As companies, consumers and investors place more emphasis on business actions beyond the balance sheet with an emphasis on the environment, social and governance, hedge fund legend Paul Tudor Jones says the principles of Milton Friedman’s classic philosophy of shareholder capitalism are long gone.
“The problem with what Milton Friedman said that the only business goal of a company is to make a profit is that if that’s your motive alone it creates the ability to be amoral in your decisions. “Jones said on CNBC’s” Squawk Box “. ” Tuesday morning.
Jones, who co-founded ESG investment research firm Just Capital, which annually ranks the best companies in the U.S. stock market based on ESG metrics, pointed to the shares of Purdue Pharma, saying that “their sole business focus was to making a profit and then the consequence of that was an opioid crisis that killed 400,000 Americans. “
“You can’t distinguish between a business goal without introducing ethics and morality and the social consequences of your actions,” Jones said. “You can’t even say that making a profit is economically the best way to build a production system because, again, we have lost 400,000 workers in this opioid crisis.”
Focus on supporting workers
Companies that are doing well, Jones said, are those that focus on “the most important metrics, which are usually portfolio and work-related issues.”
The 2022 JUST 100 ranking of US large-cap stocks weighted the most important worker issues in rating, based on Just Capital’s polls of Americans every year to assess the issues most important to the public
The main element of this year’s JUST 100 was to pay a fair and living wage, which has resulted in “a workforce that is supported from afar on various fronts compared to the rest of American business,” Jones said.
But the most important thing these companies do, he added, is “to be fair and to agree with the Americans’ point of view on what is just a good deal.”
The hedge fund icon says the data is already proving this view to be the best for long-term investors. Companies on the JUST 100 list give 19 times more to local communities and disclose pay gaps more often, but they also pay 20% more dividends and earn 4.5% more than the rest of U.S. companies.
“There are economic and financial things that they are more successful at and these are also social issues that set them apart in a way that makes them the most valued companies in America,” Jones said. “You can’t have a long-term value proposition for investors and shareholders unless you take care and provide a value proposition for other stakeholders, employees, customers, communities, planet. “
Regarding current market conditions and volatility induced by a change in Federal Reserve policy, Jones told CNBC that recently hot stocks will continue to “face tough sleds,” and he described the chairman. of Fed Jerome Powell as having “a lot of catching up to do” to fight inflation, which will have ramifications for asset prices.
Just Capital has weighted worker issues at 39% this year, which includes factors such as providing a living wage, protecting the health, safety and well-being of workers beyond what is required by law. law, provide high quality social benefits and invest in its workforce through training and education.
“We have seen wage growth rise,” Jones said. “The # 1 problem for Americans when it comes to business is paying a fair and living wage and you saw an explosion in wage growth last year, which is a good thing, especially that profit margins over the same period have fallen from 6% to 12%. %. “
“Letting workers share more of the company’s income is good and it’s also good for business,” he said.