Interviewing Stalwarts-2 [2021]

TALKING BUSINESS WITH MR. ANIK SEN

Mr. Sen is the Global Head of Equities and a Portfolio Manager at PineBridge. I, Mariam Husain, had the privilege to interview him and gain some insight into a field that’s unfamiliar to my group and me.

Let’s talk business with Mr. Anik Sen:
Mariam: Sir, the 16th UNSDG goal talks about the creation and maintenance of just and peaceful institutions and my group and I are looking into how all the institutions of today’s world uphold the human rights of those inside and outside it. In that context, I’d like to ask you a few questions.
Mr. Sen: Sure, go ahead.

Mariam: Okay, first, in your experience, what are the ways in which companies will format and implement fair systems for their employees?
Mr. Sen: Great, see now that’s a wonderful question because, I think that as owners of businesses, companies are very aware they are held to a much higher standard now.

Mariam: Yes.
Mr. Sen: And I don’t think it’s anything new in the sense that, you know, employee relations has always been a very important aspect of governance. It’s not something new, I would say. It’s true that some of the frameworks are now developing but, you know, fair practices, treating employees fairly has always been a major governance issue. I would say that what’s changing is that companies are now being asked to disclose and be more transparent and it’s through that transparency that I think some of the disparities that we have long suspected have actually come to light.

Mariam: Okay.
Mr. Sen: You know, when you ask the question, one of the most interesting examples that I can think of in recent days is in the UK. The BBC, for example, has been one of those great liberal organizations that has championed fair treatment and quality and all those very important things, but when it came to disclosure about how their TV anchors were being paid, you found that there was a huge gap in men and women. So much so that it became a real issue, I think, for the British broadcasting corporation with subsequent changes of top leadership. So, I think one of the ways in which companies like us, PineBridge, we are holding our investee companies to account is by increasing transparency. So, I think, to summarize, It’s not a new governance issue because I think employee relations has always been important but there have been some very important disconnects in the way that some companies have behaved and that transparency which is now becoming and important aspect of governance is improving that.

Mariam: Okay, with regards to employee relations, how to companies ensure that their own employees are treated fairly? For example, how would they protect vulnerable members like women or minorities from internal discrimination as well as members from the LGBTQ community?
Mr. Sen: Yeah, you know, it’s again kind of linked to making sure that the top management of countries have the right culture because culture is something that really comes from the top.

Mariam: Yes.
Mr. Sen: If you have companies that, for example, do not have the right policies in place, and even beyond the policies, it’s to do with transparency. I’m a firm believer in transparency. Transparency in everything that you do. Having policies in place is one thing but having scientific metrics, hard data points to show that you are following those policies is incredibly important. So, for me, I think it’s a top management cultural issue you start off with and if you have that culture set from the top, it prevails through the organisation.

Mariam: Yes.
Mr. Sen: You know, to be honest I think the other important thing is your tolerance. There has been a very well publicised example of a game manufacturer in the USA. It manufactures some of the most popular video games, and this company has had a tremendous cultural problem in terms of LGBTQ+ and all those other issues and sexual harassment as well has been a major issue with this company with an SCC investigation that followed and with that you also have changes in top management. So again, it’s a top management issue.

Mariam: Okay, Sir, if I’m not wrong. you decide which companies to invest in. Is that right?
Mr. Sen: Together with a team. It’s never one person, it’s always teamwork.

Mariam: Yes, so how reliably can it be determined that the entire supply chain of every company does not exploit its most vulnerable employees?
Mr. Sen: This is a major issue for some of the biggest companies in the world. Think of Apple, which is a 3 trillion-dollar market cap business. One of the worst things that Mr. Tim Cook could possibly imagine waking up in the morning is to find that there are issues with their supply chain. So, for that reason, one very important criterion that some of these very large OEM’s do is to ensure that they have regular audits throughout their supply chain. So, when we invest in companies, one of the questions that we ask, we have a 77-point checklist. In fact, in our India team it’s bigger than the 77-point checklist, it’s over a 100 data points, 150 data points even and we ensure that we check our things like supply chain management. That’s an extremely important aspect. Some people say that these are buzzword things. They say that ESG, the SDG principals, the practicality of them is extremely challenging. We disagree. We think that unless you look after these issues, things like supply chain management, things like ensuring that the ethical standards of your supply chains are up to your standards. if you don’t do that, it becomes a competitive disadvantage. Like i said, the worst things a major company and an OEM company can see waking up in the morning because there are supply chain issues and immediately their products will be shunned. It is a profit and loss item. It does have real world consequences.

Mariam: Okay, so with regards to that, and as I understand, companies may fail at protecting their workers’ rights to lower their production costs. For example, unfair wages or the use of child labour and this exploitation will bring them higher profits. So how do investors ensure the companies remain competitive while adhering to the highest standards in preserving their workers’ rights?
Mr. Sen: Profit at all costs is not a sustainable situation so when we invest in a company, we invest with a medium to long term perspective and so if you know that certain labour practices are unsustainable, the business itself becomes unsustainable. There are many instances where we have sold companies when we’ve seen that the average unit cost of labour is lower than their competitors or their peers so we can see that their situation is unsustainable.

Mariam: Okay.
Mr. Sen: And when you have any aspect of your business which you know is unsustainable, like for example a highly polluting company. You know that the cost of carbon is going to go up. you know that there will be regular tree issues down the road so that becomes unsustainable. I think in a very similar vein, if you have a company that is systematically exploiting its work force, that becomes a company that maybe survives for a couple of years but it’s not going to be able to retain its employees, it’s going to suffer from potential regulatory issues. We know a company in China that is one of the biggest delivery companies and as you can imagine, they have a lot of delivery people on motorcycles and bicycles who do not have accident insurance, who are paid extremely poorly and are made to work inhumane hours during the day. We actually looked into this company and within a very short space of time, we know that there are some regulatory issues that these companies face, and lo and behold, China came up with a whole range of minimum wage requirements and insurance requirements for this company.

Mariam: With regards to that, Mr. Sen, I’d just like to add that we also, in India, have that problem with delivery apps like Swiggy or Zomato where the employees are not guaranteed insurance and must run all around town to deliver food. How are you, personally, working to ensure that the most compassionate companies thrive?
Mr. Sen: It’s, as you said, a long-term sustainability and a competitive issue for companies. I think those that do not have sustainable practices will not survive in the long term. The way we deal with companies is through what we call engagement. Engagement is very different from having a company meeting so our definition of engagement is a two-way information flow, not a one-way information flow. A company meeting is where an experienced investor will sit down with the top management of a company and ask them a whole bunch of questions about the future or in deeper present. Our way of dealing with companies is to do that plus we actually give them certain criteria that we’re looking for as an investment and it is those criteria where we say ‘Look, whether your practices are poorly rated, there are a lot of rating agencies now that do a lot of digging like NSCI is one, that’s a fast developing benchmark data provider.
They will go through websites, they will scrape for controversies. Blast Door is another one of them where you have employee forums, so you have a lot of data input and transparency. And again, I come back to this issue of transparency. Transparency is probably the best thing that is happening in the world today. Any unfair practices are very quickly exposed and I’m a big believer in that. so, the way we engage with companies is to say “Look, you’re clearly failing, or you’re clearly subpar or you’re clearly more or less at average, you can do a lot better” and that process of engagement is what helps companies understand what institutions are looking for.

Mariam: Would you give me some examples regarding the role you play as an investor developing a legacy of guidelines to ensure that companies adhere to just and inclusive policies?
Mr. Sen: Every company, or every major company today is expected to have a corporate or social responsibility repost and that CSR is a starting point for us as investors. They are also expected to report on a whole bunch of data, for example, on social and environmental criteria and the European Union has been a vanguard of regulatory standards for investing. Now the European Union came up with something called the SMDR which is a sustainable finance reporting directive, regulation, rather. That is, again, really a regulation based around transparency. It’s around metric reporting which forces investors like us to hold companies accountable. Now, to the extent that companies do not have policies or do not have guidelines, if you will, to address climate and social responsibility issues. That is a huge red fog to complainers like us. Once you have a red flag, it immediately affects the cost of capital because companies like us increasingly will not invest in those companies. Now, capital has a tremendous power to shape behaviour.

Mariam: Yes.
Mr. Sen: If you raise the cost of capital against a company, particularly in the fixed income world because so many companies are reliant on debt. If you raise the cost of capital, then it immediately starts to change the company behaviour so that’s the first thing. the prevalence or the situation with red flags around the company immediately raises the cost of capital. The second thing, is if you don’t have, let’s say, alarming red flags but you have a whole bunch of mediocre flags, let’s call it amber flags, it’s up to us as investors to really kind of pressurise companies and to say ‘you can do better’, and it’s by forcing companies to recognise that the efficiency is where I think the new world of active management has moved to and is rapidly moving to. We’ve been investing in emerging markets for decades.
We’ve been investing in developed markets for decades and whilst we had these processes in place for a very long time, I would say, again, the regulatory framework particularly led by SFDR in Europe is now forcing a level of transparency which puts the onus on investors like us to be much more diligent in ensuring that companies maintain these guidelines.

Mariam: Sir, we all know that diversity helps a company progress. So, what comes to your mind as the most inspiring example of this?
Mr. Sen: Of diversity and the power of progression through diversity?

Mariam: Yes.
Mr. Sen: To me, diversity is a word that is misunderstood in the world and by many of my colleagues in other firms who think of diversity as basically a gender issue, I think it is a gender issue, but it is much more than that. For us, it’s actually diversity of thought because there are so many inputs that go into how you think and how differently you think and gender is one of them for sure but I think education, your background, your experiences in life, all of those things contribute to this diversity of thought and I think there is no better example than understanding what is happening in science today and what’s happening in medicine today, right?

Mariam: Absolutely.
Mr. Sen: It’s not so much that you have an Einstein or a Newton anymore, yes, they’re very important, but you need a whole teamwork to develop the latest vaccine, to develop the latest space telescopes and indeed for us as investment firms, to have an investment process and an investment approach that is beyond just the one person. In fact, there is a lot of academic research that shows that the best performing teams, those teams that are made up of people with different characteristics and it is that power of a the team coming together and tackling problems to come up with solutions is where we have seen the real power of diversity and so for us, when me and Pinebridge think about diversity we’re very clear about what it means, and it is about diversity of thought.

Mariam: Just one more thing. Do you have any recommendations on how my group, and I can further our awareness in this regard because we’re just beginning to learn about this.
Mr. Sen: From a material standpoint what I would recommend, perhaps, is going to the websites of some of the major companies around the world. Take Apple for instance, or Microsoft, and I would look at their CSR reports and see how they’re tackling the major issues that face these gigantic companies because the issues that they face are global issues and they span virtually every industry in every part of the world and that’s probably not a bad standing point.

Mariam: Okay, thank you so much, Mr. Sen.
Mr. Sen: Not at all, Mariam.
Mariam: Thank you Sir.