Society has benefited greatly from our ability to scale processes and production in order to provide more products and services to more people across the world.
Consider the food industry. The ability to transport crops quickly and efficiently has enabled farmers to specialize in growing crops that are best suited for their geography and, in turn, sell those crops to other areas of the country or world not as well suited to grow them.
The same concept applies to factories that are specifically designed and outfitted with equipment to produce enormous quantities of a small number of products and ship them to various manufacturers who have use for those products.
This division of labor and specialization is key to any capitalistic economy. It enables humans to identify the highest and best use of their skills and leverage those skills alongside others to produce results greater than the individuals could produce by working in isolation.
With the obvious upside of this philosophy, however, comes the possibility for unintended consequences. One such consequence is that people within these productive societies can often lose sight of where the products they consume come from.
The addition of middlemen, for example, who add an element of efficiency, also introduce layers of complexity that disconnect the end consumer from the original source of a product.
Let’s revisit the food industry. The end consumer of a hamburger at a fast-food restaurant is greatly disconnected from the source of each of the ingredients that make up that hamburger.
The supply chain that takes animals and crops from farms to tables creates such a relational distance that the person eating the hamburger could be forgiven for not realizing that he is eating a cow that was raised in a pasture, lettuce that was grown on a farm, and wheat that was grown and processed into a bun.
The investment industry, likewise, is not immune to this relational distance created by complex supply chains. Complex supply chains that connect investors to their investments have veiled the reality that investors are the owners of the companies that they are invested in.
It is easy, for example, for an investor who is
- invested in a portfolio
- that is put together by an advisor
- who uses a variety of funds
- that are managed by an asset manager (like Eventide)
- who selects securities (e.g., a company’s stock or a bond issued by a company) from the market
to lose sight of the “big picture” or the fact that investing is fundamentally about owning companies.
When this happens, unintended consequences can arise. The complexity created by the relational distance between investors and the companies they own can sometimes lead to the investor’s capital being placed into companies that may be harming society or that are operating in a way that is taking advantage of their various stakeholders like their customers, employees or suppliers.
Reconnecting the Two Ends of the Investment Chain
The scaling of the investment industry to include all types of investors—from large foundations to people saving for retirement—and its ability to quickly and efficiently move capital from where it lies dormant in a savings account to where it can be used to fuel a productive economy has led to untold positive outcomes.
Values-based investing is a movement within the investment industry that is reconnecting the two ends of the investing chain—enabling investors to better understand what kind of companies they own. And like the shift taking place in the food industry to narrow the gap between farm and table, the goal is to build an economy that values scale and efficient productivity while remaining conscious of the healthy origins of the chain— businesses that are creating value for society.