"New Dawn of Financial Capitalism"

Excellent article from Institutional Investor Magazine "New Dawn of Financial Capitalism" frames some new thought to address the weaknesses of the current financial paradigm.

(1) Professionalisation of Asset Owners (2) Reintermediation of finance (3) adoption of the power of information technology for analysis by asset owners (4) development of new models to invest in the real economy.

Transcription of the Interview of me with Planet Experts about Responsible Investing

Here's a recent interview of me on my views from Planet Experts

Socially Responsible Investing: An Interview With Gregory Wendt

Recently, Planet Experts sat down with Gregory Wendt, a veteran wealth advisor, economist and Certified Financial Planner. Greg is considered a thought leader in his field of sustainable and responsible investing and green business. He is the founder of several non-profit community organizations and a leading advocate in improving capital markets for triple bottom line economic development. Greg is a recognized social entrepreneur where he applies a multidisciplinary systems design approach to financial innovation and community economic development.

Planet Experts: Having formerly worked at several of Wall Street’s most prestigious firms, including Smith Barney and Prudential Securities, you are presently a Certified Financial Planner specializing in sustainable and responsible investing. What triggered your professional transition? 

Greg Wendt: Sustainability is actually where I started. When I was at UCLA in 1988 I learned about the new paradigm when the United Nations Brundtland Commission came out with their initial report called “Our Common Future.” That’s where the term “sustainable development” actually was coined: which is to build a more robust framework for emerging “third world” world countries to become advanced economies and to become industrialized by incorporating the gifts of modern culture and leaving the challenges behind.

The challenge is, even at that point in the ’80s we realized that it was virtually impossible to have everyone around the world consuming the same amount on a per capita basis, considering the amount of resources that first-world nations use – we simply wouldn’t have enough planet. So the whole idea is, and was, how do we advance these societies in a sustainable fashion while increasing prosperity for all stakeholders? The key phrase in the definition of sustainable development is ‘meeting the needs of the current generation without compromising the needs of the future generation.’

I started as a Biochemistry undergraduate at UCLA, then I changed to Math Computer Science. And then I changed from Math Computer Science to Economics. Through the multidisciplinary lens that I had developed, it just made sense that we manage our society and economy to meet the needs of both current and future generations.

When I was a child, I’d read about being an oceanographer and watched Carl Sagan, Jacque Cousteau, and was really inspired by these wise visionaries. I grew up in Southern California – surfing and tide pools and studying marine biology, complex mathematics, science and all that. So, that was my framework which brought me into this full spectrum viewpoint, and thus sustainable development just seemed to fit and appeared like the more sophisticated framework for an economic system which would work for 100 percent of humanity, and all life. If we’re managing the economy and the inputs and outputs, then we have to manage in accord with whatever’s going on for the entire the planet.

I began my real dive into this world by speaking at a conference in 1989 called “Globescope Pacific Assembly,” which was in preparation for the first United Nations Earth Summit in 1992. During that conference we conducted working groups sessions with 500 sustainability leaders from all over North America. I played a very small role, but it was a document that gave input to the Earth Summit from North American constituents. It was called ‘A Citizen’s Response to Sustainable Development.’

So, when I got into the work world, I tried various jobs until a friend of mine wanted me to work for him as an apprentice at Smith Barney. And I took the position and learned about the ins-and outs of the investment world, analyzed and traded municipal bonds. At that time I also learned about what we called socially responsible investing and that’s when I set the intention to make responsible investing my profession.

And then after working in the big firms, watching and learning the system over 11 years, I experienced positive and the negatives of the way that Wall Street’s mentality operates. Through that, I determined that I only wanted to serve clients who desired to have their money managed with a lens for responsible investing. So, I went into private practice to exclusively manage the wealth of clients who are committed to investing responsibly. I wanted to spend my days in relationships only with people who are committed to creating a better world with their money. I found it was much more satisfying to me and my clients as an independent advisor rather than being within an organization that prioritizes its own agenda and products over the client’s needs and priorities.

I went into private practice in 2002 and joined a small firm, which became a larger firm and in the last two years moved to another firm that was dedicated solely to responsible investing. Because I really wanted to be surrounded by colleagues who get everything I’m about. Fundamentally, responsible investing is not about a business alone or a money-making strategy alone or a bargaining angle, but a mission to fundamentally change the way we do business on the planet and how we harvest and steward the rewards of our enterprises.

As an ethos, we must transform the way we do business on the planet from a business relationship with nature to a reverence and partnership with nature. And that’s just smart systems thinking to just observe the system around us. One of my mentors, Hazel Henderson, talks about the fact that the way that economics is practiced today is “theory-induced blindness” – and any one of us who’s studied economics with the traditional paradigm knows the concept of externalities. Well, in the real world, externalities don’t really exist. There’s no “out there” when you consider the system of the whole planet. And the idea that the economy is a closed system where everything is separate from everything else is a totally false premise. In reality everything is an open system and everything is connected, it’s just that most of our systems are not sophisticated enough to embrace this straightforward reality.

The mission of responsible investing is to change the way we do business on the planet and moving money, which is the fuel for business, in a way that supports the evolution of our economic paradigm. That’s why I do it and I’m grateful to be in alignment with a number of professionals both in my firm and around the world who have the sense of that core mission. That’s how we live our businesses.

PE: A corporation’s primary responsibility is to generate and maximize wealth for its shareholders. How do you counter the long-held belief shared by many in the for-profit sector that being environmentally responsible cuts against the grain of capitalism — and that the two are mutually exclusive?

GW: I’m going to push back a little bit and challenge that initial assumption that businesses’ sole responsibility is to make money. That is the presumption of many in our world today based on Milton Friedman’s advocating that the only social responsibility in business is to make money – but that was a presumption based on that economic theory and our current modern system has found that one presumption. But when we look at the whole system – we realize that most people are afraid to challenge or question our own assumptions. I think that the root of what we’re dealing with here is that there are many of us making assumptions in this world based on what we believe, but we don’t recognize the assumptions that were adopted earlier were based on fundamentally false premises.

I’ve been asked to give a talk this weekend at business conference on conscious business and conscious capitalism. I intend to raise some very fundamental questions. Regardless of how you define the term “conscious” I’m going to ask: ‘How are you going to have a conscious business if you don’t have conscious people?’ And if you have conscious people in conscious businesses, we must develop conscious relationships within businesses and between businesses. And that’s a way of saying that we cannot separate business from ourselves as human beings and we cannot separate ourselves from each other and the biosphere that we live in. There’s no real separation in reality when we simply observe what is actually going on in the “real world.”

You can’t really say that the economy is separate from everything else like a machine that just spits out money and we spend it. There are so many very tangible, observable consequences when we look at these externalities, yet the whole system is based on the idea that “someone else will deal with those consequences.” “Someone else” is us.

It’s actually impossible to have a business that’s separate from the world. So we have to really challenge that overly simplistic idea in economics 101 that everything outside of what we define as “a business” is as an externality that just evaporates. Now our ability to see how things interact has been significantly improved by big data analysis and new software analytic tools. We now have the ability to actually create better models and better approximations of the way that the world actually works. We can actually begin to understand what has been conceived of as the “butterfly effect” where when a butterfly flaps its wings, there are real results across the globe.

So that’s the way the world works. There’s nothing that’s separate, and then we have to then challenge these assumptions and start from there. I just moderated a panel last week at the Social Capital Markets Conference in San Francisco, and my fellow panelists and I discussed the reality that nature includes society, and society includes business and economy. The three are not separate systems with nothing in between. That’s the way the world is, yet we have this presumption that business is over there, society’s over there and nature’s over there and they’re three different separate systems. And every idea born out of the paradigm of separate systems are false premises based on an illusion, and everything we have in our society is based on that illusion.

Many, if not all, of our institutions and systems and financial models and theories in our economy are based on absolutely false premises – which is probably why they’re not working so well to protect the integrity of the biosphere and why we have significant breakdowns in society emerging across the world.

PE: Well let me ask you about those false premises. You clearly believe that business and the biosphere can work together, that it’s a natural part of the system. Yet how common is that mode of thinking within the business community, and can people be made to come around to your philosophy?

GW: You might be asking Copernicus, how many people around us believe the Earth is the center of the universe? And everyone will say, well, everyone believes that except that one guy – because it’s true. But just because it’s conventional wisdom doesn’t mean it’s wise or accurate [laughs].

The document ‘A Citizen’s Response to Sustainable Development’ I mentioned earlier was created 25 years ago. That document I still have in my files and I look at it occasionally and I see that what we contributed as recommendations to the Earth Summit in 1989 is still applicable now. In a quarter of a century the environmental and social justice and sustainability movement has been ineffective at creating the broad vision we held at that time. We’ve been trying to convince business and government leaders to prioritize the natural environment, our health, and future generations’ well being and all the things that we care about over the limited scope of priorities. And our approach has not resulted in a fraction of the vision our movement held.

We must change our approach from “us and them” to just “us”. And even though some people have tried to use Big Data to generate the awareness and recognize our false premises, there is not enough action taking place. It is necessary to live by example and to operate form a new paradigm. It is extremely hard to start, but if we are successful, others will naturally follow.

If you look at the conversation in our climate centers, it’s irrefutable evidence that climate change is actually happening, but more evidence is not getting certain policymakers to change their point of view. So what is it that we can do? Well we can live by  example, by transmuting mindsets we hold, and through operating from a new paradigm we can create new systems, which could demonstrate better health, well-being, more prosperity – better outcomes. Then, we can actually demonstrate this is working with real living examples.

This is where I’m very moved and encouraged by the progressive business movement and the corporate social responsibility movement. There are living examples that work and it’s just a matter of continuing to build a new world and not trying to tear down the old. There’s lots of examples of this.

PE: Have you observed a meaningful shift in the dedication of corporations to sustainability? 

GW: In the ’60s and ’70s we started with moving money away from major corporations that are doing harm – nuclear weapons, the Vietnam War, tobacco, firearms, child labor – saying we don’t want to invest in these bad companies or harmful industries. Then there came engaged discussion with shareholder activism that was helpful in getting money out of South Africa and apartheid in the ’80s. And then there’s been a movement to engage and invest to encourage better behavior and actively moving toward finding companies who are living solutions or living the new model of business and reaping the rewards of being responsible business.

And then, what they call impact investing, includes investing in enterprises where the priority is to regenerate culture, regenerate ecosystems and livelihood. So that’s a progression, and the terminology continues to change, but it fundamentally means that we look at things much more than what is traditionally known as money and profit and look at the whole system – of all the stakeholders in an economic activity and see the longer timeframes and long term effects of our actions.

PE: Have you encountered a lot of pushback from businesses?

GW: I wouldn’t say “pushback,” but a resistance and continuation of irresponsible activity, or rather activity based on the false premises and sending the problems for others to fix. You look at the whole spectrum of corporations and one of the challenges that we face from the publicly traded markets where businesses have to answer to a quarterly profit report, that is the priority of management. From that, people take the story that all business is to prioritize profit, but it’s not about that priority, we know that – it’s about serving society and serving each other. There may be management that cares about some of these things but because of the system that we’ve designed, they are not allowed themselves to prioritize other factors beyond the “single bottom line.”

Corporate managers are not encouraged to prioritize the effects of their business on the entire system, they’re only paying attention to one subset of factors, which are measured by the economic and financial information rather than all the other metrics where the business influences the world. That single metric of money and power being our only measuring stick for success has proven to be an ineffective model and we’re in the middle of that evolution from one measurement to a multitude of measurements and multiple points of view at the same time. There was a phrase that was attributed to a sign in Einstein’s office – to be verified, but I like the phrase nonetheless, “What is often counted does not count, and what counts is often not counted.”

And that perspective applies in a business equation where quarterly reports reflect the business profits, but what about the welfare and the health of the employees? What about how the many pollutants that go into the environment? How many more jobs do they create? The whole tendency of cutting jobs to increase profits and how the stock usually reacts by climbing up is a disincentive for the goals we have set up as a society. If we’re trying to keep people employed by “creating more jobs” in the political arena – which is a priority for many in this society – then in the other part of the system, in the “business arena,” companies are cutting back employment and paying people less who create the wealth and then they’re making “more money” and being rewarded for it. There’s obviously a disconnect in this paradigm.

Many people think we have an economic crisis or an environmental crisis or a cultural/political crisis – we actually have a whole system crisis. The nature of our civilization is impacting our world in a manner that we’ve never seen, and the very system that we have created for ourselves has proven ineffective in creating governance and decision making processes amongst ourselves to actually address the problems we have today.

So we have a systemic crisis, and we must fundamentally look at retooling and reorienting our entire system, which points back again to responsible investing. We’re looking at the roots of money and capital and economics and asking questions like: “What needs to be retooled to incorporate factors that were originally left out of the original equation?”

PE: Why is it so difficult for the U.S.A to craft effective clean energy policies? Is it because fossil fuels have become so entrenched in our political system or is it because that’s the way we’ve always done things?

GW: You could say ‘someone will not adopt the belief system that’s against their paycheck,’ or ‘those who are in power are reluctant to give up their power.’ Those kind of dimensions of understanding, of the way our psyche and human tendencies and emotional tendencies to resist change and resist mindset shifts are some of the most important things to look at here when it comes to these kind of questions. We might just call it human nature, but human nature is not fundamentally static. Our brains are not rigid, we do have neuroplasticity, we do have thousands of years of evidence of human behavior collectively evolving and to have the maturity and intestinal fortitude to address these challenges and overcome our divisiveness and our ego-driven culture.

I feel this is the primary responsibility for those of us who recognize the problems on the planet. And it’s not only the responsibility for those who are perpetuating the problems but those of us who are holding solutions in our hands and to look at ourselves and ask the hard question: “Is our approach working?” Are we willing to adopt a new mindset and change our approach? And if not, why? And if we’re not willing to, are we willing to simply be honest with ourselves and ask whether our approach has worked in the last 50 to 100 years? And if it hasn’t, why do we continue to do the same old thing?

That’s why this question of designing a more effective cooperative framework amongst progressive, environmental and social justice organizations is necessary.  We must change the very fabric nature of human discourse from divisiveness to integrated cooperation, focusing on shared outcomes from our common goals. Even among the movement that wants to make the world a better place, it’s surprising how much divisiveness there is. We’re going to create so much more in the way of tangible results by operating from the point of view that “we’re in this together” and simply find a way to work better together.  It’s that simple.

PE: On that subject, you founded both the Green Business Networking and Green Economy Think Tank.  Please briefly explain both organizations and the impacts they are having in local communities. 

GW: Both of those organizations were created because of what I just said, the recognition that we really need to work better together in the movement of green, progressive, sustainable economic activity, whatever we want to call it. We’ll be far more effective if we design better systems to collaborate and create shared outcomes together.

Based on my perspective, one of the biggest problems in the economy is that the quality of relationships and the quality of trust has been diminished significantly to prioritize capital. So if we reintroduce trust and quality of relationships into the business and economic equation, we can actually utilize these authentic relationships to create better outcomes through better cooperation.

That mindset, to create better relationships amongst green business owners and economic development policymakers and NGOs was the purpose of these organizations. We’ve had monthly events every month since 2006, and we have about 5,000 people on our email list. After a couple years of events, our team realized that there was an opportunity to create better cooperation among the organizations and agents of change in the greater L.A. region and we created a couple innovative “working session” conferences in Los Angeles and a couple of the same in San Francisco, which has inspired some of our colleagues to continue the work in the L.A. region and the Bay Area in a broad range of initiatives.

Currently our work has evolved from an active contribution of ideas to improving the financial and economic ecosystems in California and advancing the growth of access to capital and impact investing for the state. I’m currently co-chair of Capital Action Team, the California Economic Summit – which is a statewide bipartisan process of public and private leaders to increase prosperity for the state while remaining committed to “advancing the triple bottom line.”

I’d love to share details of what we’re doing in these activities in the future. Meanwhile, I’m so grateful that you have included me in your efforts, I have enjoyed our discussion immensely.