WOKE WEDNESDAY: Anti-woke responses to SVB (THE DEI DID IT!), plus post-modern governance, G-washing, and who's the next bank at risk feature Doug Chia of Soundboard Governance

LIVE from Blackrock’s Gold-plated ESG walk-in closet, it’s the ESG Industry’s ONLY weekly woke data podcast, featuring BS man Matt Moscardi and special guest star Douglas Chia (CHA), President of Soundboard Governance . In today’s Eggy Spicy Grape called March 15, 2023: more bank failure talk! Specifically, the anti-ESG/anti-Woke perspective and an ongoing Board Sabermetrics Risk Assessment

Our show today is being sponsored by ESGauge, your ESG data solutions provider 

DAMION1

Woke Data Wars

1. The Crying Woke list

1. Home Depot co-founder Bernie Marcus

1. Marcus, a well-known supporter of former President Donald Trump and the 'MAGA’ movement, argues that the bank’s leaders took their eye off the financial ball; pushing a series of diversity, equity and inclusion initiatives ahead of the downfall. “This is the biggest failure since 2008,” he said.

2. Their own people should have spotted this but they didn’t. They were too busy being ‘woke,’ playing the ‘woke’ game,” Marcus alleged.

3. Not hiring the brightest people but hiring people based on what they look like or where they fall on the social register,” Marcus said. “A bank is there for one reason, to make investments, to make sure their investments are right and smart.

4. warns Americans to 'wake up' after 'woke' Silicon Valley Bank goes bust - because it was 'more concerned about global warming than shareholder returns'

2. Fox Business host Larry Kudlow:

1. "Lord knows what other left-wing romping was going on in these woke banks. By the way, San Francisco Fed head Mary Daly is considered herself to be quite a wokester!"

3. Wall Street Journal columnist Andy Kessler:

1. “I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands”

4. Arizona Rep. Andy Biggs:

1. SVB’s resources were “blown on woke/DEI initiatives.”

5. Florida Gov. Ron DeSantis:

1. This bank, they’re so concerned with DEI and politics and all kinds of stuff,” Florida Gov. Ron DeSantis, a vocal critic of ‘woke’ culture said.

2. Silicon Valley Bank’s diversity, equity and inclusion requirements “diverted from them focusing on their core mission.”

3. Diversity and inclusion standards are why “big banks are now increasingly incompetent.”

6. Republican Rep. James Comer, R-Ky., blames SVB’s fall on progressive investments.

1. They were one of the most ‘woke’ banks in their quest for the ESG-type policy and investing and there are consequences for bad democratic policies,” Comer said.

2. Comer did not explain which environmental sustainability-linked investments would have caused SVB's failure, or how they would have done so.

7. Senators Josh Hawley and Eric Schmitt, both Missouri Republicans, saw another culprit lurking in the shadows: investors who wean their portfolio off of fossil fuels in favor of clean energy. 

1. Hawley and Schmitt both tweeted that Silicon Valley Bank was "too woke to fail." Schmitt suggested "ESG investment policies," which prioritize investments in sustainable energy, might have played some role in the bank's demise.

8. Trump

1. Took both sides. He amped up populist corporate-bashing rhetoric, but he also talked up deregulating business at least as much as free-market booster Ronald Reagan had decades earlier.

2. And it wasn’t just talk; a weakening of Dodd-Frank banking regulations was one of the few real legislative accomplishments when Trump presided over two years of unified Republican government in 2017-2018.

9. And then the parroting dummies

1. Facebook user Paul Tucker:

1. 'The [SVB] Board of Directors is filled with diversity hires who are there because of their woke credentials.

2. 'They all have pronouns in their bios, which are filled with corporate newspeak.

1. Not true

3. 'This is what happens when you allow people to manage your money based on woke principles instead of on their actual skill and competence.

4. 'I hope the depositors at this failed bank enjoy all of that diversity, because diversity is your strength, eh?'

5. He signed off the post: 'Get woke, go broke.

2. Twitter users:

1. 'Head of Financial Risk at SVB Jay Ersapah might’ve been busy with more important projects at the bank, such as LGBTQ issues, rather than assessing risk.'

2. "Is she Vijaya Gadde of #SVBBank? Her bank Risk management strategy went for a toss and stocks fell from 700$ to 40$ and #SVBCollapse That is what happens when head of financial risk of a bank is Concerned more about woke politics than taking care of the Financial risk of the bank."

10. The boss of Financial Risk Management at SVB’s UK branch, Jay Ersapah, has been accused of prioritizing pro-diversity initiatives over her actual role.

1. While Ersapah acted as the CRO for Silicon Valley Bank in Europe, Africa, and the Middle East, she organized a range of LGBTQ+ initiatives, including a month-long Pride campaign and "safe space" catch-ups for staff.

2. In the past, she has also moderated the EMEA Pride townhall and served as a panelist at the bank's Global Pride townhall to share her experiences as a lesbian of color. Her LinkedIn profile indicates that she has had a successful career, having worked for several high-profile names in the finance sector, including Citi, Barclays, and consultancy firm Deloitte.

2. Did Silicon Valley Bank have ESG and DEI programs?

1. Yes. In August, SVB detailed its sustainable investing efforts, including an $11.2 billion community benefits plan that included small-business loans and a mortgage program for lower-income home buyers. It also detailed a $5 billion program to provide financing to support its clients’ sustainability businesses.

2. Moreover, SVB detailed efforts to “build a workplace where all employees are connected, celebrated and supported,” including hiring practices that promote diversity.

3. The woke defenders

1. Yale business management professor Jeff Sonnenfeld: "To try to weave woke into this is delusional."

1. "[Hawley's] focused on the woke issues of Fortune 500. He should be corrected that none of these customers are Fortune 500. These were small startups," Sonnenfeld said. "Senator Hawley needs to take a look at who the customers are here. These are people that he would support."

2. "They relied on this bank because a lot of the big behemoths wouldn't take chances on those little guys."

3. "This is much more of a political problem than it is an economic problem," he said. "It's being driven by the politics, frankly, of the left and the right."

4. SVB Exposes ‘Lazy’ ESG Funds as Hundreds Bet on Doomed Bank

1. Another market meltdown, and another costly lesson for ESG.

2. After being caught on the wrong side of Vladimir Putin’s war in Ukraine and the Adani scandal, hundreds of ESG fund managers are now dealing with the sting of having misjudged Silicon Valley Bank. 

3. About 915 funds registered under European Union regulations as either “promoting” ESG or declaring it as their “objective” are exposed — directly or indirectly — to the now-collapsed bank, according to data compiled by Bloomberg. 

4. For ESG investors, SVB appeared to tick several boxes. The bank was a big lender to renewable energy companies, a favorite among ESG managers on the lookout for low carbon footprints. But when it came to governance risks, fund managers seem to have been less attentive. 

5. “There are a lot of lazy asset managers taking ESG scores for granted,” said Sasja Beslik, a sustainable finance veteran who’s now the chief investment officer at NextGen ESG. The failure of SVB shows that fund managers who go “all in on carbon are not necessarily managing other risks.”

6. For the ESG investment industry, the collapse of SVB may go down as a textbook case of what happens when an asset manager tries to build a climate portfolio without doing proper due diligence on social and governance risks. 

7. “People worry about ‘G’ only in a crisis, no one talks about ‘G’ when stock prices are going up,” said Shivaram Rajgopal, an accounting professor at Columbia University’s business school in New York.

8. “For SVB to get a high overall ESG rating based on its tech and clean-tech focus without deep consideration of ‘G’ is just poor analysis,” Paul Clements-Hunt, who led a United Nations group that coined the acronym ESG back in 2004, said.

9. SVB’s spectacular collapse shows there was “a massive governance issue,” Alp Ercil, whose Hong Kong-based fund Asia Research & Capital Management controlled $3.5 billion in assets as of January, said at an event in Singapore. 

10. “And it’s going to be a huge case study that hopefully Wharton will write on the ‘G’ component of ESG,” he said.

5. The non-woke blame game

1. Elizabeth Warren says the millions in bonuses Silicon Valley Bank executives took home last year should be recovered by regulators: 'We should claw all that back'

2. SVB is the first social media bank run in history. The crisis will change the banking industry forever.

1. The fall of Silicon Valley Bank was the fastest in history, largely due to Twitter-induced panic.

2. Many VCs and founders stoked panic on the platform, later deciding to delete their posts.

3. "Tech is obsoleting the current regulatory structure," a former regulator said.

3. 'Shark Tank' star Kevin O'Leary is blaming Silicon Valley Bank's implosion on a 'negligent board of directors' with 'idiot management'

MATT1

SVB’s big “who” problems summed up:

• No risk experts on risk committee

• Outsized executive influence

• No CRO for almost a year

• Board from Stanford

• Failed up bankers

Market is worried about other mid major and major banks

• First Republic down 65% in the last 5 days (recovered 26% yesterday)

• Zion’s down 33% (recovered 4.5%)

• US Bancorp down 18% (recovered 3%)

• PNC down 10%

• Truist down 28%

• Wells Fargo down 10%, Capital One down 9%, BofA down 12%

Should they be worried?? Let’s predict a 1%er bank run!

Data overview:

• There are 168 publicly traded US banks in our data, including big diversified banks and tiny public banks and everything in between. 

• On those banks, there are 2,075 directors that are active

• We can assume they ALL have risk committees, but we have data on 128 of the risk committees

• Some banks are subsidiaries of other companies, committees don’t translate, etc.

• In those committees, there are 703 directors that oversee basically the entire risk of the banking sector in the US

Let’s talk expertise:

• Out of the 168 banks, 82 have at least ONE risk expert on their board

• Of those, 76 are tagged as both risk AND financial experts

• Of the 82 with with a risk expert, somehow only 37 thought to be the risk expert on the risk committee

• Take home: only 22% of publicly traded US banks have a risk expert on the risk committee

Let’s talk people and influence:

• TOKEN RISK COMMITTEES

• 7 companies have risk committees where the members IN TOTAL have less than 10% influence on the board

• TOKEN RISK EXPERTS

• 18 companies have risk experts on the board who have IN TOTAL less than 5% influence of the board

• EXECUTIVE INFLUENCE

• 56 companies have executives on the board that have more influence that BOTH risk experts AND the entire non-executives on the risk committee

• ONLY ONE COMPANY HAS A RISK COMMITTEE RUN BY A RISK EXPERT

• Citizens Financial - 66% of the committee influence is held by risk experts that aren’t executives

Finding the next bank run process:

1. Large proportion of uninsured deposits (rich people with lots of money in one place)

2. Has no risk experts

3. Has a risk committee

The list is unsurprising!

1. Signature Bank - DEAD - had 90% uninsured deposits, 75% executive influence over board, no risk experts

2. First Republic - DYING - getting hammered in the market right now as we speak, zero risk experts, 42% executive influence, and a risk committee with EVEN LESS INFLUENCE than Signature Bank

3. SVB - DEAD - no risk experts

4. M&T Bank - down 10% in five days, but not nearly enough if the uninsured get freaked out

5. Fifth Third - down 25%, market spooked

But what about good old fashioned G washing?  Where are there banks where executives call the shots but LOOK LIKE they have, you know, risk management?

1. Has risk committee

2. Has a risk expert who’s NOT on the risk committee

3. Executives own >2x influence of risk committee + risk experts

NOW WE’RE GETTING WARMER:

1. Live Oak Bancshares - down 25%

2. Towne Bank - down 9%

3. Fulton Financial - down 10%

4. Crossfirst Bank - down 12%

5. Pathward Financial - down 14%

Hopefully those five do not have any tech bros who gossip about how afraid they are as clients, because if so, they’ve done an excellent job G washing and hoping no one will notice.