Commentary: the BlackRock letter sets ambitious goals. Here’s how CEOs can meet them – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Fortune

Should public companies focus on earning profits for their shareholders, or should they serve broader societal needs? Larry Fink, the head of BlackRock, the largest fund manager in the world, recently issued a letter to company CEOs stating: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

Yet the same letter tells public companies that they should adopt a strategic plan with “a path to achieve financial performance.” The letter reconciles these potentially conflicting objectives by pushing companies to pursue “long-term value creation” rather than short-term profits. In other words, they can enhance their long-term financial returns to shareholders by serving the needs of other stakeholders—even if this lowers short-term profits.

While BlackRock was trying to sensitize companies to their social responsibilities, the letter could undermine the accountability of corporate directors to their shareholders. CEOs could hypothetically justify any decline in annual earnings by claiming they were serving all stakeholders in hopes of increasing long-term financial results. How will shareholders later assess whether these stakeholder-focused policies actually resulted in higher financial returns? And does the long term mean five, 10, or even 20 years? Read More »

You’re probably paying more for your car loan or mortgage than you should – Christopher Palmer

MIT Sloan Assistant Professor Christopher Palmer

From The Conversation

The Federal Reserve makes headlines from New York to Hong Kong anytime it lifts its benchmark interest rate. Rightfully so, as any increase tends to drive up borrowing costs on everything from credit cards to auto loans and mortgages.

There’s a more important factor that determines how much you’ll pay when you borrow money to buy a car or home, and it’s entirely in your hands: it’s the lender you choose. That’s because how much a lender might charge you for a loan can vary dramatically from one to the next. That’s why it pays to shop around.

My research on auto loans shows that most consumers don’t do that, which can cost them hundreds or even thousands of dollars over the life of a loan or lead them to purchase a lower-quality car than initially planned. Fortunately, it’s pretty easy to avoid that.

Bargain hunters

Most of us shop until we drop for price bargains on clothes, computers or virtually anything else. With the internet, finding the best deal among products and companies is easier than ever. Read More »

America should respond to China with a ‘second Sputnik moment – Yasheng Huang

MIT Sloan Professor Yasheng Huang

MIT Sloan Professor Yasheng Huang

From MarketWatch

The burgeoning trade war between the United States and China has as much to do with technology as with the balance of trade. Reports have surfaced that the Treasury Department is drafting rules to block Chinese firms from investing in American companies doing business in so-called industrially significant technology, while the Commerce Department is planning new export controls to keep such technologies out of Chinese hands.

These moves follow President Donald Trump’s proposal to impose tariffs on $50 billion worth of Chinese products, many of which are on the priority list for “Made in China 2025,” President Xi Jinping’s blueprint to transform China into a global leader in high-tech industries like aerospace, robotics, pharmaceuticals, and machinery. Although the Chinese government has refused to modify its initiative, the U.S. is demanding that China end all government subsidies and grants under the program. Trade talks have stumbled on this point.

America’s concern with Made in China 2025 is understandable; China’s approach to technology development has been controversial, to say the least.But there are better ways to respond to China’s policies. Two ways, to be precise. Read More »

Scott Pruitt and global warming – John Reilly

MIT Sloan Sr. Lecturer John Reilly

Many news outlets are questioning how long Scott Pruitt will hold onto his job at the EPA as criticism of his spending continues.  However, even if Pruitt loses his position, it’s likely that his views and positions will continue to live on at the EPA and elsewhere—especially if, as expected, his deputy director were to take over. This, of course, is cause for concern. It may therefore be worthwhile to consider the continued resistance to views on global warming.

For example, The Chicago Tribune recently reported that Pruitt has once again questioned the scientific consensus that rising levels of carbon dioxide from human-fueled activity are warming the planet.

But now, according to the Tribune, he’s also taking a different tack. Even if climate change is occurring, as the vast majority of scientists say it is, Pruitt is questioning whether a warmer atmosphere might not be bad for human beings.  While it is unclear exactly why Pruitt thinks things won’t be so bad for humans, it’s worth considering his arguments.

Indeed there is evidence that some things may do better with global warming—as Pruitt has suggested —poleward areas where the growing season is short, would likely benefit from longer growing seasons and crops could benefit from higher levels of CO2 in the atmosphere. In general, CO2 enhances growth and can increase water use efficiency.

But low lying coastal areas, such as Florida and the Gulf coast will surely suffer from sea level rise.  Amplified by likely stronger tropical storms—some low lying island nations are almost certainly destined to disappear even if we hold the temperature rise to no more than 2 degrees.  With large populations centers on the US coasts and coasts around the world, its pretty clear that coastal damage will outweigh the benefit from longer growing seasons in poleward areas.  In addition, crops toward the equator including southern areas of the U. S. would likely suffer.

Read More »

Business Books podcast: “adaptive” markets – Andrew Lo

MIT Sloan Professor Andrew Lo

From Financial Times

The adaptive markets theory is a “reframing of our view of financial markets”, says Andrew Lo, author of Adaptive Markets: Financial Evolution at the Speed of Thought.

In the fifth episode of the Business Books podcast, hear Lo, shortlisted for the Financial Times & McKinsey Business Book of the Year Award, in conversation with John Authers, the FT’s senior investment commentator.

Rather than looking at markets as a mechanical system with laws of motion, Lo’s hypothesis takes the view that markets “are a human endeavour and as a result are subject more to laws of biology than physics”. What is the future for markets?

Read the full post and listen to the entire podcast at Financial Times.

Andrew W. Lo is the Charles E. and Susan T. Harris Professor, a Professor of Finance, and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management.