To engage or not to engage. To divest or not to divest.

As in business as in relationships.

My colleague and friend made some insightful notes on a recent podcast discussion.  (FT Alphachat). It's a discussion with and about Jeremy Adelman's biography of Albert O Hirschman and focuses on his book "Exit, Voice, Loyalty" published 1970.  The book is essentially about divestment or engagement.  These concepts are initially applied to purchasing decisions (B2B and B2C) He later applies it to governments and how society can apply these concepts.  He notes "sometimes exit of short term investors can leave the loyal ones with a longer time horizon to oversee the recovery.   On the other hand exit of some of the best young managers can make recovery even harder."

One analogy would be with relationships. Relationships need work. Like bread they need to be made anew. (cf. Ursula K Le Guin,  literature as an operating manual)

If they ossify or crumble, they need repair.

Sometimes the correct action is to repair. Sometimes the correct action is to let go.

Scaling the problem to organisations or indeed shareholders and wider stakeholders.

Sometimes the correct action is to engage.
Sometimes the correct action is to divest.

One insight: sometime the correct action differs between different stakeholders and shareholders.

It might be correct for one set of shareholders to divest, while another set continues to engage.

Engagement takes time. Some beneficiaries do not have that time horizon. Nor the skills to make it happen. (Personally, this is also where passive investors have to significantly step up their game; they are permanent holders of capital and need to hold management teams to much greater account - thus my disappointment with the voting results at many passive firms - for instance on climate change scenario planning - personal view only)

Some business models, some business practices do not deserve to survive (eg slavery). Some will be continually challenged and a consensus will form on if they will survive (eg land mines) or survive in current or new form (eg tobacco --> vapes?).

Although all business does evolve, if it ossified it also likely dies.

Technology and connection has enabled change at rates humanity has not seen before. Yet, I believe we can see that some of our structures and thinking has not kept up with that change.

I see it in that how we behave in the online world is not as kind or polite as the real world (to say the least). The art of thoughtful disagreement is poor in social media. (cf. Ray Dalio)

But we are living longer, healthier, more equal, more literate lives than ever before (though with deep challenges still).

Here squarely lands the difficulties of fossil fuels (FF). FF will be needed to make plastics, aluminium and for some time to come to be able to fly. FF will also be needed to bring wealth to developing nations. So this is a clear case where engagement will have to be of vast importance, although I think it might be correct for some stakeholders to divest.

Those on either side of a debate might do well to remember what techniques are useful to change a person’s mind from an entrenched view. ( here in this post here    (1) Don't assume bad intent (2) Ask questions (3) stay calm (4) make the argument )

Rich, powerful, successful people running large, powerful, connected organisations are not simply going to hear 60 minutes worth of rhetoric and change course.

Humans seldom do that.

Some lessons on changing an entrenched extreme position can be found here in this post here (from  Megan Phelps-Roper who  grew up picketing with signs like “GAYS ARE WORTHY OF DEATH” aged five. She left 20 years later because strangers on Twitter changed her mind.)

Along with this academic study on the benefits of Active Ownership and ESG engagement .   If one puts this work together with the work on the outperformance of Global Equity managers described here, one can start to build a defense of Active Management for global manager.

If you'd like to feel inspired by commencement addresses and life lessons try:  Neil Gaiman on making wonderful, fabulous, brilliant mistakes; or Nassim Taleb's commencement address; or JK Rowling on the benefits of failure.  Or Charlie Munger on always inverting;  Sheryl Sandberg on grief, resilience and gratitude or investor Ray Dalio on  on Principles.

Cross fertilise. Read about the autistic mind here.