Every maker of change in the business and technology world today fancies him or herself a disrupter. But Jack Bogle, the Vanguard founder who made index funds the dominant feature of today’s investment landscape, was disrupting things long before that word came into fashion. In an interview with Bloomberg, Bogle recalls how hard it was to round up support for the first-ever index fund in 1976.
Indexing is bad for the brokerage business and the mutual fund managers, but retail investors love it. Today the low-cost passive-investing approach Bogle pioneered has won nearly $3.5 trillion in assets at Vanguard and lots more elsewhere. He says the transformation unleashed by index funds is still gathering momentum, steadily “shifting the allocation of stock market returns away from Wall Street and toward Main Street.”
If your accounting department is still seen as a back-office expense, one you pay for because well, you have to, then you’ve missed out on one of the biggest business shifts in recent years: accounting’s rise as a true strategic partner.
The finance and accounting function is shifting from the back room to the boardroom. A lot of this motion has been fueled by the ongoing development of online reporting tools which offer true real-time reporting visibility that enables sound strategic decision-making.
Fast Forward was founded in 2014 to bring the same level of support found in for-profit incubators and accelerators to tech non-profits. The firm provides its members with grants, pro-bono support, and a network of mentors and colleagues. It was founded by successful Kevin Barenblat, a successful entrepreneur who founded Context Optional which was later to sold to Efficient Frontier which then got bought by Adobe, and Shannon Farley who previously founded Spark, a marketplace for millennial philanthropists.
Earlier this week, Fast Forward presented its 2016 cohort at its annual Demo Day. In true NewCo fashion (Fast Forward has been showcased at NewCo SF), each of the nine companies shared their purpose and demoed their products. Although the focus was more on potential lives impacted rather than potential market share, like other high profile start up pageants like Techcrunch Disprupt and Y Combinator Demo Day, the goal of the presentations was to recruit investors.
One can’t help but root for all the companies who participated. You can see all nine demo videos here. Fast Forward looks for companies working on education, environmental, health, and human rights issues. The challenge, of course, is finding an economic model that gets these solutions to market. Without equity to give, non-profits rely on the generosity of donors and foundations — Fast Forward Demo Day was supported by Google.org, the Omidyar Network, and Black Rock. Google.org announced $25k grants for all participating companies and offered to match individual donations up to $100k.
Markets are putting Deutsche Bank through a safety drill. If we’re lucky, the rustle of investors fleeing Deutsche Bank late this week will prove to be a minor hiccup in the world of capital. If we’re unlucky, it will be the first domino to fall in another wave of financial disaster like the one we experienced in 2008. Deutsche Bank’s recent round of woes started with a $14 billion fine by the U.S. government for the bank’s sale of mortgage-backed securities during that last bank crisis, which sent investors for the doors (Fortune). Along with the recent scandal at Wells Fargo, which revealed that thousands of its employees had for years been opening fake accounts to meet sales incentives, Deutsche Bank’s problems remind us that, as a result of hard lessons learned a decade ago, our banking system’s safety protections got some upgrades, but they haven’t actually been tested yet. And if they’re not up to the next crisis, then we’re all going to be stuck paying the price — again.
When is a poll not a poll? When it’s an online survey in which anyone can vote and vote again. One of the foundations of data science took a beating in the political arena this week, as Donald Trump crowed over his wins in snap post-debate online “polls” even as the real polls started tilting in his opponent’s favor (CNN). Real polls, scientific ones, try to map the reality of public opinion through a process of weighted sampling. You might only ask 1000 people what they think; but if those thousand respondents match the national population in race and religion, party affiliation, income, and so on — or, if they don’t, you weight them a bit so they do — you’ve got a snapshot of something real. But if you just open the tap on the internet and ask anyone to vote, your results are nearly worthless. Trump’s wins are like Hank the Angry Drunken Dwarf’s victory in People’s “Most Beautiful People” online poll; a self-selected sample is just a gauge of partisan excitement level. In a larger sense, this overvaluing of online polls reflects our deeper confusion over how to use all kinds of metrics. By turning yardsticks into targets, we break them (Quartz). Your poll becomes someone else’s campaign; your Key Performance Indicator stops telling you anything useful because everyone in your organization is trying to game it. Without context and understanding, raw data is worse than useless — it can be toxic.
The stage coach lands in the ditch. It’s nuts, the sheer scale of this story: Since 2011, Wells Fargo employees created 1.5 million bogus bank accounts and another half a million fake credit card accounts to meet sales quotas and earn incentives (The Wall Street Journal). They signed people up for these accounts, and even moved money into them, without customers’ knowledge or consent. As these practices began to be investigated by Los Angeles prosecutors and federal regulators, the bank ended up firing 5300 employees, or about one percent of its workforce. Wells Fargo was one of the few big U.S. banks to get through the big bank bust of 2007–8 relatively unscathed; now it has been fined $185 million by the Consumer Financial Protection Bureau (the watchdog agency set up after that banking collapse). Remember how hard some defenders of the banks fought to keep the CFPB from being established? Banks, they said, could regulate themselves. If that card ever worked, it just expired. Banking (and all business) depends on trust; the more stories like this people hear, the faster they will flee big old institutions and seek new alternatives.
Facebook plays the censor. If you were looking for a test case illustrating exactly why people argue with Facebook when it says things like “we are not a media company,” you couldn’t invent a better one: After someone posted Nick Ut’s famous Vietnam War photo of an anguished young girl running down the street after a napalm attack, Facebook took it down (The Guardian). The company told him to “remove or pixelize” it (the girl is naked). When he refused — he’d included it in a gallery of images that had “changed the history of warfare” — Facebook suspended him. In protest, many others reshared the image — among them, Norway’s prime minister. Her post was deleted, too. You can expect more follow-ups, reversals, and contorted press releases as Facebook tries to extricate itself from the mess it has stepped into. Policing online content boundaries is a challenging business, and the bigger you get, the harder it becomes. Facebook still has a lot of learning to do.
Startup formula: Big data + lawsuits = profit. Legalist, a startup founded by two Harvard undergrads that launched at Y Combinator’s summer Demo Day this week, tries to figure out who’s going to win business lawsuits — then bankrolls the winning side to collect a share of the award or settlement (Business Insider). Yes, this is similar to what Peter Thiel did to Gawker, except he was out for revenge, not returns. Maybe it’s just a total coincidence that one of Legalist’s founders is a Thiel Fellow. But the company’s concept shares the financier’s traits: It’s appealingly radical in its thinking, and disturbingly casual in its disregard for collateral damage. Once upon a time, Legalist’s business model was known as “champerty,” and was against the law. Today it’s called “litigation finance” and has become a growth sector. Hedge funds are already investing in lawsuits, so why not apply some big-data-fueled, deep-learning-powered smarts to win such bets? Maybe because that’s just begging for a backlash. A sustained public outcry might could get federal, state and local governments to reform their legal systems to make them less easily influenced by infusions of cash. That’s an outcome we could get behind.
Is Vanguard un-American? A lot of investors like index funds because they charge low fees and therefore deliver higher returns in the long run. The folks at brokerage Sanford C. Bernstein & Co. want you to know that such “passive” investing, however attractive it may look, is actually anti-capitalist and probably un-American, too (Bloomberg). They’ve written an article — titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism” (but curiously unavailable on their website) — that attempts to make a moral and social case for the value-add that active investment managers provide. “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management,” they write. Of course, this is one big hypothetical; nobody has advocated outlawing stock-picking fund managers, and there will always be people who think they can beat the market. Mostly, it sounds like Bernstein & Co. are frustrated that so many investors have finally started taking the market’s common-sense cues and abandoning the active funds along with the high fees they charge.
When Wall Street is at the wheel of your ambulance. Private equity firms — the investors formerly known as “corporate raiders” — are operating ever bigger chunks of what we used to call the public sector, shaping our daily lives (New York Times/Dealbook). There’s a logic behind handing emergency services, transportation infrastructure, housing, or utilities to efficiency-minded investment groups: Theoretically, hard-nosed management can squeeze waste out of public services, striking a better deal for local governments. But these companies specialize in “cost cuts, price increases, lobbying and litigation” — so don’t be surprised when their touch turns out to be rough. Maybe there was a point to hanging a big “public” sign over part of the economy?
Airbnb, community disorganizer. When you take a hot neighborhood and turn chunks of its housing into Airbnb rentals, hosts can make money, economists cheer the efficient resource use, and travelers enjoy a quirkier-than-Marriott experience. But turn enough homes into short-term rentals, and that unique neighborhood could lose its character or even disintegrate (Next City). That’s why it makes sense to think twice before swapping too many full-time residents for drop-ins: Community isn’t community when the members are all gone.
Fourth in our Shift Dialogs Series — Full Transcript and Video
I first posted about Rana Foroohar back in May, when her timely and well-received book Makers and Takers: The Rise of Finance and the Fall of American Business came out. That interview was one of our most-read pieces back then, but in the last few months, tens of thousands of new readers have come to NewCo Shift, and Rana was kind enough to come into the Nasdaq studios and shoot a fresh interview with us.
This twenty-minute conversation lays out not only the core argument of Rana’s book, but also ties today’s extraordinary social shifts to a long term trend of financialization in our economy. Along the way she has some choice words for Apple and Uber, and some deep insights on today’s political circus (she notes that Trump voters have not had an increase in real income since the 1970s, for example).
Rana Foroohar’s deeply reported new book takes direct aim at the financial industry and calls for a new compact between business and society.
Every so often a book comes along that works its way into a majority of the interesting conversations you have with both friends and colleagues. Such is the case with Rana Foroohar’s Makers and Takers: The Rise of Finance and The Fall of American Business. Foroohar was kind enough to send me an early draft to read several months ago, and I found myself quoting from it in nearly everything I subsequently wrote, in every talk I gave, and even in various Slack channels at work. Makers and Takers is that rare work of journalism that both appears at a fortuitous moment in history, and captures the essence of that moment’s core narrative.
Foroohar chronicles the rise of the financial industry and its destructive impact on the global economy. And she has the credibility and the chops to pull it off — over the past 15 years she’s covered the financial industry for Newsweek and Time. She’s been the global economic analyst for CNN for the past three years as well. Foroohar is not only passionate and opinionated about her field of work, she’s a lucid and compelling spokesperson for change in not only finance, but also in the purpose-driving business, and the social compact that binds us all as citizens in a global economy.