Shawn Wooden, the Treasurer of the State of Connecticut and principal fiduciary for six state pension, and nine state trust funds, shares his thoughts on the practical steps CEOs, policymakers and allocators are taking to promote sustainable capitalism, with Mona Sutphen, Vistria Partner and Head of Investment Strategies.
Shawn Wooden, the Treasurer of the State of Connecticut and principal fiduciary for six state pension, and nine state trust funds, shares his thoughts on the practical steps CEOs, policymakers and allocators are taking to promote sustainable capitalism, with Mona Sutphen, Vistria Partner and Head of Investment Strategies.
Intro:
January 11th, 1837 was an unremarkable day in Springfield, Illinois, but in the state legislature that day, a young representative from New Salem, Illinois stood up to deliver a speech. Across the U.S., the debate of the day was whether the U.S. should have a national bank to reign in the excesses of capitalism. And in Illinois, rumors of corruption and self dealing in the state bank were at the top of the agenda. Representative Abraham Lincoln, arguing for strong rules and banking regulation commented to the assembled that, "Capitalists generally act harmoniously and in concert to fleece the people." This wasn't the first debate about the nature of capitalism in America, and we've been trying to find the best way forward ever since. Welcome to the Future of Capitalism Podcast presented by Vistria Group.
Guest Introduction:
In this episode, Shawn Wooden, the treasurer of the State of Connecticut and principal fiduciary for six state pension and nine state trust funds shares his thoughts on the future of capitalism with Mona Sutphen, a senior advisor at Vistria.
Mona Sutphen:
Shawn, great to be with you, and really thank you for taking the time to chat today about this topic, future of capitalism, which I know is near and dear to your heart. Really glad that we're getting to spend the time together. So I know you had a call to action for corporates and their leadership because, of course, they're the ones who employ people and putting money in people's pockets. And so, A, I wanted you to talk a little bit about that and about how you're feeling about that.
Treasurer Shawn Wooden:
So it's a corporate call to action coalition for equity and opportunity. And this was actually launched in response to the murder of George Floyd, following Ahmaud Arbery's killing, Breonna Taylor's. And as you may recall, I wrote an op-ed just to the boiling point in calling on Corporate America to get off the sidelines and to engage and be a force for positive change. And CEOs really responded and stepped up and we have... And I'm doing this in partnership with the Ford Foundation and Darren Walker who have been just tremendous partners in this effort. And we have 18 very committed CEOs of major financial services firm represent over 26 trillion in assets under management and hundreds of thousands of employees in our country. And the whole point of this was, let's make this something really significant, deep structural long term, not just, I said, if you want to do corporate branding, this is not the thing.
Treasurer Shawn Wooden:
And those that decided to come along for the ride, we're pushing, we're engaging, but a couple months ago launched a first major announcement, which is that all of the coalition partners decided to voluntarily disclose their EEO-1 workforce demographic data. Right now only 4% of the corporations report this data, and we think that's part of being transparent, because a lot of what we talk about is having a level of transparency, accountability, and commitment to a long term in being able to measure those results.
Treasurer Shawn Wooden:
And so we're engaged in this together. I didn't put out a 10 point plan and say, "Please sign on to this." I said, "I want your financial and intellectual capital, and we're going to build this plan together and focus on addressing racial, economic disparities in our society. We're going to look inward in terms of corporations, and we're going to look out the window." I say, "The mirror and the window to impact communities."
Mona Sutphen:
It's been interesting to watch this proxy season about this question around disclosure of diversity data, which at this point, given how much commentary there's been in Corporate America about those goals and every single major corporation in America has a diversity initiative, I guarantee it, but the hesitancy to make that public, you would think that would be easy. That's the floor kind of. So it's great that you've gotten some people to move because as one of the things I think you would agree with, people want to move in a pack. They don't necessarily want to be the only one to go. And they also want to know that they're going to get credit when they do something important, but that's also thought leadership. That's how you get everybody else to move forward on things.
Treasurer Shawn Wooden:
Yes. I've learned a lot from the CEOs, in terms of that perspective and yes, the benefit of moving in a pack, the safety there and the transparency, it's an interesting point because as you point out, it should be simple to say, "Okay, this is where we are." It's scary for some companies, because that puts more scrutiny, but it's only kind of in that sunshine, if you really are committed to accountability, it's only in having that level of transparency, you need that to move you towards being held accountable.
Treasurer Shawn Wooden:
And it's hard, yes. It's scary, you don't want to look bad. You spend a lot of time protecting goodwill and the brand and the image, but in this space at least I've tried to create a safe space for saying... Early on I said, "I'm looking for a coalition of the willing, but not the perfect." And it's exactly that reason because people are at different points, CEOs and corporations, different points on that continuum where you have real thought leadership and have others who aren't yet, but they are deeply committed and want to be better.
Treasurer Shawn Wooden:
One CEO told me, "I want to be a part of this because I want to be in a room with my peers who are committed to this work and I need help for us to get better." That level of honesty, and that's the only way we're really going to make progress on this and keep people engaged. This is like America's third rail, talking about race and disparity. I do feel a deep sense of first recognition.
Mona Sutphen:
I've been really struck by how empowered workforces are. So some of this, it used to be that all the pressure was external. Something would happen and externally there'd be all this pressure, but now the pressure's also coming from internal, which is, you said your corporate values say X, Y, and Z, and we don't see that. And as you know, the talented workforce has optionality, they can go work elsewhere. And the one thing I will say about our Millennial, Gen Z colleagues is they will move to go work for a company that they believe in, and that's worth a lot to them. They want to know when they wake up in the morning, they feel like they're contributing something of value even if they're also turning a profit, it has to have that purpose alongside, otherwise they'll go elsewhere. So it's a combination, I think, that's going on here?
Treasurer Shawn Wooden:
It is the most unreported powerful force for change in Corporate America right now, you hit the nail on the head. I've heard it from every CEO in our early conversations about the power of employees speaking up. So when people ask me like, "So why are you optimistic?" That is one of the big reasons, because there's the external forces, me included, but those internal forces that really affect the company, and this is not just about being on the right side of history, it's about helping our country be better in terms of our values, but it is equally in the context of Corporate America about corporate value. In a traditional sense of shareholder value, of optimum performance, we have data, we have analytics now that support the high performing companies globally are more diverse. Workforces are happier in those settings, retention, all the things that make companies outperform.
Treasurer Shawn Wooden:
I've been involved in diversifying corporate boards and that effort, so kind of changing what it looks like at the top of these organizations and in the C-suites, but now there's this bottom up significant pressure. Five to 10 years from now, I expect a very, very different demographic in terms of leadership within Corporate America. I think we're really in a game changing moment and we're talking about the future of capitalism, but we started this conversation pre George Floyd, pre pandemic, there are lots of indicators in terms of the growing wealth disparities and income inequality in society, the sustained ability of capitalism, and I think we all essentially raise our hand or acknowledged in the room that we're a room full of capitalists. We're not the anti-capitalists, we're trying to preserve and enhance and strengthen a system in there are already red flags, but the pandemic and the racial reckoning and all of this has just turbo charge all of those weak spots in our system.
Mona Sutphen:
So let me ask you a little bit about the how. So you've been supportive of Baby Bonds, which I think is super innovative. This was a bill at the federal level that was being introduced by Cory Booker. Tell us a little bit about what you were intending to do with the support of this project
Treasurer Shawn Wooden:
Point of Baby Bonds, I'm a long term institutional investor, I think in 20 year increments for pension fund beneficiaries and returns and it's the same thing with impacting our society is that we have to think long term, and the Connecticut Baby Bonds is designed to address the wealth gap for every child born into poverty in Connecticut, and the funds could be utilized for education, housing, investing in a business, or some sort of retirement account and security. All metrics that are correlated with the wealth gap and disparities. And the last thing I'll add about this is that there is a financial literacy requirement built in prior to claiming and utilizing those funds.
Mona Sutphen:
I think it's really a compelling idea. So with watching how it does, and hopefully at some point there'll be other people who are experimenting with the same kind of structure. So can I ask you a little bit about, I just wanted to pivot a little bit to the allocator world, your mindset when it comes to obviously running pension fund, thinking about the mood among allocators out here about what is valued, what's measured, I mean, GPs take those signals very seriously.
Treasurer Shawn Wooden:
Yeah. I think there is a mood shift, but there's still a lot more struggling to do around how do we affect that? Thinking about the role of a fiduciary, hearing those who view broader considerations, being somehow inconsistent with being a fiduciary, who are the stakeholders that you should care about? What is corporate value? In the view has been widened in Corporate America.
Treasurer Shawn Wooden:
And I would say amongst allocators, I think you have a lot more thinking more deeply about it now. There are obviously leaders in the country kind of in this space, but thinking about it more and with data, and I've had these conversations with many of my colleagues in the country. I argue as a fiduciary, you're actually not meeting your standards if you aren't casting a broad view of talent in creating opportunity and pipelines.
Treasurer Shawn Wooden:
And it's like we got to go through a whole myth busters. And my private equity portfolio, out of the top 10, three or four are minority owned firms who produce top results for the State of Connecticut in that piece of portfolio, and there are other places. So that's a myth, and I think one of the most powerful things that I can do, there are two kind of audiences, there is the GP community and the, what I actually do, how I engage, how my team engages.
Treasurer Shawn Wooden:
And we have made it very clear that we view ESG considerations, they're important to us as a fiduciary in the correlation to value, to answer question that you haven't asked, have you ever said, no as a result of this? And the answer is yes, but more often than not, it's no, not now, but do the great work that you tell me you want to do and let's engage.
Mona Sutphen:
I'm really curious about the GP reaction to some of your conversations, are people... I mean, obviously from Vistria and we're in the same mindset, so it's not an odd conversation, but I'm assuming for some of the GPs you're having conversation with, it's a little bit of a shock to the system because it's a relatively new set of expectations, but I think when we were together at one point, or maybe I'm not sure if you were in that conversation, I was having with Mark Globally at one point, he was saying that expectations of GPs have shifted over time. There used to not be any return thresholds either, and there were no either there lots of things that evolve over time, expectations of GPs shift along the way.
Mona Sutphen:
And obviously their preferences, whether it's industry, verticals or allocation in terms of size, it's all kinds of things that shift over time. And this is just yet another one, but I assume it might have been a little bit of a shock when you go to some GPs and say, "Oh, by the way, we want to know these things." And they look at you and think, blink twice and say, "Well, why?"
Treasurer Shawn Wooden:
So I will say, because Connecticut has had kind of a history of being sensitive to these issues, asking the questions, in fact, part of due diligence, we have questionnaires, demographic. So that's not the shock. I think what's the shock now is the no, or the not yet, kind of you're not ready. Because I think for, we have gone through a period of time where a lot of GPs have nodded their head, "Yes, we understand this is important. Yeah, we're trying." But very little has been done.
Treasurer Shawn Wooden:
I've seen it. As recently as yesterday, I had a conversation with a GP for a re-op. This is the first time with me as treasurer, try to be very candid. And I've said, "I don't understand. You've known that this is an important piece for Connecticut for some time, and so I think it's a shift in saying, "Oh-
Mona Sutphen:
It's a real priority, it's an actual priority.
Treasurer Shawn Wooden:
Yeah. And then the other thing in terms of the surprise, nobody's surprised by the time they get to me, that we might need to have that conversation. Just because of my staff, and I don't want anyone surprised.
Mona Sutphen:
Right. Yes, of course. No.
Treasurer Shawn Wooden:
Right. And you're not surprise. So, that's an example where someone came in and said, because they were prepared, and I looked at everything. I was like, I said, "This is a real problem here to my team. And I like this, I like this, bring them on in, but let them know." So they came in prepared to say everything, like all the good things that they were going to do to address these issues and why they understood that it was important for their business. And I said, "Well, I'd like you to think about that some more, reduce it to writing, show me, and let's talk about it." And then they came back over a period of time and to their credit, they did the work, they even engaged a consultant to help them do the work in formal. And it became part of their formal process game plan, document in data room for the world to see, and they were better for it.
Mona Sutphen:
Yeah. It's so wonderful. So, this is, I guess my last question on that. I'm glad you talked about this floor versus the ceiling, because we've definitely noticed an increase in volume, and I would say level of nuance in terms of data that people are interested in, LPs are interested in, just measurement generally, so that there's some consistency. And I'd say the E in the ESG, it's pretty well developed now. I don't know that it's been as broadly developed as absorbed and adopted as much as some of my environmental colleagues might want, but either the boundaries are pretty clear of what are we measuring.
Mona Sutphen:
The S and the G, little fussier. I'd say we're still in the ideation phase on that, but can you just share a couple of a little bit more on the sense among the allocator community about the need for that level of consistent data, I guess maybe like a floor or filters, do you see there might become a day where there's just like they have on the environmental side, you can throw your portfolio in and it'll spit out some numbers on the other end because people have had to report in certain things, et cetera, et cetera, is that where we're headed, do you think?
Treasurer Shawn Wooden:
I think we are headed there, because there is a great need for consistency for metrics. As allocators, we like benchmarks, we like comparables-
Mona Sutphen:
You want to curve, you want... Yeah, I know, I know. Right.
Treasurer Shawn Wooden:
Yeah. In the public finance area as well, and I oversee our debt issuance for the state. There are discussions taking place around these similar categories of [crosstalk 00:19:05] and so I think there's going to be this convergence, because major players are thinking about these things and seeing the connectivity with sustainability, with growth, with resilience, all of these things [crosstalk 00:19:22]
Mona Sutphen:
Returns really, sustainable [crosstalk 00:19:25] return.
Treasurer Shawn Wooden:
Yeah. But you're going to starting to see the rating agencies talk about these issues and put some reports out on these issues. So I think there's going to be a convergence within the financial and investment services community around, so I wouldn't be surprised if within the next say, five years, we see a lot more standardization on these issues, and particularly as the data comes in that shows a correlation, why does it matter?
Treasurer Shawn Wooden:
And the answer can't be just because Shawn Wooden was born that way, and he cares deeply about these issues. That can't be the answer. It's all of the data that's coming in around this, that we have in the studies that shows the powerful correlation between ES and G and performance, resilience, and so many other things that we could all agree on for the last decade, our important considerations.
Mona Sutphen:
Yeah. So this has been a great conversation as it always is, and I feel like we can keep going, is always been the case, but really appreciate you taking the time to share your views with us today. And we're going to keep this conversation going. So it's great to hear that you've led so many initiatives in the corporate area and with investors as well and your colleagues. So it's great to be partnering with you on all of this. So thank you.
Treasurer Shawn Wooden:
Thank you, Mona. And thank Vistria for your thought leadership and just the resources that you put behind kind of having these conversations and just trying to make us a better American, better world.
Mona Sutphen:
[crosstalk 00:21:07] That's what we were trying to do, man. Make it better-
Treasurer Shawn Wooden:
And generate returns.
Mona Sutphen:
Yeah. Right. Generate returns and have everybody be better. How hard is that?
Treasurer Shawn Wooden:
That's right.
Mona Sutphen:
I love it, but I'm going to-
Treasurer Shawn Wooden:
[crosstalk 00:21:19] Thank you.
Mona Sutphen:
... leave it there. Thank you. Have a great weekend.
Intro:
Thanks for listening. We hope you've enjoyed our series on the Future of Capitalism. Stay tuned as we continue to explore the future of capitalism together. Learn more about the Vistria Group at vistria.com.