At the risk of parody of the SCOTUS, at least for the time being it appears that money is speech. That is a frightening prospect when we are talking about free and fair elections and the orderly and ethical functioning of government. In commerce and the capital markets though, nothing speaks as loudly as the almighty dollar, and that is a good thing. Customers speak to companies through their spending patterns. Behaviors are shut down or reinforced based on how customer dollars flow. This has been a particularly active period, with customers manifesting their support for or displeasure with a wide range of companies. Curiously, it has been apparel companies most prominently in the headlines the last few months, from L.L. Bean to Under Armour, and now REI. It may be the extent to which customers are more engaged, or brand ambassadors are more passionate spokespeople, or simply how fickle and fleeting customer loyalty is in the world of fashion and apparel.
On February 10th, REI Co-op Chief Executive Officer Jerry Stritzke waded into the fray over concerns about the Outdoor Retailer show to be held in Salt Lake City, Utah, in July of this year. At issue are efforts on the part of Utah’s Governor and legislature to challenge and compel the rescinding of the Federal government’s protection of the Bears Ears National Monument enacted on December 28th in the final weeks of the Obama administration (https://obamawhitehouse.archives.gov/the-press-office/2016/12/28/proclamation-establishment-bears-ears-national-monument). Numerous outdoor lifestyle companies have been wrestling with the incongruities of participating in one of their largest industry events in the shadow of this controversy. Companies like Patagonia have been very active and engaged (http://www.patagonia.com/new-localism/bears-ears.html) but have also chosen to withdraw from the show to drive the point home (http://www.patagoniaworks.com/press/2017/2/6/patagonia-to-withdraw-from-outdoor-retailer-in-response-to-gov-herberts-decision-to-rescind-bears-ears-protection).
Mr. Stritzke, in a February 10th missive to fellow industry participants republished on REI’s blog, attempted to strike a more conciliatory and collaborative tone, suggesting that the Outdoor Retailer show should be taken as an opportunity by industry participants to demonstrate their solidarity on the issue and to take the fight to the Utah state government. What we see playing out over the preservation and protection of Bears Ears with outdoor lifestyle companies and their patrons appears every day in ESG-informed public market investing. Which path creates the greatest positive impact? Take your marbles and go home or stand toe-to-toe with the playground bully?
The complexity of this decision in an ESG portfolio is compounded by the practical limits on how much impact an investor can have taking either path alone. Markets are fairly liquid and efficient and even a successful divestiture campaign against a company or industry will likely only slightly pressure liquidity and valuation. Owning and engaging is similarly challenging. Shareholders, thanks to insufficient powers and protections under securities law, are limited in how much direct effect they can have on company policy and behavior. There has to be some level of willingness on the part of leadership and the board to at least take shareholder issues under advisement.
But, money is speech. The lesson we can take from what is unfolding around Bears Ears is that an integrated approach is more likely to move the needle. Aligning the interests of stakeholders – employees, communities, customers, suppliers, partners, competitors – can have a much more profound effect. When customers will not purchase, and suppliers will not fill orders, and investors and creditors either withhold their capital or still invest while expressing great displeasure, corporate eyes and ears are opened and change becomes possible.