I find the most fun as a philosopher and someone who does ethics. And that’s when we get near the end, there is this very odd notion that Friedman has. It’s a kind of moral purity where he seems to almost get himself in a tizzy over the fact that

Avi Turetsky leads Landmark Partners’ Quantitative Research team, which just co-authored a new way to measure private equity performance, called the Excess Value Method. In this Fund Shack private equity podcast, Avi Turetsky, who leads Landmark Partners’ Quantitative Research team, discusses the groundbreaking “excess value” method, which has the potential to reshape how LPs and GPs measure and reward performance in private equity. Avi introduces the concept of the excess value method, an innovative approach that quantifies the value a private equity manager adds compared to public markets. Private equity investments aim to outperform public markets, and excess value aligns […] Learn more about your ad choices. Visit megaphone.fm/adchoices

Subscribe on Apple Podcasts | Spotify  Wol Kolade is the managing partner of Livingbridge, a mid-market private equity firm with offices in the UK, Melbourne and Boston.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Subscribe on Apple Podcasts | Spotify  Mark Tluszcz is co-founder and CEO of Mangrove Capital Partners. He was the first investor in Skype and currently chairman of Wix. Learn more about your ad choices. Visit megaphone.fm/adchoices

In this Fund Shack private equity podcast, we explore the intersection of private equity and environmental, social, and governance (ESG) principles. Cyril Demaria  shares his insights on how these two worlds can work together more effectively. Today, ESG considerations are crucial for investors and companies. It’s no longer just about financial returns; social and environmental impacts matter too. Demaria discusses the importance of ESG in the broader investment landscape. It’s about making investments that align with your values and the future you want to see. Private equity faces specific challenges in incorporating ESG principles. One challenge is the long investment […] Learn more about your ad choices. Visit megaphone.fm/adchoices