Jon Lukomnik: Moving Beyond Modern Portfolio Theory and the Evolution of Corporate Governance.

Intro.(1:37) - Start of interview(2:19) - Jon's "origin story." He started as a sports journalist, later became press secretary to then NYC Comptroller Jay Goldin. His transition to asset management, founding his firm Sinclair Capital and leading the Investor Responsibility Research Center Institute (IRRCi) (succeeded by the Weinberg Center) focused on ESG and capital market issues.(4:48) - His experience with the NYC pension funds, CII and how he addresses the different "stages of governance" described in his book "Moving Beyond Modern Portfolio Theory: Investing That Matters." His historical perspective on corporate governance from the Dutch East India Company (1602). HBS Professors Myles Mace: "Boards are ornaments on a corporate Christmas tree" and Peter Drucker: "The one thing that all boards have in common is that they do not work." His experience with Creditors Committee at WorldCom. Corporate governance in the 1980s changed for two reasons:In a capitalist society whoever has capital, has power. By the 1980s, institutional investors became very influential with more assets under management.This was prompted in part by the greenmail scandals. In one year (1983-1984) this practice extracted $4bn from US corporationsThat prompted the formation of the Council of Institutional Investors (1985).(13:04) -  The disagreement is not over corporate governance, but rather over "optimal" corporate governance. This is so because capital is changing. "75%-94% of your returns is due to the systematic nature of the markets." The problem with MPT.(17:41) - The concept of "Beta Activism"(19:54) - The focus of his book "Moving Beyond MPT": "This is not a modest book: we are trying to redefine what investing is." "Stewardship for the benefit of the marketplace as a whole, to deal with systematic risk issues that  that we can't deal with mere diversification." More holistic and long term vision of how to improve the risk return of the market as a whole.(21:41) - Shareholder activism on ESG and sustainability ("Beta Activism"). Examples: Engine No.1 on Exxon, Climate Change. "There will also be changes on how shareholder resolutions will be crafted." For example: Yum Brands  on the systemic effects of the use of antibiotics in its supply chain by the end of 2021 (proposed by Paul Rissman and the Shareholder Commons). From individual companies to global/industry levels. Another example, new safety standards after the Vale scandals. "The problem is that somehow in the 1990s/2000s the shareholders figured out how to be first and last in the line."(26:16) - Debate on corporate purpose (shareholder primacy / stakeholder capitalism / benefit corporations). "I think the person who jumpstarted this discussion was Lynn Stout with her book the shareholder value myth." "You have to care about how companies are dealing with the health of the system as a whole." "But I still think that the governance of a company needs a final decision: that's the shareholders [on how to maximize the residual benefit but taking care of everyone else to do that." "I've always thought it was a false dichotomy [to think about shareholder primacy vs stakeholder capitalism.]" Alex Edman's book "Grow the Pie": shareholder value as a subset of societal value. Shareholders are at the back of the line.(30:30) - His perspective on international corporate governance trends. Cross-influence between the US and Europe. Asia. Taking into accounts culture. The last US administration tampered down ESG in the last 4 years.(35:29) - His take on public vs private companies (Wall Street vs Silicon Valley). The advent of dual class shares in Silicon Valley: "founder syndrome." There are different risk desires and appetites for smaller growth companies vs larger mature companies.(39:43) - His thoughts on western vs authoritarian vs the next dominant economic paradigm. "Confucian curse of living through interesting times."(43:15) - His favorite book: Fifth Business, by Robertson Davies (1970)(43:41) - His favorite play: As You Like It, by William Shakespeare(45:45) - His mentors:His sister (personal)Jay Goldin (professional)(47:38) - His favorite quote: "It's better to be approximately right than precisely wrong" and "Work hard and be nice to people" (new Michael Franti song)(48:30) - His "unusual habit": He loves to cook.(49:26) - The living person he most admires: his wife.(49:56) - His views on the future of NY post pandemic.Jon Lukomnik is the Founder of Sinclair Capital. Jon chairs the audit committee of the Van Eck mutual funds, is a core member of the Funston Advisory team, and serves on the Deloitte Audit Quality Advisory Committee. He has a long track record in corporate governance having served as an investment advisor for the New York City’s pension funds, a managing director of a top ten hedge fund and a director for public and private companies, non-profit corporations and litigation trusts. His new book, co-authored with Professor James Hawley, is “Moving Beyond Modern Portfolio Theory: Investing That Matters”. If you like this show, please consider subscribing, leaving a review or sharing this podcast on social media. __Follow Evan on:Twitter @evanepsteinSubstack https://evanepstein.substack.com/Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License You can follow Evan on social media at:X: @evanepsteinLinkedIn: https://www.linkedin.com/in/epsteinevan/ Substack: https://evanepstein.substack.com/__To support this podcast you can join as a subscriber of the Boardroom Governance Newsletter at https://evanepstein.substack.com/__Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License