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At RealClearMarkets, Free Enterprise Project Director Scott Shepard uses the Gates Foundation’s massive purchase of Anheuser-Busch InBev (A-B) stock to explain why true capitalism — as opposed to c-suite insurrectionism — requires that fiduciary duty run to a neutral, objective reasonable investor who wants maximized returns over time, rather than to big investors with self-aggrandizing and idiosyncratic positions.

And, of course, he takes the opportunity to compare the Gates Foundation’s claims that “all human beings are equal” with Gates’ own claims that because he runs that foundation in ways designed to cut our carbon footprints and standards of living, he’s justified in burning all the carbon there is.

True Capitalism Requires a Neutral ‘Reasonable Investor’ Standard

by Scott Shepard

Last week the Bill and Melinda Gates Foundation bought just under $100 million worth of Anheuser-Busch InBev (A-B), the maker of Bud Light. A-B thus owns a brand set on fire by a young woke executive who declared as part of her job that she loathed the brand’s customers and wanted to replace them – which resulted in a 10 percent drop in total U.S. revenue for the corporation, and a much greater drop for Bud Light proper.

Scott Shepard

Scott Shepard

The purchase makes the Gates Foundation A-B’s ninth largest shareholder. A-B stock has fallen an additional six percent since the purchase.

This is an odd investment. The Gates Foundation claims that its goal is to “fight inequities” because “all lives have equal value.” (Set aside for a moment Bill Gates’ assertion that his work for the Gates Foundation justifies him flying from mansion to mansion in a private jet while demanding that the rest of us cut our carbon footprints. All animals are equal, and all.) While it started as an effort to build libraries and inoculate the poor, the Gates Foundation has since drifted into the wokest of territories, with Gates calling for (others to achieve) net-zero carbon, reliance on lab-grown meat, and the rest of the leftwing litany.

Presumably the Foundation did not make this investment because it believes that the advancement of alcohol is central to its mission. (Truly, though: just about the only way to achieve “equity,” or equalities of outcome for everyone who doesn’t go to Davos, would be to keep everybody absolutely hammered all of the time, so that skill and effort and engagement become irrelevant.) Of course, this doesn’t by itself make the purchase legally suspect: charitable foundations are free to invest for highest return in order to maximize the amount of income they can dedicate to their charitable purposes.

There is reason to doubt, though, that this was an investment made with an eye toward maximum returns. It has already resulted in a six percent loss, and seems unlikely to outperform later on, as the industry seems to agree (as does basic recourse to human nature) that A-B’s woke-fire losses are pretty permanent. Meanwhile, it hardly strains credibility to see in this purchase a different direct relationship to the Foundation’s leftwing purposes.

From the woke point of view, the investment serves two purposes: it helps (at least somewhat) to prop up A-B’s stock price, thus partially camouflaging the full extent of the damage caused by A-B’s dumb dance with extreme partisanship. And it at least notionally provides another $100 million worth of argument in favor of A-B keeping the woke course despite the now-unquestionable fact that leftwing politics and light beer are a noxious cocktail.

The first purpose would be just fine for private investors: if they want to lose money to hide market effects, more power to them: lose away. As long as the investment can’t change a company’s performance, only the irrational investor loses. For a charitable foundation, the question is different; it would be interesting to look at the charitable purposes for which the Foundation was formed and under which grants to it have been made. Might Warren Buffett have reason to object to such money-losing skullduggery?

The second purpose, though, is a genuine problem, one that illustrates why corporate law – and any honest theory of genuine capitalism – requires that corporate executives and directors dedicate their fidelity and owe their fiduciary duty not to any specific investor, but to a non-partisan, neutral, putative “reasonable investor” whose goal is to make the most possible money from his investment over reasonably foreseeable time horizons given unbiased, objective, and competently established assumptions.

If a large shareholder could purchase a stake in a company and pressure the directors and executives to run the company into the ground in order to achieve unrelated political or social ends, then genuine malefactors of great wealth could set out to hobble the national economy by making fractional investments in a wide swath of publicly traded companies in order to make them uncompetitive in world commerce.

Owners of giant companies – big players in various fields – could buy significant minority stakes in smaller publicly traded competitors and then pressure them either to shift their efforts into different fields or adopt standards and practices that will make them uncompetitive. Would-be plutocrats could position themselves so as to be able to force companies to hire and promote on grounds other than individual performance, thus kneecapping the companies and driving opportunities away from any groups that the plutocrats disfavor.

The result would be to eliminate the ability of smaller capitalists – whose assets, though smaller, are just as much theirs – would be unable to invest coherently and to have the same opportunities to rise in the world that those plutocrats themselves did. This is antithetical to true capitalism; it turns the markets into a game rigged by and for the currently rich and affords them the opportunity to establish themselves as a permanent class of nobility. It must also be antithetical to anyone – or any Foundation – that honestly thinks that “all lives have equal value.”

Then again, some animals are more equal than others. Just ask Bill.

Scott Shepard is a fellow at the National Center for Public Policy Research and Director of its Free Enterprise Project. This was first published at RealClearMarkets.

Author: Scott Shepard