Motley Fool Hidden Gems Investing - What Business School is Missing

Starting point is 00:00:00 We are now altering systems of the earth. These aren't environmental issues, these are systems 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, you know, 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

Starting point is 00:00:40 direction. That was Andy Hoffman, professor at University of Michigan's Ross School of Business and School of Sustainability. He's the author of 14 books, including his most recent, business, school, and the noble purpose of the market. Now, recently, Motley Fool contributor Rich Lumeleau and Motley Fool analyst Dave Meyer talked with Hoffman about sustainability and business. Rich kicked things off by asking Hoffman about his background. Obviously, there's a lot of ground to cover here, but I thought what we'd do is open things up, Maybe give us a little bit on your background, including your career path and, you know, kind of how that led to this focus on sustainability and, you know, and then obviously how it impacts the business and the environment. Oh, boy. How do I make that a short story?

Starting point is 00:01:37 Yeah. Take as much time as you need. You don't. I mean, I got interested in environmental issues when I was an undergrad. It's interesting because I was a chemical engineering undergrad and environmental issues really weren't a thing. Um, and so I said, I want to do an environmental minor, which basically meant wastewater engineering. Um, the concerns we have today just didn't exist then. Um, I did that. I worked for the EPA for a couple of years.

Starting point is 00:02:05 Didn't really like it, um, became a house builder and I built a custom homes for five years. Um, some very large custom homes, largest was 29,000 square feet. Um, went back to grad school, environmental issues were starting to get much more interesting. um business was doing it because they saw a reason to do it and they were an ally in it rather than an opponent when i was at the epa i was an inspector i just showed up at people's doors and ruined their day by doing an inspection and now companies are actually focusing on these issues in a constructive way because at the end of the day something that animates my work is that

Starting point is 00:02:42 if we're going to solve these problems they have to be solved by the market market is the most powerful institution on earth business most powerful entity within it if they're not solving it it won't be solved and so that's why i focus on business and sustainability and i i got my phd in 1995 at a time where again this really wasn't a central aspect i love to tell people that when i was trying to get business school professors to be on my committee most of them most almost all of them um told me what do you do in the area has nothing to do with business, go to a school of government. And now those very same professors list sustainability as one of the areas of expertise and the schools that I went to and many others list sustainability

Starting point is 00:03:25 as a central focus. So the world has changed a lot. And I cannot say that I caused it, but I can say I was just lucky enough to be right at the wave as it was starting to take off. I thought we would maybe jump into the book. And I thought we would do it like this. So 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 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 did they fail me? and you will not hurt my feelings because i actually think i've grown a little bit since then okay well first of all just to find a little anecdote the the first time i was a carpenter on was jack welsh's on the ntucket so oh wow yeah you might find that back in the 80s he's an interesting character i'll say that he certainly was um uh but you know i think what i would say to

Starting point is 00:04:35 you is that the MBA you got in 2002 probably didn't differ a lot from the MBA you could have gotten in 82, 92, 2012, or even 2022. The degree is ossified. And so you'll learn 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 not have been a hugely pressing concern than it is today. And so I just think that students need to be taught more about what is the role of business 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 Higher

Starting point is 00:05:27 At 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 services 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. And so my book is a call to say, let's get it back. Stop wasting your nights on a mattress that doesn't get you. Experience the most comfortable mattress in the world. The Sleep number smart bed. At the touch of a button, you can personalize your comfort. Choose firmer or softer. Adjust cooler to warmer. And right now, save up to $2,500 during our massive Labor Day

Starting point is 00:06:13 event. Hurry into your local Sleep Number store today, because we have your number. 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 money for clients 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

Starting point is 00:07:05 facilitate this maybe you know how has it gone from uh how how based on your experience and what you've uh researched how has it gone from there 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, and we can 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, property insurance, across the board. And not just L.A. where there's a wildfire or Florida, whether it's a hurricane, but the Midwest, where what they call secondary perils,

Starting point is 00:07:51 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 receiving this as favoring some companies more than others and not serving their clients well, BlackRock and State Street and others. And 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

Starting point is 00:08:43 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. You know, 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

Starting point is 00:09:31 bottom line assumption that it's good for the environment, it's good for my bottom line. Because I would also add 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 was 85% S&P 500, and they're charging huge management fees, and they're really 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 on the coast, if you're in agriculture, climate change is something you better be focusing on very, very carefully. That's a very good point because I moved from the northern Virginia area to the coast. I live just south of Myrtle Beach. And my latest escrow assessment said, hey, you're paying about $200 a month more.

Starting point is 00:10:36 And I'm like, what's going on? And sure enough, it was because my insurance for my house went up because it's near to the coast. And so I totally get it. And that can bring up opportunities for innovation. um uh building codes have been very slow to change but in florida there's a development called babcock ranch that actually became a haven um 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 uh they have a lot of wetlands to absorb the storm blow they

Starting point is 00:11:14 kept buildings low. They made them stronger. They buried all the utilities. This is smart investing. 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? Well, you know, for your listeners, the metaphor of heresy to dogma comes from, I did my dissertation, part of it was at

Starting point is 00:12:06 the amico corporation remember the amico corporation um and um the vice president for eh and s environmental health and safety told me a story where he was at a senior director's meeting and the ceo at the time said we expect environmental constraints to become more stringent both here and abroad and so an environmentally progressive company like amico we expect this to provide strategic advantage and the head of uk operations leaned over to a 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

Starting point is 00:12:53 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, you don't 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

Starting point is 00:13:41 beings have not been before. When 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 systems breakdowns to fix the systems breakdown you have to fix the system that's causing it that's capitalism that's the market and so i am arguing that that we need to start to rethink some of the tenets of the market i'm not arguing for socialism don't worry uh but i'm arguing that uh you know my sphere of influence is business education and so we need to teach business students to be stewards of the market

Starting point is 00:14:25 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. 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 may have formal recommendations for or against, so don't buy or sell stock space 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,

Starting point is 00:15:16 please check out our show notes. For The Motley Fool Money team, I'm Mac Greer. Thanks for listening, and we will see you tomorrow. We'll see you next time.

Motley Fool Hidden Gems Investing - What Business School is Missing

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