Can Being Nice Lead to Success?

If it’s good enough for the Brownlee brothers it is good enough for me…………….

Company management often put keeping their shareholders happy above all else; largely due to the fact that they are at the very least strongly incentivised to do so (if not forced by law).

Depending on your point of view, Milton Freedman is often credited with or responsible for building this culture of putting shareholders first. His Shareholder theory from 1970 states it is the company’s social responsibility to maximise returns to shareholders. If you look back even further back in history, a court case involving Henry Ford was where this trend actually began. Ford lost the case in 1919 and was told he had to operate the Ford Motor Company in the best interests of shareholders.

Taking a step back; prior to this he was running the business in a more charitable manner. For the benefit of employees and customers; and this is what the minority shareholders were unhappy about. Was Mr Ford really in the wrong though? Was he wrong for trying to stop paying dividends to fund investments in new plants, or wrong for cutting prices to make cars more affordable? Worse still; has this not lead to a focus on the next 12 months; maybe even the next quarter, at the expense of the long term?

This case likely influenced short-term thinking at companies, more deeply than any technology advance has in the years between then and now (which we love to use as an excuse for short termism). But does business always need to be so cut throat…and can being a capitalist with a conscious actually lead to better return in the long run?

As far back as 1799 Robert Owen (an early industrialist) and partners bought the New Lanark Mill in my adopted home of bonnie Scotland. Early factories were harsh, with hazardous working conditions; shifts were as long as 13 hours a day for 6 days. Children as young as 5 worked in the factories. Often the machines were seen as more important than the people. Encouraged by results he had when managing a Cotton Mill in Manchester; he put principles ahead of profits as the main aim of the business. Instead of expecting children to work in his mill he paid for education, opening the first infant school in Great Britain. He installed 8 hour shifts and other improvements in workers’ rights. Despite anger and opposition from shareholders (who tried to sack him), other mill owners (who thought he made them look bad) and even his own staff (who did not trust him at first); the end result was strong profits driven by greater work force efficiency; likely because they were happy. Owen battled the social norms all of his life and would later go on to found the Co-Operative movement and dedicated his life to social change.

What can we learn from this today?

Should companies have more social responsibilities than putting Shareholders first? What about employees, customers and maybe even the planet? Thinking of shareholders may not always be in the best interests of the company (or shareholders for that matter). If we made Shareholders one of the considerations, but not the only one, we might drive a culture of longer-term thinking and one that focuses more on all stakeholders in a business and not just one.

Sadly if I look back over the last 20 years; there are many examples of companies trying to think more sustainably, but not being given a chance by shareholders. Whole foods sold out to Amazon for fear of being forced to tie up with a big supermarket chain. But what is becoming more frequent is companies failing because of innovation that is driven by ethics; this trend is almost certainly here to stay. Whether it’s Tesla*; whose one and only mission statement is “to accelerate the world’s transition to sustainable energy” or Hotel Chocolate*; who supply great tasting chocolate whilst treating people fairly and treading lightly on our planet, the financial world is slowly beginning to appreciate that shareholders are not the only stakeholder that matters.

*Several of the Kames Capital Funds invest in Hotel Chocolate and Tesla.

About the author

Neil Goddin is an investment manager, with responsibility for co-managing both long only and market neutral strategies within the Global Equities team. He also leads the team responsible for building and maintaining the Kames equity investment screen, which provides inputs into the investment process across our equity strategies. Neil joined us in 2012 from LV Asset Management where he was Head of Investment Risk. Prior to that, he worked for WestLB Mellon Asset Management and Deutsche Asset Management in various risk-management roles. He has 21 years’ industry experience*. *as at 30 November 2019

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We can’t export the problem anymore

Europe produces 58 million tonnes of plastic every year.

40% of that is used for packaging.

Only 30% is recycled – albeit the last figure is flattering because we mostly ship the problem off to Asia.


Source – WRAP – UK, 2017

Huge numbers. If it makes it any easier (or worse) to comprehend, just think that 1 million plastic bottles are bought every minute globally. Or more plastic than fish in the Ocean by 2050…..

Hard to believe then, but Asia doesn’t want our waste anymore! The Chinese National Sword 2017 campaign to cut illegal smuggling of foreign waste drew a line in the sand. Indonesia and more recently Malaysia have announced their intentions to curb waste imports. We can’t continue to export the problem. It’s not often I can say my adopted home country of Scotland is leading the way; but on plastic it most definitely is. The recent decision to introduce a deposit return scheme on all single use drinks containers and more importantly to price it at a lofty 20p is a strong statement of intent. C’mon Scotland!

Europe has also recently introduced legislation around plastic. Targets are punchy; 77% of single use plastic to be recycled by 2025 and 90% by 2030. ‘Single use’ even includes things like the filters in cigarettes – apparently they are difficult to recycle…they’re a wee bit toxic…. But roadside collection isn’t enough if we want to meet these targets. The gap between what we consume and what gets collected from households is still too great. And we often consume single use plastic whilst on the go.

People want to do more (or at least they say they do).


Source – Keep Britain Tidy – 2018, UK, 18 years and older, 2,138

And companies are responding too. 150 companies and 16 governments have pledged their support to a New Plastics Economy Global Commitment, a common vision of a circular economy for plastics. Major companies like Carrefour, Colgate-Palmolive, Nestle, SC Johnson, The Coca-Cola Company and Unilever are publicly disclosing their annual plastic packaging volumes and have committed to increased recycled content in their packaging to 25% from a woeful 2% global average. It is hoped that this will stimulate demand for collection and recycling.

I can remember the old deposit return system for glass bottles. Technologies to do the same with plastic bottles already exist and I expect to see more of them in the UK. For instance, ‘reverse vending’ machines can easily be installed across a network of shops. Through deposit return, they reward customers who bring their plastic bottles back. In addition, by keeping materials away from contaminants, the machines ensure a container can maintain its food-grade status and be turned back into another container, avoiding ‘downcycling’ and minimising waste and resources. And retailers don’t mind them, as evidence shows the increased footfall can lead to extra sales.

About the author

Neil Goddin is an investment manager, with responsibility for co-managing both long only and market neutral strategies within the Global Equities team. He also leads the team responsible for building and maintaining the Kames equity investment screen, which provides inputs into the investment process across our equity strategies. Neil joined us in 2012 from LV Asset Management where he was Head of Investment Risk. Prior to that, he worked for WestLB Mellon Asset Management and Deutsche Asset Management in various risk-management roles. He has 20 years’ industry experience (as at 30 April 2019).

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Is Hydrogen about to join the EV party?

It’s fair to say hydrogen vehicles have been slow to catch on… but why? In part because of Toyota- until recently they held all the fuel cell patents, which made it very difficult for anyone else wanting to produce a fuel cell vehicle. But let’s not be too tough on them- Toyota went on to release over 5,000 key hydrogen patents to the rest of the world in 2015. Innovation has been rapid since.

But what about those of you who say lithium batteries are the future? Not necessarily so. Hydrogen fuel cells take up less space and are lighter than batteries. They’re also longer range and take minutes to fill up, more like a traditional petrol vehicle- so no need for charging! Hydrogen is therefore well suited to big vehicles; trucks, buses, ships. And in the future, trains could even be powered by fuel cells. Vehicles that move on set routes are better suited as the associated infrastructure is easier to build out.

The market seems to view Lithium as VHS to hydrogen’s Betamax. But we don’t necessarily share that view. After all, petrol and diesel have happily co-existed.

Hydrogen is itself a store of energy and requires production (which is energy consuming). There are a few ways to make hydrogen, but from an environmental perspective, it only really makes sense if that production (splitting water) is powered by renewables. But, despite the plunging costs of renewable energy, this is still too expensive right now. None-the-less, hydrogen offers significant promise as a way of storing excess renewable energy longer-term, beyond the short-term… which will most probably be dealt with by a battery.

We therefore continue to monitor the adoption of hydrogen technologies across various industries with interest. For instance, Anheuser-Busch has ordered 800 trucks from Nikola Motor (they ordered 40 Battery trucks from Tesla also). The trucks will be powered by fuel cells supplied by Plug Power. BUD are aiming for 100% renewable brewing by 2025. Nikola expects to test trucks with BUD at the end of this year with actual integration starting in 2020. Nikola plan to invest in over 700 fuelling stations across America in the next 7 years; with the first 14 running by 2021. Other manufacturers ranging from Hyundai to Daimler (and obviously Toyota) are keen too.

But it’s not just heavy transport. Hydrogen could offer a route to significant decarbonisation for many industries who have resisted emission reduction and continue to hold out for carbon capture and storage (CCS) as the decarbonisation silver bullet. Unfortunately, whilst it sounds great, commercial CCS at scale still seems unlikely even in the medium term.  Steel manufactured using hydrogen from renewables is a possibility for example.

Hydrogen has lofty industrial backers from Shell to Toyota but seems unloved or at least underappreciated by investors. It also has the potential to fulfil a variety of roles, including heating homes, fuelling vehicles, feeding industrial processes and storing excess renewable electricity for when it is needed. No-one (ourselves included) anticipated how quickly the cost or renewable technologies would fall enabling their rapid growth. For those industries who have thus far resisted significant decarbonisation, maybe hydrogen (from renewables) will be the solution.

Kames has investments in Anheuser-Busch, Tesla, Daimler and Shell.

About the author

Neil Goddin is Head of Equity Quantitative Analysis and also has joint responsibility for managing funds within the Global Equities team. In addition to investment management responsibilities, he leads the team responsible for building and maintaining the Kames equity investment screen, which is used across the equity team, and advising on optimising risk levels in the funds. Neil’s role differs from most typical quant professionals as he sits within the fundamental team, has joint responsibility for managing funds and is an integral part of the equity team; rather than the more traditional model where quant teams sit separately, away from investors. Neil joined us in 2012 from LV Asset Management where he was Head of Investment Risk. Prior to that, he worked for WestLB Mellon Asset Management and Deutsche Asset Management in various risk-management roles. He has 20 years’ industry experience and is a Certified Risk Manager by the Global Association of Risk Professionals (as at 30 November 2018).

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