A Kodak moment: Long-term returns are inextricably linked to societal impact

If we don’t start to adapt our policies, economies and investment approaches to address the widening gap between the haves and the have-nots, the likely political, societal and financial market ramifications will make Brexit and Trump’s election success look like child’s play.


Rifling through a box of old bits and bobs over the weekend I found my old film camera. Boy, did that bring back some memories, but it also got me thinking: even within my short (ok, short-ish) lifetime, technology has had the most profound impact on how our societies function. I remember buying Kodak films, which I then had to take to a shop to be processed. From purchase to printed product, I typically interacted with at least three people employed to service this hobby. There were of course countless others I never saw. Where have those jobs gone now? Kodak went from employing 170,000 people to being bankrupt within a few years.

And they won’t be the last. Amazon has tolled the death bell for many a high-street brand. How many hotels have been threatened by the Airbnb revolution and what happens to all the people employed in the hospitality sector as margins are squeezed ever tighter? Uber has completely changed the face of taxi services across the globe and, with driverless cars just around the corner, how many more jobs will be lost in that and other transport-related sectors in the coming years and decades? Can the big traditional car companies survive the shift? What happens to all those jobs – and the people doing them?

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Swathes of low-skilled jobs will undoubtedly disappear as a result of the march of technological innovation. Is that a bad thing? The innovation, no – long may it continue – but it does pose a very important question that we cannot afford to ignore: how do we make sure there are still enough jobs available for the relatively un-skilled?

But just having jobs isn’t enough. Those jobs have to require similar levels of skill, be well paid, involve decent working conditions and provide some degree of job security.

The root cause of the rise in populism we’re experiencing in the West is a growing feeling of disenfranchisement among the masses, a feeling that the spoils of what little economic growth has been achieved since the Financial Crisis has been unequally shared with the privileged few taking the lions share. And the politicians aren’t doing their bit to counteract the trend.

If we don’t start to adapt our policies, economies and investment approaches to address the widening gap between the haves and the have-nots, the likely political, societal and financial market ramifications will make Brexit and Trump’s election success look like child’s play.

Many investors lost money in 2016 on the back of political shocks. The waves created by political uncertainty will continue to ripple out into financial markets as they push up volatility, for example, and drive down confidence for companies to invest in their own growth (and future jobs) through capital expenditure. These factors pose a threat to the sustainability of long-term capital market returns.

Surely this is a problem for governments to solve though? Well, yes and no. The public policy framework is a vital cog in the solution: huge investment needs to be made in re-educating and re-training the workforce to adapt to tomorrow’s world, for example. But if we wait for a political system focussed on a short-term election cycle to address these issues, we’re likely to see far too little, far too late.

Investors have a vital role to play too. After all, shareholders are the very best people to hold companies to account for how they ensure their own continued financial sustainability as well as the impact they have on society. It is up to the allocators of capital to ensure the companies they invest in are not overly-aggressive in their employment and tax practices, for example, and that companies are spending their capital to secure their own future.

In doing so, investors can do their bit to ensure the spoils of economic growth are more equitably shared out and not reserved purely for shareholders and top executives. Unless more investors take this role seriously, the gap between rich and poor will continue to widen, which will ultimately come back to bite those shareholders. Waiting for compulsion in this regard is simply not a viable option either.

Many of the biggest investors in the world are public institutions, such as sovereign wealth funds. Many others are pension funds, which invest on behalf of the masses. Many take their responsibility as owners very seriously, but all too few do not, or simply tick the relevant boxes. If even a small percentage of institutions started to ask more of the right questions of the corporate sector, the influence derived from their collective scale would be awesome, and likely far exceed what the public policy framework will achieve in the next few years.

But it is in the interest of shareholders to get the best possible return on their capital and in the interest of companies to do their best to increase those returns, right? Yes, but timescale really matters here.

The Kodak example shows how quickly the fortunes of an (arguably short-sighted) company can change. It also highlights the incredible impact technological innovation is having on the economy and, by extension, society as a whole.
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It’s vital that long-term investors focus on the long-term sustainability of returns and doing so means making sure the corporate sector is doing the same thing. And in that context, there can be no separating capital markets from society as a whole. They are inextricably linked.