Tim, I know you’re from the St. Louis area. You’ve probably heard about the protests from many members of the Washington University student community about Peabody Energy. In general, how do you think about corporate protesting, and more applicably to your blog, shareholder activism?
Also, I love your blog.
Thanks in advance,
Thanks Larry! As some of you have already noticed, I added a tab to the site for general reader questions that I plan to answer on Sunday as part of a new “Sunday Mailbag” series I’m starting to see if it gains traction. If you have any general question that you think readers of this site would be interested in seeing discussed, feel free to e-mail me at: [email protected] .
For those of you who haven’t heard, a news story in St. Louis lately has been that many Wash U students have been hosting sit-ins for five days straight outside Brookings Hall to demand that: (1) Greg Boyce, the CEO of Peabody Energy, gets removed from the Board of Trustees, and (2) they want Wash U’s Chancellor to visit Peabody’s extraction sites and deliver some kind of live update or newspaper recollection of the experience.
The reason why the students are upset with Peabody?
“Students Against Peabody” want the university to cut ties with Peabody for contributing to global carbon emissions, participation in the American Legislative Exchange Council, marginalization of indigenous and rural communities in Black Mesa, Arizona and Rocky Branch, Illinois, and for filing lawsuit against the local Take Back St. Louis ballot initiative.
My general reaction to bans, expulsions, firings, and so on, could be modeled after Warren Buffett and Charlie Munger’s answer at the 2008 Berkshire Hathaway shareholder meeting about whether the United States should have protested the Beijing Olympics because of human rights violations in China:
Warren Buffett: I think that the Olympics should be allowed to continue forever with everyone participating. It is hard to grade a couple hundred couple countries. It is a terrible mistake to try to start grading countries. The more that participate, the better. I would not start getting punitive. I think it’s a terrible mistake to ban countries from Olympics. The United States only started allowing women to vote in 1920s and I consider that a huge violation of human rights, but we wouldn’t want to be banned from the Olympics in the years prior. Over time, China is getting better.
Charlie Munger: Warren understates my position. Many are distressed by imperfections in China, so I ask you this – is China more or less imperfect as the past few decades have gone by? It is moving in the right direction. That is a good thing, and it is not good to pick worst thing about a person you don’t like and obsess about it.
Munger’s last line just about sums it all up for me: “It is not good to pick the worst thing about a person you don’t like and obsess about it.” What’s the most perennially hated company in America over the past century, Exxon Mobil? People don’t like their effects on the environment?
Declaring Exxon “evil” ignores the fact that the company employees 83,000 families and gives them a chance to raise their families with a good standard of living. It ignores the fact that Exxon has paid tens of billions of dollars in taxes over the past two decades, allowing the United States to repair highways, protect its national defense, and keep the lights on in our schools. It ignores the fact that Exxon has been the primary driver for every pension plan and 401(k) in the postwar economy. Those 10% annual returns don’t just happen automatically; it is the existence of companies like Exxon and a few dozen others that make retirement wealth and financial independence possible. Imagine if they just decided to close up shop tomorrow and stopped producing 2.2 million barrels of oil per day: Are you cool with paying $6.00 per gallon in gas?
You can play this game all day long, even specifically with Wash U if you want. They didn’t allow African-Americans to attend the school until 1952. How is that not a gawdawful, terrible human rights violation? Yet, does that mean we should ignore the contributions of all the scientists, physicists, and artists that the school created before then? Some of the greatness that came out of Wash U are things that we don’t even think about, like Dwight Davis (the crusader for turning tennis into a public sport and the Secretary of War under Calvin Coolidge). The second-and-third order effects of his life, which went through Wash U, are enormous. It’s entirely possible that if Dwight Davis’s life never happened, there’d be no John McEnroe. No Jimmy Connors. No Andre Agassi. No Pete Sampras. No Jim Courier.
And there are literally hundreds of different Wash U graduates that I could have used as this example.
The particularly obnoxious component of students demanding bans, resignations, and firings is that they are doing it at an institution of higher learning, where free speech and dialogue is supposedly treasured. Demanding Boyce’s resignation sounds a lot like saying “We don’t agree with you, so get the heck out.” If Boyce provides wisdom in his role on the board, Peabody financially supports the school in the form of creating research opportunities for students, and Peabody’s business model is generally improving, then why “pick the worst thing you don’t like and obsess about it”?
That’s not to say that Peabody is a corporation without sin. Personally, I’d be more persuaded if the students were protesting Peabody’s spinoff of Patriot Coal that loaded Patriot Coal with debt and pension liabilities with the end result being the (attempted) discharge of obligations to retirees during the bankruptcy proceedings.
In short, my attitude toward corporate protesting is this: Is the company doing something exceptionally evil, or are they simply slow to change their business model to society’s shifting preferences? And the second question would be this: Directionally speaking, are they getting better or worse? In the case of Peabody, it seems that the company’s business model is gradually improving, and I think any rational businessperson would recognize that reforming the coal industry is no picnic, and negative environmental results aren’t due to evil corporate greed and indifference at headquarters. I doubt any of the Wash U protestors could do a much better job of balancing the needs of (1) employees and (2) shareholders against (3) environmental concerns, and I’d rather spend my energy focusing on trying to improve myself rather than throwing stones at corporations with improving environmental responsibility that are benefactors to the university, sharing some $5,000,000 of their corporate coffers with 18 year-olds seeking a top-shelf education.