Former Vice President Joe Biden has this in common with New Jersey Gov. Chris Christie and Delaware Gov. John Carney: They're all graduates of the University of Delaware.
So Blue Hen pride was hurt when Biden said he'd open his post-Washington office, not in the First State that sent him to the U.S. Senate, but at the Ivy League University of Pennsylvania, a weary hour north.
The veep softened the insult by founding UD's Biden Institute, which held its first conclave Friday — in which a panel of Biden's Davos and Washington pals upheld the dignity of corporate CEOs against pushy hedge-fund managers — before a friendly house of students who packed Mitchell Hall while their peers were sunbathing and throwing Frisbees outside on College Green.
Biden hosted the panel discussion, "Win-Win: How the Long View Works for Business and the Middle Class." Biden apologized that Virgin Airways' Sir Richard Branson, BlackRock investment boss Larry Fink, and Dow Chemical chief Andrew Liveris — who Biden said he's talked big issues with at the yearly Davos global summit and at his old vice presidential dining room at Blair House — were otherwise engaged.
They would visit another time, Biden promised. (Maybe Liveris will be free when he's done chopping $3 billion in jobs, factories, and suppliers from Dow and its merger partner, Wilmington's shrunken DuPont Co., and collecting his $50 million-plus golden parachute.)
Biden's goal, he said, was to make Delaware "a destination for scholars and policymakers around the world." He wants "to give (students) some intellectual context to the problems we are grappling with" in getting the U.S. to grow faster. In short, "I want to raise the profile of this school I attended."
He said he's asked to meet first with the Young Republicans, in an effort to maintain the old Delaware tradition of civil political discourse in the face of what Biden called "unhealthy" and "coarse" national politics.
And he underlined his Obama-era appeal to the "middle class": When regular folks get good jobs and can afford nice homes and college for the kids, "the wealthy do very well and the poor have a way up."
Biden added: "I'm not making a moral argument. This is an economic one: You can't have a healthy country without a strong middle class." That's what he told China's President Xi Jinping, he added: America means "Possibilities."
And those possibilities, Biden said a bit ominously, "depend on what companies decide to do with their profits." Will they spend them on "research, training, equipment," and other presumably jobs-creating activities? "Or shareholder payout?"
If that seems an obvious choice to you — either way — Biden insisted, professorlike, that there's "no simple answer."
But his panelists each declared themselves in the long-term camp.
Jeff Sonnenfeld, Associate Dean of the Yale School of Management, denounced hedge fund managers like Nelson Peltz, who targeted ex-DuPont chief Ellen Kullman, as "frat-boy bullies" who "make stuff up" in their "sleazy corporate campaigns."
Sonnenfeld said at UD that he was surprised, for once, to find himself in agreement with the other members of the panel. More often, Sonnenfeld is a lonely critic of what Wall Street investors call inevitable restructuring in the name of higher shareholder returns.
Sonnenfield denounced DuPont's former board (which included current CEO Edward Breen) as a "weak-kneed" group who "sold off their future" to gain "a slight bump in the stock price." He said hedge funds like Peltz's Trian "aren't accountable" to corporate boards, collect multimillions in fees but only disappointing profits for outside investors, and are prime examples of what Biden called "short-termism" that has "eaten (America's) seed capital."
When Sonnenfeld went on to declare that the DuPont board "lost their nerve" after just "two bad quarters" due to international circumstances beyond Kullman's control, Prof. Charles Elson, head of UD's Weinberg Corporate Governance Center, protested that the DuPont situation had been "a little more complicated." He warned against blaming hedge funds for all the problems with America's well-paid, but often underperforming, corporate management and boards that are too passive: "Hedge funds are a symptom."
Carsten Stendevad, the Danish former national pension manager who is now senior fellow of investment manager Bridgewater Associates, said studies have shown long-term investing works best -- and called investor pressure to boost quarterly earnings "a paradox." He said more corporate directors are "waking up."
Kip Tindell, cofounder and chairman of the Container Store, said his business required a "ten-year" approach to building clients and vendors. He expressed hope the "imperial CEOs" of unhappy memory are being replaced with "servant-leaders" at companies that apply "conscious capitalism," citing Costco, which pays employees far above retail scale, as an example of more durable management practices.
But all public companies are periodically liable to hedge-fund attacks, Tindell added: "All great companies see their prices fall by half over a decade. They're all vulnerable to this system."
"Institutional investors have to look in the mirror to see the cause," said Mark Wiseman, global head of active equity management at BlackRock, a unit that CEO Fink has recently reduced in size as more investors buy index funds. Wiseman said passive investors let companies' long-term interests get manipulated and detoured by activist hedge funds. In corporate America, "you get the government you deserve."
Wiseman previously invested for the Ontario pension system. "Every dollar, every yen, every rupee that's invested belongs to individuals. They are savers, by definition they are long-term," he said. But "in the value chain from asset owners to asset managers, something is broken. By the time the money gets to a corporation, it's being used for very short-term purposes anathema to the long-term returns the savers want." The cure: board members with the guts to defy short-term returns and invest for future growth.
Sarah Williamson, a former Wellington Management Co. executive who is now CEO of investor FCLT Global, cited a study that estimated one-quarter of U.S. companies "behave in a long-term way," maintaining hiring and R&D spending — and that these companies posted "greater returns over a significant period of time."
But those same confidently-investing companies "got hit harder in the financial crisis," she acknowledged. "The short-term companies did better" at posting profits "when the pressure was on" and they cut costs to save cash flow. "It took a CEO and a board with a pretty strong stomach" to resist short-term cuts. If more companies had, the economy would have recovered far more decisively, she said.
Williamson blamed the "quarterly rat race" of earnings reports. The solution isn't less data — transparency is vital — but for investors to understand that failing to meet analyst projections is like a bad weather forecast: it's not the weather's fault.