When preparing to introduce Robin John, the CEO of Eventide Asset Management, at our recent “Stocks, Bonds & Mutual Funds” event, I did what most people do when preparing a speaker intro: I googled him.
Several articles popped up. One reporter called him “The Believer,” noting the rather strange language on their website: “business as an engine of blessing” and “investing that makes the world rejoice.” But when looking at their past performance, this same reporter quickly became a believer himself.
He writes that the firm’s funds “have put disbelievers to shame by combining a socially responsible investment theme that stresses the corporation’s culture and values.” The reporter goes on to note a streak of outperformance compared to benchmarks.
At the Denver Institute event, I interviewed Robin about Eventide, biblically responsible investing (BRI), and the fund’s investing philosophy dubbed “Business 360.” Here are four principles that have set Eventide apart in their pioneering application of theology to business and the work of investing.
1.) Invest in businesses that create value rather than extract value.
From a business ethics perspective – but also from a value creation perspective – we wanted to invest in companies that were a blessing to their customers and employees and not exploiting them in order to generate profit… In 2008, we stayed away from payday loans [and the subprime mortgage industry] and just avoided that whole space, which helped us to avoid some banks that ultimately ended up exploding. While it doesn’t always work out that way, we were able to outperform in a down market.
As Robin explained to me how they were able to post relatively impressive numbers right after the Great Recession, he explained that their philosophy of investing is based on the idea of value creation: businesses are intended to serve the real needs of others and be a blessing to the world, and thus, as a byproduct, generate profit. They are not intended to generate profits at the expense of the poor and weak (such as payday loans), nor to have a sole focus on profits apart from the needs of customers, employers and core stakeholders.
His biblical bias for businesses creating genuine value paid off in a time when global capital markets were crumbling.
2.) The best investors don’t merely look to a company’s past profitability when deciding which stocks to invest in.
There’s a difference between a leading indicator and a lagging indicator. I don’t want to speak too broadly, but generally I’ve found that most analysts and portfolio managers are looking at these lagging indicators. If you look at a company’s past year revenue, it tells you what the company did last year. It doesn’t necessarily tell you how healthy the company is for the future growth and success.
Profit, says Robin, is not the purpose of business. It’s merely the sign of a job well done. When 95 percent of investors look at the same numbers, such as P/E (price to historic earnings) ratios, they are generally looking at financial statements that are essentially backward looking.
Many moral or values-based investors do the same thing, but screen out “sin stocks,” such as pornography, abortion, weapons or tobacco. But this left a prior generation of biblically responsible investors essentially with simply a smaller pool of companies to invest in, and a perspective on investing that was more about avoiding evil than doing good.
For Robin, the next generation of BRI needed a broader, more comprehensive and forward looking vision to look for companies that would not only be profitable, but would, according to Eventide’s website, make the world a better place.
3.) The businesses to invest in are the ones that innovate, create genuine value, and “love their neighbors” well.
We really believe that the number one leading indicator of a company’s future success is its ability to innovate and create value. There are six stakeholders that we are looking at, three internal and three external: customers, employees, supply chain [internal], communities, environment, and society [external]. We are looking at a company’s ability to create value, because a lot of companies are generating profit through value extraction. Those business models are ultimately not sustainable business models. We believe that value creation business models are sustainable, better for stakeholders (the six stakeholders I mentioned), and ultimately better for shareholders.
Robin explained to me what their company calls Eventide 360: a method for evaluating companies based on how they treat their two primary “neighbors” – customers and employees – and their secondary neighbors: supply chains, communities, the environment, and society at large.
For instance, they look at employee turnover on websites like glassdoor.com to evaluate a company’s “success” – and not just its profitability in the past quarter or year. Conventional fund managers would look at Wal-Mart versus Costco and conclude that Costco overpays its employees. “But ultimately Costco has more loyal customers and employees,” Robin says. “The employees are more passionate about the work and serve their customers better. That causes the customers to be more loyal customers and the whole company becomes a healthier company.”
4.) Businesses that create value might be run by believers or non-believers – but they don’t forget that their purpose is broader than merely making a profit.
Unfortunately, it’s hard to find Christian business people who share our understanding of God’s intent for business. We find that many of the companies who are creating great amounts of value are run by non-Christians. Christian business people generally understand the purpose of business is to make profit and to then give profit away.
One of the things I sometimes ask Christian business people is, for example, “What’s the purpose of a nonprofit hospital?” They would say to take care of the sick. Then I’ll ask them, “Assume that the hospital can’t sustain themselves based on the donor funds. They would need to start charging for their services so they become a for-profit model. What now is their purpose?” The purpose is still the same: to take care of the sick.
When a company is doing a good job and generating profit, the company is able to use the profit to reinvest in the business, to grow the business and to do more of what they do well.
Here’s one of the points that most stuck with me: Often we people of faith see that the purpose of business is only to make money, and then to give it away. But the intrinsic value of business is how well they serve their stakeholders, and not only the revenue generated.
The folks at Eventide look for “value creation business models” and not necessarily businesses run by Christians. (I wonder if this might change if more Christian business owners decided to take a crash course in theology of work and apply it to their own companies.)
The upshot of this perspective is a philosophy of investing that is uniquely shaped by caring for others, serving others through quality goods and services, and, ultimately blessing the world.
This may not always be the most profitable in the short-term, but because it aligns with God’s moral universe, these businesses have the potential to create wealth, opportunity – and profits – for generations.