When One Door Closes…🚪
By: Visible Hands
Tags: Policy, Government, Investing, Regulation, Finance

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This week President-Elect Joe Biden chose Brian Deese to be the director of the National Economic Council (no Senate confirmation needed). Deese, a BlackRock executive, will be the top economic advisor to Biden. Many activists, from environmental groups and the Revolving Door Project, are unhappy.

Who’s Deese? Deese held senior roles in Obama’s administration and helped to negotiate the Paris Agreement (check out his 2015 Medium post on the Obama administration’s climate actions). But activists are protesting mainly because his most recent post was at BlackRock as the Global Head of Sustainable Investing since October 2017.

(Politico also wrote his last tenure in the White House was lackluster to some: “Some progressives say he wasn’t aggressive enough on the environment.” At the heart of the Obama agenda was cutting greenhouse gas pollution in the US up to 28% over a decade.)

Biden’s administration will be far friendlier to “corporate” appointees than say, a Sanders administration would have been. It’s not just Deese who’s coming from a financial firm — John Kerry (proposed climate czar) was recently a senior advisor for a private equity firm’s impact fund.

How does Deese compare to his predecessor? The current director of the National Economic Council is Larry Kudlow, a self-proclaimed supporter of deregulation and supply-side trick-down economics, who most recently was a financial news host on television, but had previously worked in Ronald Reagan’s administration, taking Deese’s path and working in the Office of Management and Budget.

What was BlackRock’s track record with Deese? First off, let’s acknowledge that BlackRock employed 16,000+ people as of 2019, with $7.4 trillion under management (up from $6.29 trillion in 2017). Most likely, some of your personal investments or retirement accounts are invested through BlackRock. The company’s actions alone don’t reflect Deese’s beliefs or how he might act in his latest role, but they may give us a clue.

In 2017, before Deese joined, Larry Fink (BlackRock CEO) wrote in his Letter to CEOs that they should focus on long-term value. In 2018 (after Deese joined), Fink called on leaders to address societal issues and find purpose beyond profits. In 2020, Fink’s letter sounded the alarm on how climate risks will reshape finance.

BlackRock announced in July that “it will move away from companies that generate more than 25% of their revenue from thermal coal production, but apart from that has provided few concrete policies.” Just this week, BlackRock rolled out a new addition to their investment tool to assess climate risk.

Yet, skeptics have critiqued these moves as greenwashing, especially since BlackRock as a large passive investor is not likely to make substantive changes. BlackRock is a global leader in index funds, like the S&P 500 or Nasdaq. These funds track a market index, are typically made up of stocks or bonds, and generally speaking include every company in the index. That means for these funds BlackRock has no choice but to invest in large companies like ExxonMobil.

BlackRock’s commitments have also quantitatively been lackluster. Of the 107 funds and ETFs MorningStar scored on environmental, social, and governance issues, BlackRock was ranked in the bottom half. And this year, BlackRock only supported 2 of 14 shareholder proposals for U.S. companies to disclose climate risks (down from 25% proposal support in 2019).

Where’s the outrage on regulators? Deese’s role will entail policy creation and implementation on domestic and international economic issues. But the revolving door — political actors going into industry and vice versa — is as persistent in regulatory roles (e.g., FCC, FDA, SEC).

According to Luigi Zingales, a University of Chicago professor of entrepreneurship and finance, the revolving door between the SEC and private sector is disconcerting: “If you spend most of your professional life helping IPOs you think this is a very important process and you’ll favor them.”

Science magazine found that “11 of 16 FDA medical examiners who worked on 28 drug approvals and then left the agency for new jobs are now employed by or consult for the companies they recently regulated. This can create at least the appearance of conflicts of interest.”

And let’s not forget, Scott Gottlieb, former FDA Commissioner under Trump, was elected to Pfizer’s board in 2019. Although it is important to scrutinize the private sector track record of high-profile policymakers, we should be even more concerned by the revolving door among regulators.

Actions:

As an investor:

Your vote matters: People like Scott Gottlieb were elected into their private sector roles through shareholder votes. If you are a shareholder, make sure to review the backgrounds of board appointees when you vote and encourage your financial advisors to do so too.

Further reading:

As a citizen:

Learn more about political appointees: The Revolving Door Project, a project of the Center for Economic and Policy Research (economic policy think-tank), scrutinizes executive branch appointees to ensure they use their office to serve the broad public interest. They publish regular content, such as their recent post about unannounced economic policy jobs.

As an employee:

Where are Trump officials heading? Many are going back to large private firms. Dina Powell, for instance, former Counselor to the President of the United States, has rejoined Goldman Sachs and was promoted to the Global Head of Sustainability and Inclusive Growth and Global Head of the Firm’s Sovereign Business.

Many are going back to large private firms. Dina Powell, for instance, former Counselor to the President of the United States, has rejoined Goldman Sachs and was promoted to the Global Head of Sustainability and Inclusive Growth and Global Head of the Firm’s Sovereign Business. Blackballed?: Although there were some rumblings about blackballing former Trump appointees, such efforts were disbanded in response to Biden’s call to unify the country. Thus, it’ll be up to individual companies to assess and consider the impact of bringing on board these former Trump appointees.

As a consumer:

Interested in these topics? We profiled Michael O’Leary (author of Accountable: The Rise of Citizen Capitalism) and Rebecca Henderson (author of Reimagining Capitalism in a World on Fire) earlier this year. Check out their books to learn more about how companies can respond to environmental and social concerns.

We profiled Michael O’Leary (author of Accountable: The Rise of Citizen Capitalism) and Rebecca Henderson (author of Reimagining Capitalism in a World on Fire) earlier this year. Check out their books to learn more about how companies can respond to environmental and social concerns. Free event! Remember when we spotlighted Anat Admati a few weeks ago? She is one of the organizers behind Stanford Graduate School of Business’ Corporations and Democracy Conference next week. Admittedly more of an academic conference, the 3-day event will examine the balance of power among corporations, governments and individuals in democracies and explore ways to hold those with power more accountable to society’s broad interest.

Paycheck Protection Program Data Released By Small Business Administration After Lawsuit Shows Largest Borrowers : “Officials from the Treasury Department and the Small Business Administration (SBA) have argued the program primarily benefited smaller businesses because a vast majority of the loans ― more than 87 percent ― were for less than $150,000, as of August. But the new data shows more than half of the $522 billion in the same time frame went to bigger businesses, and only 28 percent of the money was distributed in amounts less than $150,000.”

“Officials from the Treasury Department and the Small Business Administration (SBA) have argued the program primarily benefited smaller businesses because a vast majority of the loans ― more than 87 percent ― were for less than $150,000, as of August. But the new data shows more than half of the $522 billion in the same time frame went to bigger businesses, and only 28 percent of the money was distributed in amounts less than $150,000.” ‘Tokenized’: Inside Black Workers’ Struggles at Coinbase : “Three percent of the company’s employees are Black, which is less than half the average in most of the tech industry, according to the latest data from the Bureau of Labor Statistics. Coinbase’s percentage has also stayed flat in recent years, while companies such as Square, PayPal and Twitter have modestly increased their share of Black employees.”

“Three percent of the company’s employees are Black, which is less than half the average in most of the tech industry, according to the latest data from the Bureau of Labor Statistics. Coinbase’s percentage has also stayed flat in recent years, while companies such as Square, PayPal and Twitter have modestly increased their share of Black employees.” Gary Cohn Holds Out Against Returning Goldman Pay After 1MDB Scandal : “ A person familiar with the situation said Mr Cohn — who left the bank in 2016 to become an adviser to US President Donald Trump — had not yet agreed to return his portion of the money.”

A person familiar with the situation said Mr Cohn — who left the bank in 2016 to become an adviser to US President Donald Trump — had not yet agreed to return his portion of the money.” What a Spectacularly Ill-Advised Idea Says About McKinsey : “If you’re a big corporation with some ethically problematic business issues to solve, who better to hire than the firm that’s not afraid to come up with creative solutions like paying pharmacies bonuses for overdoses? I mean, another way to put it is who wants a scrupulously moral consulting firm? You pay McKinsey, or the many other firms like it, an ungodly sum of money to provide you every possible alternative and to never, ever, ever tell anyone about it.”

“If you’re a big corporation with some ethically problematic business issues to solve, who better to hire than the firm that’s not afraid to come up with creative solutions like paying pharmacies bonuses for overdoses? I mean, another way to put it is who wants a scrupulously moral consulting firm? You pay McKinsey, or the many other firms like it, an ungodly sum of money to provide you every possible alternative and to never, ever, ever tell anyone about it.” A Power Company’s Quiet Land-Buying Spree Could Shield It From Coal Ash Cleanup Costs: “The new regulations require utilities to clean up contaminants if they are found at high enough levels beyond the boundaries of their plant sites. By extending those boundaries through land purchases, Georgia Power could push back the day it has to deal with its legacy of pollution, according to a dozen environmental experts, regulators and activists.”

Stay connected via our Instagram, Twitter, Medium, and, of course, email (visiblehandsmedia@gmail.com)! Please invite any friends, roommates, coworkers, armchair activists, and climate activists to join the movement. See ya next Thursday!