Matt Grier (3:37)

I thought we would maybe jump into the book and I thought we would do it like this. So I came from before I joined the Motley Fool. I was an engineer and I was working up doing more business related work at General Electric. The titan of corporate, of corporations. Right. And I got my MBA because they said, hey, you're doing a good job. Would you like to do it? I said, sure. In 2000 and 2002, where have I gone wrong? Use the book and tell me where, where, where did they fail me? And you will not hurt my feelings because I actually think I've grown a little bit since then.

Andy Hoffman (4:16)

Okay, well, first of all, just to find a little anecdote, the, the first house I was a carpenter on was Jack Welch's on Nantucket, so.

Matt Grier (4:23)

Oh, wow.

Andy Hoffman (4:24)

Yeah, you might find that back in the 80s.

Matt Grier (4:27)

He's an interesting character, I'll say that.

Andy Hoffman (4:29)

He certainly was. But you know, I think what I would say to you is that the, the MBA you got in 2002 probably didn't differ a lot from the MBA you couldn't got in 82, 92. Okay, 2012 or even 2022. The, the degree is ossified. And so you learned a lot about the how of business, but very little coverage of the why of business. Why are you doing this? What is the role of business in society? And while that may have not have been a hugely pressing concern then, it is today. And so I just think that students need to be taught more about what is the role of business in society, what is their role as manager, how are they going to address the issues that society faces? Because at the end of the day, the original purpose of business school. Rakesh Khurana from Harvard University has a book called From Higher Aims to Hired Hands. And he likes to point out that when business schools were first proposed in the early 1900s, universities said, no, this isn't an area of academic inquiry. They said, no, we're going to teach the titans of industry how to run commerce and service to society. We're going to teach them like we teach doctors to serve society. And the point of his book is that we've lost that mandate.

Matt Grier (5:47)

Yeah.

Andy Hoffman (5:47)

So my book is a call to say, let's get it back.

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Matt Grier (6:22)

One of the fortunes that I've had working with the Motley fool is I actually worked in our asset management business. You know, manage, manage client as opposed to, you know, on a publishing type, in a publishing way. And one of the things that I saw about 10 years ago was the rise in popularity of ESG type funds. Not only was there a framework to say, hey, you can actually evaluate a management team this way, but there were people who were raising capital. Right. To put it in a fund structure. One, what was your, what were you. How. How did that impact the way you were thinking about things? And two, like, was that a good sign, meaning that capitalism was actually starting to facilitate this? Maybe, you know, how has it gone from how, how, based on your experience and what you've researched, how has it gone from there?

Andy Hoffman (7:14)

Well, certainly monetizing it is the way to get into the market. And so investing finance is certainly one way to do it. We can talk about the stumbling that's happened since then, but I would add one thing that. And we could talk about this more. But another avenue through which these issues are getting monetized is insurance. And that's happening right now. Insurance rates in this country are going up. Proper insurance across the board. And not just la, where there's a wildfire, or Florida, where there's a hurricane, but the Midwest, where what they call secondary perils, just ordinary events that are now extraordinary. We now have a new vocabulary for atmospheric rivers. These cost insurance companies a lot of Money. And so they're reducing coverage, they're raising deductibles, they're limiting coverage, they're even withdrawing from some markets. And that will ripple through the economy. That will change real estate markets. But back to finance, ESG became a lightning rod because.

Matt Grier (8:18)

Sure did.

Andy Hoffman (8:19)

Yeah. Perceiving this as favoring some companies more than others and not serving their clients well. BlackRock and State street and others. And you know, there was some. What was Alan Greenspan's term, irrational exuberance that, you know, a lot of the mantra that, you know, doing good by doing well I think is the way it was phrased. And some people weren't as critical. I would also add though that a lot of the pushback, particularly from state attorney generals, is coming from states where their domestic industries are going to be harmed by a shift, for example, away from fossil fuels. And so that is part of the push. Do we have to get off fossil fuels if we're going to address climate change? Yes. Is it going to cost certain economies on a local scale money? Yes. Are they going to push back? Yes. And so that's what we're dealing with. But I just think that we need to become much more sophisticated in how we think about sustainability in finance. When does it actually impact your investments? Think about it carefully. Don't just make a bottom line assumption that if it's good for the environment, it's good for my bottom line. Because I would also add there is the pendulum has swung because now you've got some investment funds that are anti woke investment funds and they are doing the same thing on the other end of the spectrum. The Wall Street Journal just had a story about this last week saying some of these anti woke funds, like one of them they looked at, it was 85% s and P500 and they're charging huge management fees and they're really not, they're not doing anything special. So really think carefully about how issues like climate change impact certain sectors. If you rely on water, if you're in the coast, if you're in agriculture, climate change is something you better be focusing on very, very carefully.

Matt Grier (10:19)

That's a very good point. Because I moved from the Northern Virginia area to the coast. I live just, just south of Myrtle Beach. And my latest escrow assessment said, hey, you're paying about $200 a month more. And I'm like, what's going on? And sure enough it was because my insurance for my house went up because it's nearer to the coast. And so I totally get it.

Andy Hoffman (10:47)

And that can bring up opportunities for innovation. Building codes have been very slow to change. But in Florida, there's a development called Babcock Ranch that actually became a haven during the last hurricane because it was designed to withstand the storms that were coming that used to be 100 year storms that are now happening with much more frequency. They have a lot of wetlands to absorb the storm blow. They kept buildings low, they made them stronger, they buried all the utilities. This is smart investing.

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Dave Meyer (11:55)

Andy, you've, as I mentioned at the outset, you have written 14 books, countless articles, been referenced thousands of times. You were writing about this back in the early 2000s, from heresy to dogma. You talked about, you know, kind of how environmentalism entered, you know, kind of corporate America. I don't know if you would consider that sustainability 1.0 back then or 0.1 or whatever you want to call it, but how are things kind of evolved? What did things look like then versus what they look like now?

Andy Hoffman (12:26)

Well, you know, for your listeners, the metaphor of heresy to dogma comes from. I did my dissertation. Part of it was at the Amaco Corporation. Remember the Amaco Corporation? The vice president for EH&S Environmental Health and safety told me a story where he was at a senior directors meeting. And the CEO at the time said, we expect environmental constraints to become more stringent both here and abroad. And so environmentally progressive company like Amica, we expect this to provide strategic advantage. And the head of UK operations leaned over to the gentleman's name is Wally Kwanstrom. I hope he's listening. And he said, how does it feel to hear your heresy become dogma? And so that was the metaphor of issues of the environment in particular entering the market and influencing corporate strategy in a way that companies thought in their interests to address these kinds of problems. And so that I see as sustainability 1.0, I would teach this. I would give talks at business audiences saying even need to see that climate change is real. If your insurance companies care about it, if your investors care about it, your customers, government, you reframe it in the language of business. It's regulatory compliance, it's consumer demand, it's operational efficiency. And you will address it in sustainability 2.0. It's recognizing that while this is good, it will not solve the problem. It will slow down the velocity at which we're running into a brick ball, but it won't reverse course. We are now at a place where, without getting too existential about this, a place where human beings have not been before, we start to think about issues like climate change or other issues of the Anthropocene, whether it's species extinction, ocean acidification, freshwater availability, nitrogen, phosphorus in the natural environment. We are now altering systems of the earth. These aren't environmental issues. These are system's breakdowns. To fix a system's breakdown, you have to fix the system that's causing it. That's capitalism. That's the market. And so I am arguing that we need to start to rethink some of the tenets of the market. I'm not arguing for socialism, don't worry. But I'm arguing that my sphere of influence is business education. And so we need to teach business students to be stewards of the market, to recognize this is how the market works. This is what it does. This is where it may not work quite so well. And this is how you can play a role in getting it in the right direction.

Rich Lumello (15:12)

That was University of Michigan professor Andy Hoffman. His book, again, is Business School and the Noble Purpose of the Market. As always, people on the program may have interest in the stocks they talk about, and the Motley fool have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For the Motley fool money team, I'm Matt Grier. Thanks for listening and we will see you tomorrow.