Paul Tudor Jones Wants to Crowdsource “Good” Companies
Hedge fund mogul Paul Tudor Jones co-founded JUST Capital to fix the ills of corporate capitalism by identifying the most just, or “good,” companies. Will it work?
JUST Capital has grown up since it was little more than a 2015 TED Talk by hedge fund mogul Paul Tudor Jones that proposed society rethink capitalism.
“Over the past 50 years, we as a society have come to view our companies and corporations in a very narrow, almost monomaniacal fashion with regard to how we value them,” Jones told his audience. “We have put so much emphasis on profits, on short-term quarterly earnings and share prices, at the exclusion of all else. It’s like we have ripped the humanity out of our companies.”
The prioritizing of profit over everything else has been bad for workers, the hedge fund manager argued. Profit margins have soared, but worker pay relative to that of the company’s CEO has gone down. “Higher profit margins do not increase societal wealth; what they actually do is exacerbate income inequality, and that is not a good thing.”
Capitalism, Jones admitted to the audience, has been very good to him — he is, after all, worth an estimated $4.7 billion. But somewhere along the way, in the race for profits, it broke.
JUST Capital, which Jones co-founded a year before his talk, aims to fix what he identified as the ills of corporate capitalism by identifying the most just, or “good,” companies. It hopes to encourage capital to flow into these good companies and, in so doing, reward them for focusing on more than profit alone.
Here’s how it works: The New York–based not-for-profit surveys members of the public to understand how they measure “Corporate JUSTness,” asking them what they value most in a good company. The JUST Capital team then scores how companies perform relative to this data, coming up with an index of the most just companies. Explaining the endeavor at TED, Jones said JUST would let the public be the guide. “Maybe what we’ll find out is that the most important thing for the public is that [companies] create living-wage jobs or make healthy products or help, not harm, the environment. At JUST Capital, we don’t know. It’s not for us to decide. We are but messengers. But we have 100 percent confidence and faith in the American public to get it right.”
In other words, JUST Capital is putting its faith in the wisdom of the crowd, betting not only that the public can identify what it values most in good corporate behavior, but that this can translate into better-performing companies.
According to a 2016 JUST Capital report, the not-for-profit had, up to then, polled “over 50,000 members of the American public, as part of a continuous, multiphase series of surveys.”
However, the actual number of people polled to develop the core inputs that make up JUST Capital’s key assumptions — what the public cares most about from corporations — was only 209. From these interviews, JUST Capital came up with a list of 188 items important to people, which the not-for-profit then distilled into 36 components — comprising issues such as “pays a living wage,” “provides paid time off,” “provides a safe workplace,” “does not do business with repressive governments,” “creates jobs in the U.S.,” and “has environmentally responsible management.” JUST Capital then ran these components by the much larger group.
So what issues do Americans care most about in corporations? Providing fair pay and benefits, JUST found, followed by treating employees well, making safe and beneficial products, and protecting human rights. That a company be well governed, make money, and create jobs in the U.S. were less critical.
Having established what Americans care about, the JUST Capital team turned to the more challenging task of scoring companies according to how they perform on these metrics. Here, JUST — like a number of other organizations interested in so-called ESG (environment, social responsibility, and corporate governance) issues — uses a variety of sources, including companies’ own disclosure and corporate governance reports, government data, and crowdsourced information from organizations like employer-review website Glassdoor. JUST also has a research board and relies on a group of experts for insights.
The organization published its first rankings — in which it rated 897 of the 1,000 largest publicly traded U.S. companies — last year, comparing performers to their peers in each stock sector. The top performer in the retail sector, for example, was CarMAX, which ranked top among its 49 peers for worker pay and benefits. Other high scorers included Microsoft and Google parent Alphabet. In late 2017, JUST, in partnership with Forbes, will publish an overall list of its top companies (currently, firms are only ranked relative to their peers).
But does any of this matter for investors looking for returns on their capital? JUST Capital says it has evidence it does: In May the not-for-profit announced the findings of a proprietary study showing that just companies demonstrate lower market risk and a higher return on invested capital.
“Supported by nationwide polling, JUST Capital’s methodology scores companies on the issues that matter most to the American public,” says JUST Capital senior analyst Hernando Cortina. “Not surprisingly, this holistic approach encompasses a wide breadth of issues and places a greater importance on worker pay and benefits, worker treatment, leadership and ethics, and customer treatment than most other data providers.” Cortina says that when it comes to scoring companies, unlike most mainstream ESG data providers, JUST is at pains to source its information from a variety of places, not just the companies themselves.
Not everyone, however, is fully convinced by the method behind JUST Capital’s efforts. As one diversity expert who spoke with Institutional Investor points out, plenty of fund managers and initiatives already provide investors with insights into good, or sustainable, companies. Today a growing number of efforts — especially those being deployed in-house at firms — rely on more than corporate outputs alone. And not all rely for their baseline on the wisdom of crowds: To some, these notions of justice seem self-evident, without a need for polling data. A pit stop at a local coffee shop, or a trip to the corner store to buy a gallon of milk, would show as much.