There was a lot of conversation last year about what we might learn from the pandemic, and specifically how what we learn might inform our approach to dealing with the climate crisis. A lot of this discussion focused on which industries and technologies should be supported and which not. Some of this involved decisions to channel investment away from fossil fuels and into renewables.

In particular, the spotlight was on pension funds and efforts to persuade them to switch their bazilliions, or trazillions, of dollars from coal and oil into wind and solar. Much of the news has been positive with some of the world’s biggest pension funds and sovereign funds doing just that.

And why not? Investing in socially good industries and technologies would seem to be a no-brainer. But it was not, and is not. The issue raised by those who manage these funds and resisted was usually summarized in what they termed as their responsibility to only consider shareholders and profit maximization in making investment decisions; environmental, social, and governance (ESG) considerations were not allowed on the table.

There were two recent articles, one in Bloomberg Businessweek and the other in the New York Times that shed a lot of light on this issue.

The article in Bloomberg Businessweek charts the legal battleground on the ESG issue, tracing it back to Henry Ford, who ran his factories not for shareholder profit but instead so he could raise worker salaries and reduce the cost of his cars. Well, the Dodge brothers didn’t like that and sued to get more of the money to shareholders through bigger dividends.

According to the article, that court case gave the Dodge boys a victory and required Ford to increase dividends, but it also “undercut the principle of shareholder primacy by affirming what’s known as the business judgment rule, which gives boards of directors wide latitude to decide what’s in the best interest of the corporation.”

So, ambiguity was firmly established in the law, and many, even most, investment managers took the overall decision conservatively to mean shareholder primacy is the most important, and even the only consideration in investment decisions.

But, recently pension funds and others have been emphasizing that the two are not incompatible; ESG decisions (e.g. divesting from coal and oil) can also be seen as the most prudent decision for stockholders. Duh, you might say, and 26 percent of “professionally managed” funds in 2018 had ESG mandates. Looks good for the climate crisis, right? Well, hold your horses.

This has made some industries mad. Alaska’s elected leaders complained that ESG’s had stopped lending for oil and gas projects in the Arctic. The gun industry and owners of private prisons also complained.

These complaints reached ears in the current administration and three agencies of the federal government are proposing to reaffirm shareholder primacy. The Department of Labor has finalized a rule that investment decisions be based solely on monetary considerations. The SEC is taking similar action and the Office of the Comptroller of the Currency is proposing to penalize banks that include ESG in their lending decisions.

I don’t know if Henry Ford was all about ESG. He at least seems to have been interested in his workers and giving them a better life. The current financial system is so complex, so much influenced by lawyers and lobbyists not famous for looking out for the average Joe and Jane, it makes me wonder if maybe there’s a better, more transparent model for at least some economic activity that would see environmental, social and governance issues as integral to, not just sometimes additional to, economic activity.

This brings me to the second article, this one in the Times and captioned “The Basque Model for Softer Capitalism.” It’s about the Mondragon Corporation in Spain, a collection of almost 100 cooperatives employing more than 75,000 people and annual revenues of nearly $15 billion, making it, in the words of the article, “one of the nation’s largest sources of paychecks.” It includes one of the country’s largest grocery chains and a credit union (hmmm, sounds a bit like our little burg) and employees have health care, profit sharing and pensions.

Many large corporations in the U.S., enthralled with the shareholder primacy model, increased dividends and bought back stock in order to raise prices on the stock market. This enriched stockholders, but left many of the companies unprepared for the pandemic, resulting in layoffs.

At Mondragon, on the other hand, there’s a philosophy and practice of not firing people in difficult economic times. Since the owners are the workers, they can reduce salaries or otherwise exercise flexibility to respond. The pandemic cut demand and forced some factory closures and reduced production at others by 25 percent. Having set aside funds for just such exigencies, employees continued to receive their salaries, with 5 percent slated to be paid back in hours worked when the crisis abated.

It would seem that if one of the lessons we are to learn from the pandemic and apply to the climate crisis is to “Be Prepared” there’s a potentially big role for cooperatives in our future.

— John Mott-Smith is a resident of Davis. This column appears the first and third Wednesday of each month. Please send comments to


Crossposted from the Davis Enterprise

Published online on January 06, 2020 | PRINTED in the January 6, 2020 edition on page B3