The Prof G Pod with Scott Galloway - Office Hours: Tesla’s ESG Rating, the Closed IPO Market, and Advancing Your Career

Episode Date: June 6, 2022

Scott shares his thoughts on S&P’s decision to remove Tesla from its ESG index, and what that signals about the ESG space as a whole. He then takes a question about when the IPO market might open again, and offers advice to someone who wonders if they’ve been in the same job for too long.  Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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cards, savings accounts, mortgage rates, and more. NerdWallet, finance smarter. NerdWallet Compare Incorporated. NMLS 1617539. Welcome to the PropG Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please visit officehours.propgmedia.com. Again, that's officehours.propgmedia.com. Again, I do not hear these questions before they are read to me or I hear you articulate them on the show. Question one, David from Melbourne.

Hi there, Professor Galloway. It's David Smith in Melbourne. I'm a big fan of the show, so I'd love to get your take on Standard & Poor's removing Tesla from their top 10 ESG ratings, but keeping Exxon. Elon Musk obviously didn't respond well to that, but he may have a point. Exxon have spent years denying climate change exists, while Tesla make electric cars. For all of Mr. Musk's faults and the faults of Tesla, this seems a strange move by S&P. David from Melbourne. So S&P removing Tesla from their top 10 ESG ratings by keeping Exxon in some, in a word, David, I don't know if it's two words, this is bullshit. It just, the notion that Exxon would stay in there and Tesla wouldn't. Whatever you think of, as you said, of Elon Musk, he has inspired the electric vehicle race, which is good for the climate.

They claimed, as part of their justification for booting Tesla, was that they cited the company's working conditions, claims of racial discrimination, and the way that Tesla has handled regulatory investigations. This has simply become a value judgment by a bunch of people who, for lack of a better term, decide that they're the arbiters of what it means to be progressive or woke. And it's total bullshit. ESG has been weaponized. It's become meaningless. It's become an easy target for conservatives and the right that this is just a bunch of cultural elites deciding how people should behave and spending other people's shareholder money and deciding what in their mind is progressive. And for whatever reason, they've decided that Exxon is ESG. I mean, it's just there is so much bullshit around ESG. It has become such a marketing cliche, passe, head fake.

In metrics, there's an interesting study or a lot of interesting study around metrics that once you begin studying to the test, the test becomes more damaging than helpful. And I think that's what has happened here. We need basic metrics. What is your carbon footprint relative to your economic output? Fossil fuels, in most instances, are worth it. It's been the gift that is kept on giving. There's just nothing we could, we couldn't build hospitals without fossil fuels. And they have provided tremendous prosperity for our planet. Economic productivity is really important.

We need to pay for those vaccines. We need points of distribution for food. We need incubators for babies. And that comes from economic growth. And the primary or the best fuel for economic growth has not been the processor. It has not been the printing press. It has been fossil fuels. Now, having said that, any technology that creates prosperity is going to have externalities. And we're seeing that in spades with big tech. When the prosperity moves so fast and the underlying technology is perhaps not something that people have a great deal of understanding around. We have externalities. We have addressed some of the externalities around fossil fuels, but not nearly enough because there was just so much money there and it became politicized.

And we've decided I'm not an environmentalist. I think the earth is going to belch for about 50 years after the last human takes her last breath and it'll be as if we were never here. So I think the Earth's going to be fine. It's we that are fucked. We're the ones that are going to bake ourselves, and we won't go extinct as quickly as people think, but life's just going to get very shitty, especially for poor people who end up in areas that have super fires and forced migration. So as usual, we're taking a world and we're deciding, okay, as long as I can make a lot of money, I'll let the oceans warm and screw over two, three, five billion of the planet, seven billion people. So this ESG thing has just jumped the shark. So Elon responded on Twitter saying ESG is an outrageous scam and that S&P has lost their

integrity. Okay, that's a little bit much, but maybe some truth to that. As he tweeted this, Tesla's stock sank and decreased his net worth by $12 billion. It really doesn't matter. He's going, so what? He's worth $220 instead of $230. But he has a point. ESG is Vaseline smeared over a very dirty lens. We had Tariq Fancy, the former chief investment officer for

sustainable investing at BlackRock on the pod a couple months ago. And to quote, he said that ESG investing acts as a, open quote, dangerous placebo that harms the public interest, close quote. A study from MIT Sloan School of Management and London Business School found discrepancies in ESG and measurements and problems in data quality and assessing company ratings against their financial performance. Still, again, see about marketing. Money keeps pouring into these funds. According to Morningstar, assets and ESG funds hit $2.74 trillion by the end of 2021. So is this a means of assessing who's doing well such that we can reduce the temperature of the ocean and move to a more sustainable future? No, it's basically giant marketing.

Estimates from Bloomberg Intelligence suggest those assets could inflate to $50 trillion worldwide by 2025. This is just rife with opportunities for bullshit and who happens to be Exxon? Really? Exxon? Anyways, appreciate the question. This is in my view, I agree with Elon on this. It's now just a marketing tool right up there with Web3. And that is, it's been weaponized by a group of people who see it as an opportunity to make money for the wrong reasons. Thanks for the question, David. Next question. Hey, Scott. Elizabeth here from San Francisco. Something us techies have

heard a lot of this year is that the market for a tech IPO is closed. Curious if you wholeheartedly agree. And if you don't, I'd love to understand what you think would be the qualifying event to open up that possibility for contenders in the market this year. Thanks, Scott. Love the show. Elizabeth from San Francisco, thanks for the thoughtful question. So I was on the board of Panera, the QSR quick service restaurant. Great company, really well managed. By the way, killing it. Subscription coffee, subscription, what they call charged lemonades,

which is high caffeine lemonade without all of the crap that's in some of these energy drinks. Anyway, I love the company, loved working with them, love management. We had talked about going public. All the moons had lined up and then boom, window shut. Doesn't matter how good a company you are right now, the market is closed for IPOs. And something my friend Todd Benson says a lot that I've never fully appreciated. I knew it intellectually, but I haven't appreciated it. And I'll use a personal example. Market dynamics always trump individual performance. And as Americans,

we like to think that any individual or any individual company can overcome all obstacles, including this pesky thing called the market. No, it's not. When the market is frothy and huge, a shitty company can go public. When the market for IPOs is down because of insecurity around increased interest rates, cost of capital going up, people getting margin calls, not wanting to invest in new companies, it doesn't really matter how great the company is. The market's going to close. Now, having said that, it's impossible to tell when it'll open again. It'll absolutely open again, whether it'll be in three months or three years. It's probably somewhere in between this. As of May 24th, there have been 113 US IPOs this year. That's 80% less in the same time in

2021, which had 484 IPOs by this date. I don't even know who those 113 are. My guess is they're SPACs de-SPACing or just huge, almost bond-like companies that were sort of ready to go. I don't know anyone that's gone public. According to the NASDAQ, the U.S. stock market saw more than 1,000 new listings in 2021, and almost 60% of them were SPACs. So take 600 of those. They're gone. No one wants to do a SPAC right now, or no one wants to invest them were SPAC. So take 600 of those, they're gone. No one wants to do a SPAC right now or no one wants to invest in a SPAC. The average 2021 IPO is down more than,

get this, 20% from its issue price. That's not off its high. That means that the average IPO is a broken IPO. The tail that wags the dog here is the public markets because if you're in the business of, you know, name it as a service company, the market looks at the three or four public companies and says that's the potential in terms of multiple on earnings, multiple on revenues based on growth rate. And then backward integrates into the private markets and says, okay, you could be worth this if you continue to grow like this, meaning your valuation in the private market is X. So when your comparables or your peers, your benchmarks are off 60, 70, 80%, although we don't like to believe this in the

private market, that probably means that your next round is 60, 70, 80% off of where it would have been otherwise. So we're seeing this huge wave of icy water flow back into the private markets and also inhibit IPOs as a lot of investors have decided they are done with the growthy stuff. They're done with the cashflow negative stuff. And when you talk about much higher interest rates, you're saying, all right, your cost to borrow money to fund that growth just got much more expensive. And the cash flows that you're promising people that will happen in three, five, or 10 years are worth less because we discount them back at a much higher rate. So a long-winded way of saying, when will the market open up again? I'm confident, 100% confident it will. I just don't know when. But the good news is the markets can open as

quickly as they were shut. They usually take, I would say, between one and three years to kind of go through this to thaw, if you will. So we're kind of already three to five months into the winter. Could open up in three months. I don't think it's going to be less than that,

but it could take a couple years. Thanks for the thoughtful question. Long-winded way of saying, I don't know. We have one quick break before our final question. Stay with us. The Capital Ideas Podcast now features a series hosted by Capital Group CEO,

Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories? And how do they find their next great idea? Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Support for this show comes from Constant Contact. You know what's not easy?

Marketing. And when you're starting your small business, while you're so focused on the day-to-day, the personnel, and the finances, marketing is the last thing on your mind. But if customers don't know about you, the rest of it doesn't really matter. Luckily, there's Constant Contact. Constant Contact's award-winning marketing platform can help your businesses stand out, stay top of mind, and see big results. Sell more, raise more, and build more genuine relationships with your audience through a suite of digital marketing tools made to fast-track your growth.

With Constant Contact, you can get email marketing that helps you create and send the perfect email to every customer and create, promote, and manage your events with ease, all in one place. Get all the automation, integration, and reporting tools that get your marketing running seamlessly, all backed by Constant Contact's expert live customer support. Ready, set, grow. Go to constantcontact.ca and start your free trial today. Go to constantcontact.ca for your free trial. Constantcontact.ca. Welcome back. Question number three. I'm a new listener to the show and I've really enjoyed

hearing your perspective. I've been at my job nine and a half years and I love it. I'm a new listener to the show and I've really enjoyed hearing your perspective. I've been at my job nine and a half years and I love it. I get to do work that I'm good at and enjoy, have a great team, work for a business I believe in, and have comfortable work-life balance. I've also advanced in my role here and gotten promotions and raises in that time. I'm not really interested in leaving, but I'm concerned that staying in one place too long may hurt my marketability as a job candidate down the road. It seems like in today's job market, people jump roles every three to five years. Is being at one company too long seen as a negative for hiring managers? Is there a right amount of time to stay in one place? Thanks for your help. Caroline from Atlanta, a really thoughtful question. I just can tell by the way you articulate the question and how you've thought this through that you're a thoughtful person, and I get the sense you're probably a good manager.

Anyway, okay, so one study showed almost three-quarters of workers surveyed said they would be open to leaving their current role no matter how long they'd been there in the next six to 12 months. That's up from 47% of respondents in last year's survey. So according to the Harvard Business Review, more than 4 million people quit their jobs each month the first quarter of 2022. 44% of workers are currently looking for new jobs. So that's the stats. Let me tell you what I think your relationship should be with, quote-unquote, another job or how to think about it. First off, ask yourself some basic questions. Do you have senior-level sponsorship? Do you enjoy what you do? Do they appreciate what you do? Do you see opportunities for growth? Is the company you're at doing well? You'd rather be good at Google than great at General Motors. And so all of these things, you have to make sort of a qualitative

assessment. And if the answer is yes, yes, yes, yes, yes, then you should be apt to stay. Now, having said this, having said this, you are going to be more attractive to strangers. It's strange. We're just more attractive. When we recruit, when we, on boards, when we recruit CEOs, we have a bias towards bringing in someone new because the people you don't know are easy to create a mythology around them and think that they're superhuman. And what you find out is that no one is superhuman. And you discount the qualities of the people who are just below the CEO, and you're sort of tempted to bring in someone thinking that they might be amazing. And here's the thing. Your employers or your bosses have a tendency to look at you through the lens through which you came in. And I purposely try to check myself. I work with a kid now, and I say he's a kid. He just turned 50. I've been working with him for 25 years, maybe 27. I hired him out of Yale at my first company, Profit, and he went back to law school, did really

well at a law firm. But we've sort of been working together off and on for the better part of three decades. But I can't help seeing him through the lens of some bright little dopey kid right out of Yale. And then I realized, no, he's an incredibly experienced expert even in the legal field, good manager, seasoned professional. And what you have to do or companies need to do is one, look at the person through the lens of who they are now and who they've evolved to. And two, imagine them leaving. This is what I do. Now, you're on the other side of that. And that is, you need to help them imagine that you can leave. What do I mean by that? I don't think it's a bad idea to every two or three years do a market check. What do I mean

by that? Return a call from a recruiter, maybe talk to a friend about their company, maybe even interview somewhere, have an informational coffee, and do a market check on the economic and non-economic rewards you might get if you moved. The majority of people who advance really fast usually switch jobs, I don't think every three years, but maybe every five to seven years, because again, there's a halo, there's a round up, if you will, effect to our impression of people who work somewhere else, who we don't know as well. It's like that saying that functional families are the ones you don't know. We have a tendency to romanticize an outsider. What did I do at NYU Stern? When I first started at NYU Stern, they paid me $12,000. Think about that. I'd just come

out of an internet company. It was 2002. I had just moved to New York. I wanted to teach, and I took a job, and they paid me a whopping $12,000 a year. Weird thing is, I think I also got health insurance, which is probably worth more than the 12K. Anyways, ultimately, I worked up to, and again, I think it's okay to talk about money. I think I was making about 200 grand a year plus housing plus benefits. The reason I got there was two reasons. And I don't know which was more important. One, I'm good at what I do. I put a lot of butts in seats. My class was very popular. At the end of the day, business school is a business. So being good is the number one or the number two. Now, either the number one or the number two is, you know what I would do? I would do market checks on a regular basis. And that is I would get a call from a Wharton or a Cornell or another school, and I would entertain the conversation and get a sense for what the opportunities were there in terms of role, in terms of compensation,

in terms of opportunities. And then I would go to my department chair, the dean, and say very transparently, I like it here. I don't want to leave. This is my market value. I expect you to match it. And I wouldn't threaten to leave, but that was an implicit threat. It was like, look, I'm attractive to strangers. I need to be attractive to you. And quite frankly, a really good organization will stay ahead of the curve here and give you raises ahead of the curve. That's what a good manager does. Now, you have to decide whether you work for an organization that is forward-leaning and figures out a way to constantly surprise and delight and stay ahead of the curve. And there are a lot of companies like that.

I think big tech is really good at that. I think they identify their key players and say, we're going to make it such that you never need to do a market check. We're going to stay ahead of the curve. That is a smart company. That is a good manager. I'd say two-thirds of companies aren't like that. One caveat, one caveat, you don't want to do this more than once every two or one years. And that is the person who is constantly in your face about compensation, you set up a dynamic as the person who's been on the other side of this conversation,

where you don't want to give them a raise. You're constantly fighting with them and coming up with reasons for why they shouldn't get a raise. You don't want to set up that dynamic. On a infrequent but credible basis. You want to have this conversation if needed. Thanks for the question.

That's all for this episode. Again, if you'd like to submit a question, please submit a voice recording by visiting officehours.propgmedia.com. our producers are caroline shagrin and jude burroughs claire miller is our associate producer if you like what you heard please follow download and subscribe thank you for listening to the prop g pod from the vox media podcast network we will catch you on thursday hey it's scott galloway and on our podcast pivot we are bringing you a special series about the basics of artificial We will catch you on Thursday. Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So, tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored

by AWS, wherever you get your podcasts. Hello, I'm Esther Perel, psychotherapist and host of the podcast, Where Should We Begin?, which delves into the multiple layers of relationships, mostly romantic. But in this special series, I focus on our relationships with our colleagues, business partners, and managers. Listen in as I talk to co-workers facing their own challenges with one another and get the real work done. Tune into How's Work, a special series from Where Should We Begin, sponsored by Klaviyo.