Gorman: It’s Not Corporate Philanthropy, It’s Doing the Right Thing
It’s hard, on some days, for those on Main Street to look favorably at those on Wall Street. Bankers, traders, and the money-managing elite have earned themselves a reputation — some of it deservedly, some of it not — as insensitive to the needs of Main Street, driven only by self-interest and the profit motive.
But there are, of course, members of the investment class who stand out as genuine good guys, members of the philanthropic pantheon. These are people for whom money is a means to an end, not simply an end itself, and their goals are often lofty and admirable. Take, for example, Warren Buffett, chairman and CEO of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB).
Buffett may be the most famous investor on the planet, and there are two reasons why. One, he has been enormously successful. Between 1965 and 2012, his holding company has boasted a compounded annual gain of 19.7 percent compared to 9.4 percent for the S&P 500 (including dividends). Berkshire Hathaway’s returns have simply been monstrous.
The other is because Buffett, with a net worth of $58.5 billion as of September (making him the fourth richest man in the world), has pledged to give away 99 percent of his wealth to philanthropic causes and has ordained that his wealth be spent within 10 years of the closing of his estate to ensure that it is put to the best possible immediate use.
The icing on the cake is this: Buffett did not make his billions by being a money-gouging, cold-hearted corporate raider, and he certainly did not inherit it. Buffett grew Berkshire Hathaway to its current size by adamantly and intelligently prescribing to a form of long-term value investing that many would argue has been a net benefit not just to the businesses he has invested in but to the often-criticized market in which he participates.
Describing in detail exactly what Buffett’s investment philosophy is all about is difficult (there’s a lot of literature out there about it), but its spirit is almost universally admired. Famous Buffett quotes include things like, “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever” — the kinds of things that makes people feel warm and fuzzy inside.
On November 1, Morgan Stanley (NYSE:MS) ostensibly took a page from the Buffett book — that’s when Chairman and CEO James Gorman announced the establishment of the Morgan Stanley Institute for Sustainable Investing. “The Institute for Sustainable Investing will pursue three focus areas,” said a press release about the organization. “Financial products and solutions that enable clients to invest in sustainability-focused strategies seeking risk-adjusted financial returns; groundbreaking thought leadership that will help mobilize capital toward sustainable investing opportunities; and strategic partnerships with the public, private and nonprofit sectors designed to build capacity and best practices within the field of scalable sustainable investing.”
Speaking to Bloomberg Television on Friday, Gorman was asked by Erik Schatzker to defend the idea that the establishment of the institute was more than a public relations stunt.
“A cynic would be right if we had just started it today, but we haven’t. We’ve had a sustainability group for a few years,” said Gorman. “We been involved in a lot of financing and a lot of lower-income housing development and working with the communities around this country and the world.”
Gorman confirmed that the bank would be putting up some capital of its own, but that it is also encouraging its clients (read: investors) to put their own money toward the cause. Morgan Stanley is hoping to put as much as $10 billion to work in the spirit of sustainable investing.
There is a difference, though, between corporate philanthropy and sustainable investing. Buffett himself has frowned on the idea of direct corporate philanthropy, arguing that it is not in the interest of shareholders. Gorman emphasized that this is not charity work.
“No, it’s not corporate philanthropy,” he said when asked during his Bloomberg Television interview. “It is doing the right thing and meeting an investor need that is out there in the marketplace.”