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Sunday, July 9, 2017

Unequal and Blue: Not Just Connecticut

I live in Connecticut which, on a per-capita income-basis, happens to be the wealthiest and most unequal of our 50 States.  This statistic makes my home an interesting object of policy musings, including the most recently published What on Earth is Wrong with Connecticut?, by The Atlantic's Derek Thompson. Upon publication it began showing up in my social media feeds as a "must read."  As an Atlantic subscriber, I was delighted to see the tiny Nutmeg State deemed worthy of analysis in one of my favorite Progressive magazines.  

I read the article.  It made me nuts.  So I read it again.  After all, this is an article in THE Atlantic, I must be missing something, right?

The article raised my ire not, in fact, for a lack of "factualness" but rather for its lack of deep analysis. 

More crazy-making, the author seemed to reduce the very complex and quite predictable experience in the Nutmeg State to a liberal/conservative tug-o-war.  How can Connecticut be so blue and so unequal? The article has generated a lively debate among my colleagues, all of whom have spent most of their adult lives working to reduce injustice and all are "blue enough" for walk-on roles in Avatar.

One particularly cogent note begins with this observation:

"Missing an analysis of how such “high” taxes were not able to fund the pension obligations which are crippling the state. More the case that the politicians and corporations conspired to postpone the pain until they were no longer around. Corporations play this game all of the time, shopping around for deals and leaving once they have milked it dry. CT’s citizens will swing from one extreme to the other with no clue about the real problems. Pension obligations of this magnitude did not grow overnight. More accurate to say they grew over decades and business and government and the unions have played kick the can for fifty years all over the country and certain states (Illinois, CT, etc.) have gotten left holding the pyramid scheme equivalent of the empty envelope. One other example is Detroit where companies and professionals are returning to gentrify after getting the debt of the city reorganized and real estate is now at bargain basement levels. Bottom line is CT (like other states and cities) got caught in the whipsaw of power brokers playing footsy with each other and caring little or not at all for the state or its residents. There is nothing wrong with CT that isn’t wrong elsewhere too. People forget the fiscal problems of other states over the last fifty years which always serves as a useful way to squeeze concessions from cities and states which had become too demanding to the poor defenseless plutocrats who control everything in America."

Having grown up in Detroit, I am particularly sensitive to the intentional hollowing out of once-great cities.  If I see one more article about Detroit’s comeback, without reference to the devastation that ensued since the mid-sixties I will spit. The policies and decisions that led to Detroit’s trouble began long before the 1967 uprising. Fast forward to now and one might ask “for whom the comeback bell tolls?’ and “what might Connecticut cities learn from the Detroit experience?" given our fascinating ability to cling to our liberal privilege and outrage while completely avoiding analysis.  Are we waiting for a Dave Gilbert (the Quicken founder) to come save us with the next round of mortgage profits?  Will the Hedge Fund managers save us? Will #45 make CT “great again"? 

Nah.

CT Voices for Children raised the tax policy alarm bell decades ago, warning about the multiple areas where we were disinvesting, not just in human capital, but mostly by Connecticut choosing to use tax expenditures via abatements and other mechanisms that wound up costing more than the revenues we ultimately received.  Do not even get me started regarding pensions.  Talk about a rigged system with the beneficiaries frequently at the losing end.  Pensions these days seem to have created a new legal category; contracts in which a promise isn’t actually a promise.

In my own very superficial analysis, our State’s situation (regardless of our bluish tint) is the ultimate endpoint of inequality and poor tax policy and Federalism.  I believe the parochialism of of “every town” for itself, which is particularly popular in Connecticut, is a mini-version of the interstate business arbitrage that occurs when States compete to attract businesses.  The arbitrage of regulations and tax policy seems to indicate we've long forgotten what “commonweal” or a core sense of common good might look like.  Perhaps the Calvinism at our roots, as well as our country’s history and practice of violent exploitation wrapped in the language of meritocracy is at fault?  After all, exploitation in the name of God allows us to avoid naming our complicity when we get in trouble, as we are now. I've spent enough time in interfaith circles to believe God is deeply anti-exploitation and pro-equality. The sacred texts of every great religious tradition thoroughly back me up here.

The article ends with this simple prescription, invoking our Calvinist core and reminding us the objective is staying rich:

"In the biggest picture, Connecticut is a victim of two huge trends—first, the revitalization of America’s great rich cities and second, the long-term rise of hot, cheap suburbs. But Connecticut’s cities are not rich or great; its weather is not hot year-round; and its cost-of-living is not low. The state once benefited from the migration of corporations and their employees from grim and dangerous nearby metros, but now that wave is receding. To get rich, Connecticut offered a leafy haven where America’s titans of finance could move. To stay rich, it will have to build cities where middle-class Americans actually want to stay."


I could go on and on and on.  I’ll stop ranting.

How about a do-over?  Next time, analysis by Ta-Nehisi Coates.

I’ll really stop here.  

Sunday, February 5, 2017

Pharma at the Crossroads?

When pharmaceutical companies take out full page ads in national newspapers touting newly responsible approaches to drug pricing, even the most skeptical of activists sit up and take notice. After 15 years at the forefront of shareholder activism, I can’t help but ask myself if the pharmaceutical industry has finally come to a crossroads on sustainable pricing practices.

Since the early nineties, a wide range of stakeholders; patients, practitioners, health systems and investors have been pushing for drug pricing reform. It is possible the time has come. Does the reputational risk and public scrutiny of recent headlines at long last outweigh the corporate benefits of arbitrary and opaque pricing models?

Several recent signs make me wonder if a few companies are choosing a different path on pricing. I see real potential ahead as some leaders step forward with innovative ideas and models.

With much fanfare, Allergan, the specialty pharmaceutical company and maker of Botox, a revised “Social Contract with Patients.” The most refreshing revision – and the part that created recent headlines – was a pledge to limit price increases on medicines that Allergan sells, or will sell (presumably). In brief, Allergan said it would “not engage in price gouging or predatory price increases”; limit price increases to “single-digit percentage increases” once a year; and refrain from price increases on drugs about to go generic, unless cost increases dictate otherwise.

Five months earlier, KaloBios, a small biotech, announced its “Responsible Pricing Model.” This appears to be the first of its kind, and Allergan’s pledge mirrors many of the responsible pricing model’s main tenets.  Emerging from its own brush with reputational risk, KaloBios said it plans to price its products “at overall cost, plus a reasonable and transparent profit margin” – arrived at after seeking input from stakeholders on what “constitutes a reasonable return”. It will post the elements that make up its price publicly. And KaloBios said it will limit price increases to the rate of inflation or Consumer Price Index, once a year; and refrain from “aggressive or predatory pricing policies or ‘price gouging.’”

I’m betting that truly new thinking could unlock the industry’s vast potential, perhaps attracting new kinds of investors. Healthcare, like never before, is building an audience alongside education and climate change at the Mission Investors Exchange, a leading voice in impact investing. The reform-minded impact investing pool represents serious money, upwards of $60 billion according to the Global Impact Investing Network’s 2015 survey. The opportunity to build better links between social impact investing and the biopharmaceutical industry has never been greater. So what path should the drug industry choose at this crossroads to build sustainable pricing and deliver on the promises its social contract implies?

First, the industry must start at the original launch price for drugs. Attention to downstream price increases is necessary but not sufficient. Models which hover near the status quo ignore fundamental arithmetic. The sustainability of healthcare spending and its social impact depend on the base price, as much or more, than subsequent price hikes. It must seek models that clearly define a “responsible price.” In the KaloBios example, responsible price is defined as: “affordable for patients, transparent for stakeholders and delivers a reasonable return.” Furthermore, the model should quantify a reasonable profit margin, and be willing to disclose it.

Second, the industry must break free from the opacity of current drug pricing. This is increasingly a priority for many stakeholders, including recent calls for pricing transparency by US states, the United Nations, physician leaders and others. Transparency will be the foundation of any serious effort to truly lead to a better way. Responsible pricing models that pledge to make profit margins transparent by “publicly sharing the key elements” of the price of a drug could lead to a virtuous cycle of transparency; mitigating the public perception of this essential-yet-blemished industry.

Shareholder activists, including my former shop the Interfaith Center on Corporate Responsibility, have been focused on these issues for decades.  Recent events have proven that all stakeholders are engaged in these issues, issues with profound moral and economic implications.

At present the few companies leading the way are outliers thus full-page ads draw a lot of justifiable attention. I see momentum building from a coordinated coalition of bold companies willing to lead with maverick ideas on responsible pricing and transparency. Thus companies should not only seek to follow their own true North, but to align with each other to build concrete and sustainable improvements to drug pricing. This coalition would highlight the premier operational innovators in pharmaceuticals – which we sorely need to champion.

From my perspective, access to healthcare, medicines included, is a Human Right and never a privilege for the lucky few. Progress in responsible drug pricing will bring us closer to delivering on that promise. Together, all stakeholders need to look at the right model now to deliver on the social contract of this powerful industry. There is progress in pharmaceutical pricing, but there is more to do together.



Sunday, September 28, 2014

Like the Rockefellers, We are All Heirs.

Like the Rockefellers, we are all heirs to the planet and its wealth of resources. We are also all heirs to the legacy created by our reliance on carbon-based fuels.  While sacred texts may teach us that “the meek will inherit the Earth”, without bold action to counter climate change our “inheritance” may not be fit for life as we know it.

The Rockefeller Brothers Fund is taking an appropriately bold public step toward reconciling the source of their philanthropic resources and acknowledging the complexity of the process.  In my reading of history, oil was not the only resource that led to the breathtaking accumulation of Rockefeller wealth: A visionary leadership style and the invention of an entirely new business model for extracting and distributing that oil was an important part of the story.

Although a fraction of the 300 thousand-plus marchers in last week's Peoples’ Climate March, faith leaders marched and sang and prayed with one voice throughout the day.  That evening, a multifaith service was held at the Cathedral Church of Saint John the Divine.  The service captured the spirit of gathering, “Religions for the Earth” which was convened by Union Theological Seminary and many faith leaders: Leaders who have been deeply committed to raising their voices to reverse climate change, in some cases for decades.

Every institution must do the complex soul searching that Rockefeller Brothers Funds’ president, Stephen Heintz and the Funds’ trustee, Steven Rockefeller, have done.  We must commit to a fuller understanding of, and responsibility for, the source of our own wealth and resources and then make choices as investors, employers and consumers. With examination, like the RBF, we may find areas that no longer represent our mission and purpose.  We can then begin in earnest the work of reconciliation.  This work will not be simple but can be uplifting, especially when guided by our faith.   Whether called toward the complex work of engagement in the corporate sector, or more public actions of divestment and advocacy, the call to act has never been more urgent. We must fully commit to ensuring that our work is focused with more intensity on healing the world.

For some, like the faith and values-driven investors that participate as members of the Interfaith Center on Corporate Responsibility, that means examining the call to influence corporations through dialogue and engagement. Like John D. Rockefeller, many years ago ICCR found a new way of organizing as shareholders. And they found a way to make their voices heard.  Since then, the “wealth” created has been measured by an enduring record of demonstrated influence on corporate policies.  

These days, new questions are being asked. As a coalition committed to reversing climate change, is it possible to reconcile the wide range of approaches organizations are called to deploy?  We know that the impact of climate change has hurt the human community and exacerbated the breadth of justice issues that drive everyone's day-to-day decisions.  Food and water scarcity is increasing while fueling geo-political unrest across the globe.  Weather related events are fiercer and more unpredictable, taking an enormous economic and emotional toll on communities, particularly those already climate and resource-stressed. 

Last week, as the Cathedral sanctuary shimmered with the intensity of a shared  and renewed commitment from the faith community to use their moral authority to call for the responsible stewardship of God’s creation, we were all aware that we were forging a new pact where meekness would no longer have a place. Like the Rockefellers, we were acutely aware that our inheritance was in grave peril and the day of reckoning had arrived.

Friday, May 23, 2014

Across the Pond and Ideological Divide: the Climate Bridge

You know climate change is beginning to capture everyone’s attention when two leaders with opposing political philosophies make compelling points on the issue in different speeches. In London this past April, committed conservative Lord Deben, spoke at the Church Investors Group conference held at CCLA headquarters in the shadow of St. Paul’s cathedral. He made the point that since the British were instrumental in bringing the industrial revolution to the world, they had serious responsibility for cleaning up the mess. He asked important questions: Why aren’t we developing technologies that could be an answer to the carbon problem? Why aren’t we working harder to develop massive batteries to store electricity from renewables?
Three months earlier in an equally auspicious setting, American labor union leader Richard Trumka, the president of the AFL- CIO, suggested an answer to a few of those questions in a recent speech of his own at the United Nations. Trumka said what is keeping powerful democracies like the United States from acting more aggressively on climate change is lack of real political will. People are afraid. He didn’t mean apprehension regarding next year's super storm or the carbon problem. The fear is basic: change can and does bring massive unemployment. No matter what, people don’t want to lose their jobs. And it’s impractical besides. If climate change policies make working people lose their livelihoods, it will undermine the political will to deal with the problem constructively.
Having worked with companies and investors for 30 years, I know both men are onto something. The climate conversation needs to be different to spark any progress on climate change while getting more from companies and the general public. More dire warnings won’t do it. Nor will inaccessible scientific pronouncements.
We need three things to move the needle on this issue upon which the future of the planet depends.
One, we need to deal with the overriding issue of fear.
Two, we need to devise a new way to measure what companies are and are not doing on climate change – and if they aren’t responding to the issue, demand change.
Finally, we need to research to pay for a worldwide transition away from carbon fuel
First and most important, deal with the fear.
-- Scientists agree we created the carbon problem and we can fix it. Most companies agree that something must be done. Most investors agree that there are plenty of costly risks to future profits if we don't find solutions. We all know there will be plenty of profitable opportunities if we find ways to solve the problem.
We can’t keep demanding nations solve the problem of climate change without the same energy and commitment to solving the problem of the economic upheaval that such a transition will create. These are two problems that need solutions- not one. And they are interrelated; we can’t hope to achieve one solution without the other.
We need to demand more of companies. I work with investors who have been successfully pushing companies toward more transparency for decades. Responsible investors are convinced that “we” are doing our part by asking companies to recognize and measure and reduce their carbon footprint. That's a good thing but unfortunately, it's not enough.
The questions must be different moving forward. A simple metric with easy to understand questions applied to every company is a critical next step. Questions such as: What resources are you spending on research for real solutions to the problem of climate change? And, what resources are you spending creating jobs that represent real solutions to the problem? No doubt many will quibble over the definitions of the three "r's", resources, research and real; and any reasonable definition is welcome. Ratios are always desirable for comparisons so, revenues or market capitalization could be used as the denominator. The sooner we ask these questions of all companies, the sooner we’ll start to get answers.
While we work to figure out how to avoid burning the unburnablecarbon, we need real money to pay for real research to figure out how to put some of the 400+ ppm already in our atmosphere back and to develop alternatives.
It is no secret that the way we live in developed nations depends on generation of power that is capital intensive and our fuel largely carbon-based. That doesn't help make the transition to new energy sources easy. Developing nations are just beginning to access the energy intensive lifestyle we've enjoyed. Solving this problem regionally is not an option because when it comes to the carbon problem, our region is our planet. Both the livelihoods and the lifestyle to which so many aspire were made possible by the carbon-based fuel that drove the industrial revolution.
Now it’s time to find alternatives that will be good for both the planet and the economy. We need money for research into both. Doing one without the other is not an option.
Difficult? Sure. But look at it this way. If Lord Deben and Richard Trumka can agree on climate change, there is reason to hope.

Sunday, June 10, 2012

Extracting the Facts: Who's getting "fracked?"

As a born again fan of the SciFi series, Battlestar Galactica the word "frack" has a special meaning as a universal expletive used with considerable creativity throughout the show's multiple seasons.  A few years back, when technology, domestic policies and global energy markets began to focus on the extractive process know as "hydraulic fracturing" (its nickname "fracking") my inner teenager couldn't help giggle a bit.  In spite of myself, I found this new use of the word a fascinating foreshadowing of concerns that were emerging regarding the consequences of unrestrained fracking.

In our quest for cheaper, cleaner, more local, less carbon intensive energy sources: are we all destined to get "fracked?"

Concerns and conversations about the industry, with its history of wildcatting and an overeagerness to externalize the negative consequences of its operations, came to light in a number of widely-viewed reports including the film "Gasland" and a 2010 piece on CBS's 60 Minutes "$halegasonaires."  Most environmentalists and industry skeptics came out soundly against the practice.  The industry is lobbying hard to clean up its reputation and ensure regulations stay loose and that processes remain proprietary. To that end America's Natural Gas Alliance and others have spent nearly a billion dollars in the fight to clean up fracking's image, deploying over 800 lobbyists by some estimates.

In today's New York Times, there is a wonderfully balanced editorial, "Natural Gas by the Book," which challenges companies and citizens alike to explore the costs and benefits---not just to corporate profits but to the quest for a more rational approach to meet our 21st century energy needs.  It references the recently released IEA Reports on Shale Gas.  New York State sits atop a large reserve of shale gas and their Legislature's measured approach to regulation has been closely watched policy makers across North America.

This report comes in the wake of an earlier publication, Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations put out by longtime shareholder activists, the Investor Environmental Health Network and the Interfaith Center on Corporate Responsibility.  The investor-driven approach is grounded in the principles of sustainicity---incorporating natural and social capital into the notion of real investment returns.

As the Times editorial posits, shale gas may provide a bridge to a new energy future. That bridge cannot be justified without an honest, thoughtful dialogue within the communities where operations are taking place. Many of these communities are economically vulnerable and have residents who are willing to accept deals that make light of unexamined risks and are unspecific regarding authentic long term benefits. Barring a national framework of strong regulations or at least an industry standard of voluntary disclosure by energy companies---it is clear that hydraulic fracturing may continue to be an opportunity to "frack" the vulnerable communities who live a top the vast reserves.


Monday, May 28, 2012

Sustainable Productivity: Does speed destroy value?

As summer's unofficial opening Memorial Day Weekend comes to a close, longer days and a real pull toward "unproductive" activities has me thinking about the consequences of faster and ostensibly more productive work.  With so many "slow" movements rising up these days, Slow Money and Slow Food are just two examples, I am wondering whether the "slow down" movement may have something to teach  us about how value is created.

Can a case be made for slowing down?

Sunday's New York Times seems focused on this notion in every section, most directly in the Op-Ed piece by the U.K.'s Tim Jackson Let's Be Less Productive. But sprinkled throughout the paper one finds articles on stay-cations and even a piece by David Byrne on the joys of urban cycling, This Is How We Ride.  Each in its own way accentuating the pleasures of slowing down, focusing on the quality of each experience rather than the quantity of its output.

With apologies to readers without NYT access, the article that hit closest to home was the one describing the "other side" of JP Morgan Chase's three billion dollar failed bet.  We find ourselves asking once again, "How is it that such smart people made such a series of breathtakingly dumb, nearly catastrophic mistakes?" Transaction speeds have clearly exceeded traders' abilities to think about them strategically.

When pattern recognition is coupled with instinct the most successful traders can see clearly both risk and opportunity.With machine processing time far exceeding their ability to follow trades as they unwind, perhaps even the most gifted traders are unable to recognize patterns as they emerge.

By way of contrast, I offer a brief history lesson.

30 years ago, folks who worked at the retail end of these transactions were called "stockbrokers."  Their roster of clients was called their "book" because it was in fact a ledger, an actual book.  At the end of each trading day, the broker was expected to record each transaction by hand in two different ways:

  • The first was to record each transaction that built or liquidated a position in shares of a particular company.  With each manual entry the broker had time to look for patterns in price movement or in his or her decision making process. While reflecting on the transactions questions like, "Why am I buying/selling this company?" "How is the price changing day-to-day?" would invariably come up. 
  • The second requirement was to record each transaction in a particular client's account.  Again, with each entry the broker would have a moment to consider the role of each transaction on behalf of the client and its role in the overall portfolio.  Small moments that slowed the process down, allowing for reflection.
Electronic broker books changed the human interface and began speeding up the process in the 1980s.  Taking time to record and reflect was replaced by a faster and arguably more accurate system.  As volume increased, trading margins vanished taking much of the value of the client/advisor relationship with it.

For anyone who worked on Wall Street back then, it's easy to imagine new disasters looming. Regardless of the popular perception that JP Morgan Chase's CEO Jamie Dimon breezed through Shareholder Meeting, his firm lost revenue and talent and its impeccable perception as The Street's best-managed bank. Dimon was clearly uncomfortable as he spoke with his shareholders;  his rushed, staccato delivery was so uncharacteristic of his usual, affable "Master of the Universe" presentation style. From where I sat, the speed of his delivery matched the speed and volume of the transactions that unwound his firm's profoundly unsuccessful bet.

Like Barry Schwartz shared during his Ted Talks-The Paradox of Choice, making the case that bountiful choice adds no value to our lives; I wonder if we've reached productivity's natural limit.

Could the value created by slowing down make productivity more sustainable?


Sunday, April 15, 2012

"Mr. Public Health" dies at 97: Thank you Lester Breslow.

If your interest in public health is tangential and you are mostly concerned with your own longevity or in figuring out a way to make money from emerging trends, you may not have heard the news that Lester Breslow died this week, see the  UCLA Obituary.   At 97, Breslow had earned the moniker "Mr. Public Health" through a groundbreaking idea: Breslow believed that people could live longer and healthier lives by changing their day-to-day habits. By paying attention to things like diet and smoking and exercise, they would improve the quality and length of their lives. His death at 97 may well be the best anecdotal evidence that he practiced what he preached.


One link between Breslow's 70 years of research and sustainicity---the idea that social capital and financial capital are inextricably linked---is his belief that small changes in individual behavior would make a huge differences in social (public health) outcomes.  Healthier individuals would be more productive in the long run, living longer lives and contributing more to the common good while costing society less.   Although this seems like common sense to us today---exercise, eat a healthy diet, don't smoke---Breslow's ideas were scoffed at when first presented. In fact his UCLA obituary notes:


"While these conclusions are taken for granted today, the idea of such a strong connection between lifestyle and health was seen as "bizarre" at the time, Breslow noted decades later. He would smile when recalling the response of the National Institutes of Health panel of scientists that reviewed the initial study proposal: "Unanimous rejection." When the study was completed, however, even Breslow was shocked at the magnitude of the results, which helped usher in current thinking about health and fitness."


Another, more interesting link was Breslow's conviction that these behavior changes could be measured.  As the vintage photo of Breslow shows---with trend lines plotted in a 1960's version of PowerPoint---this data could be used to create models that could contribute to predicting outcomes such as improvements in life expectancy in the United States which, according to the World Bank, has moved from about 69 years in 1960 to 78 today.


Clearly populations who have longer, healthier and more productive lives benefit the common good.  Economists might even argue that a "behavior induced positive externality" can and should be nudged by public policy and marketing practices. Breslow's work also presages the impact of today's growing obesity crisis and by extrapolation, its predictable costs to society. 


Since the 1960s when the influence of Breslow's work was beginning to be recognized, corporations have developed sophisticated approaches to creating demand for their products through sophisticated and targeted marketing programs. I wonder what might happen if the products they pitched were canted toward those which helped us develop the habits that lead to better health and longer lives?


Interestingly enough and with support from the Robert Wood Johnson Foundation, researchers at The Hudson Institute have begun to provide an answer based in real economic terms.  In releasing the fascinating report Better-For-You-Foods: It's Just Good Business, research fellow and former marketing executive, Hank Cardello shares some interesting data regarding the financial performance of food sector companies who shift their portfolios toward healthier products.


Today, thanks to Lester Breslow and many others, we know that small changes in individual behavior can make a lifetime of difference in public health. In today's marketplace, with the U.S. Supreme Court bestowing the rights of personhood on public companies, I  do wonder what would happen if they all made small changes in their corporate behavior?  Would shareholder value grow faster? Would our communities live better?  Longer?


Small changes.  Big Impact.  Just askin'.