TRANSCRIPT
Matt Voiceover
Welcome back to Sound-Up Governance. I'm grateful to you as someone who listens to this admittedly esoteric show for letting me head out on my journey without much complaint. I've chosen to interpret that as enthusiastic approval of what you've been hearing, until I learn otherwise. Still, among the super rare questions I've received has been whether I'll have more of what I'd call mainstream guests, like CEOs and directors from big listed companies. I usually just say, "Can't you listen to like 3000 other podcasts if that's what you want to hear?" And I stand by my position, with a few notable exceptions, like today's guest, Eric Wetlaufer. He's the managing partner of Twin River Capital, an impact investment firm with the dual mission of advancing positive environmental and social impact globally, and delivering financial returns. On the surface, Eric is about as establishment as they come. He spent most of his career in the institutional investment space, most notably with the Canada Pension Plan Investment Board. He sits on the board of TMX Group, which among many other things runs the Toronto Stock Exchange. So, here you go, folks: the mainstream guest you've always wanted. Except you're getting what I'd call the punk version. Let's start with Eric's professional story, because it's pretty rad. You'll soon see why he's a great fit for the show.
Eric Wetlaufer
I'm an American. Grew up in Minnesota. My father's a biochemist, my mom was a stay at home mom. It was kind of more traditional, you know, kind of Midwestern upbringing, right? And I was studying glaciers, I was studying to be a geologist, then I got engaged to get married to a woman who already had a job and she was in Boston. And you're not, you're not going to study a lot of glaciers, you're not going to search for minerals or, or, or remediate after people been searching for minerals or oil in Boston. So I just needed a job, because I was getting married, and I bumped into a person on the street who already had a job. And, and she told me that there might be an opening in a training program in a bank,
Matt
Is this a literal, like, you just ran into someone on the street?
Eric Wetlaufer
I literally ran into a person on the, on this sidewalk. And, and struck up a conversation with her. And she said, You should apply. Somebody had left. So there's an opening. So I did. And I got the job. I kind of talked my way into a bank training program with a degree in geology. And I quickly sort of discovered that most of banking was not interesting at all.
Matt
You don’t say...
Eric Wetlaufer
But there was one floor. Yeah, there was one floor. Yeah, most of banking didn't look interesting to me. But there was one floor where there were lights flashing, and people sometimes swearing into the phone and getting sworn back at through the phone. And I thought well, that that's not the banking on the rest of the floors. Let me go find out what they do. And sure enough, that was the investment group and the trading floor. And then I looked for an opening there. And there was one and that's how I got into the business. I talked my way into a job as an assistant portfolio manager after all of a year in a management training program.
Matt
Did you have at that point, any specialty in terms of what you were trading?
Eric Wetlaufer
Yeah, I mean, that's how I kind of started out was super specialized. Money Market preferred stocks,
Matt
Okay.
Matt Voiceover
Okay, money market just means buying or selling highly liquid, short term, low risk stuff compared to say capital markets where you generally buy and sell longer term assets with greater potential for gain or loss. Preferred stock, in its most usual form is a class of share that gets priority in the payout of dividends compared to the common stock that people like you and I would usually own. Money market preferred stock is even more nerdy, where the dividend rate is determined by a special kind of auction. Anyway, that was Eric's thing.
Eric Wetlaufer
So this crazy little niche, which you know, existed for tax benefit purposes. And so corporate buyers of money market instruments could buy these money market preferred stocks and get a bit of a tax benefit from owning them. And so yeah, I played with those for a while ran a portfolio of that and then kind of went up the risk curve, like started trading more risky, preferred stocks, adjustable rate preferred, and then I started trading bonds and, and junk and junk bonds and then moved over to common stocks and then was running stock portfolios, and then teams of stock portfolio managers and sort of as I kind of moved into management ultimately after, you know, maybe 15 years in the business. Started managing people who manage money instead of managing money myself.
Matt
And so what happened between there and here because you're still not even in the right country yet.
Eric Wetlaufer
Yeah, I mean, what happened between there and here was after building a big group at my last job in the US, I'm really more I discovered I'm more of a builder and a fixer. And then once things are going well and kind of working, I get bored and I maybe get into trouble I start trying to fix other people's problems and companies and they don't necessarily like that. And so you know, or or I just get, I get depressed, because there's nothing to kind of really dig my teeth into so much anymore. I found a job in Canada. The big national pension plan in Canada was looking for somebody to run their public markets group. It was pretty immature as an organization and the benefit for me was that there was no commercial element to it. You could be a long term investor you didn't have product to sell. You know, the marketing people weren't banging on my door telling me that I'm not keeping up with this fund or if I lost a star or if I'm doing really well they're telling me you got to go on the road and sell sell sell because your numbers are are hot, you know, now's the time where you got to leave the office. So I could be a pure investor, run teams of people who really managing money for the right reasons for the long term. And I thought this is be refreshing a be a change of pace, and fun. And you know, Canada sounds like a fun place. I was from Minnesota, which is partly Canada. The way I looked at at least the the beer and the hockey are Canadian
Matt
The weather
Eric Wetlaufer
Yeah, the weather. Certainly cold. So I thought it'd be fun to come up and try my hand here in Canada.
Matt
Do you still have roots in Minnesota?
Eric Wetlaufer
No, not anymore. Yeah. Yeah.
Matt
It's a pretty funky place.
Eric Wetlaufer
It's a great place. Minnesota you know, when I when I was there, it was very liberal state. You know, Prince. He's from Minnesota. I certainly had a big Prince thing.
Matt
You have a big Prince thing?
Eric Wetlaufer
Yeah. Big love for Prince.
Matt
Okay, well, maybe we can talk about that sometime too, because, you know, it's Prince.
Matt Voiceover
At this point, I was tempted to just talk about last year's rerelease of the Prince and the Revolution live in Syracuse 1985. Seriously, if you haven't listened and or watched, you may want to pause this show now and indulge yourself. And on top of Prince fandom, Eric's also got a burgeoning interest in entomology. He's basically the character my imagination would come up with if I wrote a nerdy corporate governance novel. Still, so far, he may seem to you like just another business guy with a bit of a quirky background. Let's explore further.
Eric Wetlaufer
Yeah, I mean, growing up in an academic family, and in a family, which didn't have a big social community, like I didn't hang around with grownups. The few grownups that I did hang around with were not business people. So I just didn't really know what business people did. And the stereotype of that they're greedy, and that they're, you know, putting other people down was one that, you know, I didn't necessarily strongly believe in, but I didn't necessarily disbelieve it, either. I was cynical. And I was a little bit worried putting on my own suit for the first time, at my own first job, you know, wearing the same, you know, coming out with, I think my bank balance was between minus $10 and plus $10 for the first six months of my work, which is better than it was my last year of school. But not by much. And wearing just the same suit every single day. Sure, like, I was just skeptical what this world was all about. And then you get to know people one on one, and you see that these are good people, and they're trying to serve their clients and do good work. And, and there's a utility to that, to that world, the business world. And as a utility to the banking function, and the investment function. So I kind of started to understand and appreciate, you know, the service that that I could provide, and that it could be a profession, not just a business. You know, similar to doctors and lawyers, that investment management, it's not a business, it's a profession. And you have a code of conduct, and you have a duty of fiduciary care that you have to, that you have to adhere to. And that you should want to adhere to, and that there's a tradition of that. And to me, that felt better than just putting on a suit and trying to make money selling whatever is easiest to sell. Right?
Matt
Right. Okay, so I can imagine a person, this is clearly not you, but I can imagine a person coming from where you just described, going into a bank and spending a bunch of years and then going into an institutional investor and spending a bunch of years and coming out of it with a bit of a, you know, "the business of businesses is business," shareholder centric, grow, grow, grow kind of mentality. And that doesn't really strike me as a good description of you.
Eric Wetlaufer
No.
Matt
So what was it about you that resisted that, but also like, how, how are you able to express that kind of countercultural position from inside the very status quo world?
Eric Wetlaufer
Yeah, I think there's I mean, there's there's a couple of... I think you're right, it was a bit just part of my DNA. But then there were some reinforcing events, I think, along the way. One would be a proxy battle at Marriott in the late 80s. was undergoing a lot of labor strike Florida labor issues and pressures. And we were, at the investment firm I worked at, we were at sort of both sides of the table. We were managing money for the union community, not necessarily that union community, but they all look out for each other. And so we were getting a lot of calls and a lot of pressure in the proxy vote to vote with the proposals to support the union. At the same time, we had kind of a vote with management back in the day, you kind of voted with management, right? Because of the economics that you were presented with. It was just better. Better in the shareholder only world, in the shareholder primacy world. To vote with management, right? And so I was the portfolio manager, kind of getting both of these arguments. Management's calling me and wanting to discuss my vote. And then coincidentally, the lawyer for the union was, was a personal friend of mine from high school, who figured out that I was the one who was going to determine the vote from my investment firm. We owned a lot of these shares. And so I was getting pressure from both sides and kind of understanding, "wait a minute, you know, there's two good answers here. We have to figure out what the right way to go is." And so I think that there were there were incidents like that in my earlier years in the business where I recognized that there's, it's not black or white, it's not shareholder first, it's not a short term time horizon. We certainly went through a time with the dot-com bubble, where, you know, all we cared about was how much were you gonna beat earnings by, and how, how much explosive growth could you potentially weave a story around to get people excited and drive stock prices even higher? I mean, that was clearly not in the best interests of the longer term shareholders of the mutual funds and the institutional clients that I had, yet you were, the marketing people were winding you up, saying, "you got to keep up with this fund or that fund's performance that you're competing against." So there were a lot of places earlier on in my career where, you know, it was clear that, you know, the status quo or following the herd, or that idea that well, "if you don't like what's going on, just sell the stock!" You know, it's like, wait a minute, you know, that is a story that's told to you by brokers, who every time they, you trade, they make money. So yeah, if you don't like how a company is governing itself, if you don't like their practices in this, sell it, of course, that's their advice, they're gonna make money off of that advice. So, you know, there was a takeover battle between Bank of New York and Irving, where I owned a preferred stock that was a blocking stock. So that was a situation where I was getting calls from the bankers, you know, yelling at me, beating me up, pressuring me to vote to, to assert my block of the takeover, when, in fact, it was in my economic best interest to go with the takeover. So you're getting to these situations where, where it's not so simple. And you realize that you have to have some principles, and you have to bring your values to the table. And you have to think about what's the right thing to do not just what's the expedient thing to do or what other people are doing, or what are the short term way to make money.
Matt Voiceover
Man, this is all just super cool to me. The adventure of growing up in an institutional world during an era of significant turbulence and having never been fully indoctrinated into the depth and weight of old school Friedman, blah, blah, Chicago, blah, blah, nonsense. But honestly, that's not the main reason I wanted to talk with Eric for the show. The most important element of his radical governance persona is that he's a bit of a quitter. Anyone who's spent any time in the world of boards and executives knows how normal it is for people to overstay their welcome and for those around them to just let it happen. Eric is different.
Eric Wetlaufer
So I mean, I've been I've been on nine boards over the past three decades. So it's about, you know, three a decade, I guess. There are boards that I've been interested in, that I haven't gone on. There have been occasions where that's my choice. Learning more about the board, I recognize this is not a good fit for me, even though I've been asked to be on the board. There have been cases where where I thought I was going on the board, and I've been asked not to come on. So that's, that's fine, too. If it's not a good fit, who cares who comes to that conclusion first? There are leadership positions on boards that I've been asked to play where I have accepted. There's leadership positions on board, whether it's committee chairs, or whether it's the overall chair I've been, I've been a chair of the overall board. I've been a committee chair. And then there are times when I've been asked to chair a board and I've decided no, I don't want to. And there's times where I've been in the running to be chair and I've been told no, you're not going to be the chair. Right? And so I have that personal, I have that personal experience. But I also have watched a lot of this happen with other people as well on the boards that I've been on and on people that I know who have been on boards. So have a lot of personall experience, and I've seen it a lot. Where the fit's not there either for a particular role on the board, or even to be on the board. And maybe you've been on the board for a little while. You know, maybe coming in to that position on the board, while you're on the board, you've been asked to be on this board, because of your experience. You know, you're, you're a lawyer. And we there's a lot of legal regulatory stuff, and we need somebody with legal regulatory experience. That's your role. That's why you're coming on the board. There are cases like that, where you know what it is going in. And there to cases where you don't find out until after you've been on the board, it could be for several years, "oh, this is why on the board." Like, here, we have this crisis. And we need to address this crisis. And it's clearly I need to be a leader on this, maybe not the only leader, but I need to, you know, it's obvious I this is why I was on the board. Fate played a role here, I'm on the board for a reason. Here it is sitting in front of me. We need to work nights and weekends until we get this resolved. And then, you know, I've done my job. And maybe there's a continued role for me to play on the board. Or maybe now I can go. So I've been on boards where that's the case where you get on the board, I thought this was just gonna be a normal board position. Now we've got a ton of work to do. And after that work is done, I think, "you know, it's only been three years, I could go for another three year term if I wanted to. But I think my seat is really important. It's, it's a rare seat. And it should be held by somebody who is more passionate, who's more knowledgeable about the content that now we need to take on as a board. I'll step off the board."
Matt
Okay, I'm gonna pause you there for a second, that is not a normal attitude.
Eric Wetlaufer
Yeah.
Matt
First of all, do you agree with me? And second of all, to the extent that you do agree with me, where do you find that in yourself as well? I've got a lot of different theories, but I think it's mostly just that you've got a good personality.
Eric Wetlaufer
No, I... maybe I do or don't I don't know. But I think to me, it's like, you know, the question I would ask every board is, are we as good as we can be? Like, what would this board look like if it was the absolute best it could be? And that's kind of the question I would ask, you know, if I'm a leader in a company. Like, what would my team look like if it were the best it could be? Like, what what's the gap between where we are today? What are the problems we need to solve? And what do we need to do to be the best that we can be? And as a fiduciary, particularly, I have a duty to ask that question, I think. What's the opportunity cost of not being as good as we can be? And how can I fix that? And if that involves me stepping off like that, it's a big world, there's a lot of stuff to do. Like it's a big planet. And there's a lot of problems out there. There's a lot of roles that that might be a better fit for me if if my seat is better taken on by somebody else. So I feel like it's not just I'm sort of inclined to ask those questions, I almost feel a duty to ask those questions.
Matt
Okay, well, I'm going to I'm going to express a theory here. And you can tell me if it makes any sense to you. I would argue that if what you're saying is, in fact, the right approach - and I agree with you that it is - if it's the if it makes a board or leadership team better to wonder, "what could be better than me sitting in this chair? Oh, we thought of something. Okay, well, we should probably go get that instead." If that's if that's a good approach, we should be agonizing a little bit over selecting people for the willingness to be self aware and the willingness to relinquish a position, and so on. I don't think we do that. I think we maybe do the opposite, where we reward... I'll exaggerate for the sake of making a point, we reward arrogance. We reward self importance. Because those are the people who make themselves the most visible.
Eric Wetlaufer
Yeah, I think it's, you know, the boards that I've been on, they have governance committees, those governance committees are responsible for selecting new board members. They hire, you know, search firms to go find the candidates that fill the gaps on the skills matrix of the board. And, and I think it's up to the board to and the Governance Committee and the Board to select people who are the right fit. And I think there's all these biases in hiring, whether it's for boards or otherwise. You want to hire people that look like you, think like you, laugh at the same jokes that you laugh at, went to the same schools, you know, that you're comfortable with, right? You don't wanna hire people, that are gonna make you uncomfortable. But we all know that differences and diversity and challenging and critical thinking and, you know, being a devil's advocate at the table, improves outcomes. So how are we going to get over those things? And I think it is by being it is by being a bit humble. It is seek seeking out people who provide the ingredients that you want, but in a way that is you can challenge yourself and challenge each other and, and are challenging to you. And so, yeah, I think it's not a topic that's talked a lot about in board governance and board education courses and board practice best practices on boards. But it is talked about with respect to just, you know, how do you create a good team?
Matt
Yeah!
Eric Wetlaufer
You know, if you if you look at, you know, all these all these books about teams and team leadership that have been written by, you know, the, the generals of armies that have done really amazing things and great corporate captains, it is, it is a valuable practice. But at board's it's not discussed a lot, I don't think. I think if the effort is to be the best you can be, and you want different results, markedly different results, then you have to think about doing things differently. You have to challenge constraints. And you have to think about, you know, what the art of the possible is to get there, you know? If we're going to have 15 days a year of board meetings, maybe we should have eight of them all at once, you know>
Matt
Sure!
Eric Wetlaufer
You know, away from the boardroom, and we really focus without any distractions, you know, cell phones not allowed... I don't know, has anybody ever tried that? I don't know, maybe, maybe somebody has. But the point being, the constraints that we put on ourselves are so often self imposed. And we really, we should free ourselves of that and have more imagination and have more wine soaked dinners, where we, where we think about really, you know, let's, let's get crazy, and then we can come back from crazy. But at least let's start at crazy, what we could label as crazy. And maybe maybe we come to the conclusion as a board that some of this crazy stuff's not so crazy. It's worth a shot.
Matt
I mean...it won't surprise you that I completely agree with all this. And I really think that if there's a movement to be had in governance, it's what you're describing. And that's not a big movement. It's amazing how hard it is to get the momentum started. But the movement is revealing to corporate leaders, especially those that touch boardrooms, that they have permission to do whatever. Right, not like within the confines of the law, and regulation. Everything else is choose your own adventure.
Eric Wetlaufer
Yeah.
Matt
And that there's a story to be told for just about any approach that's not reckless. That can, that would be convincing to any stakeholder that "yeah, you know, what, that probably is worth a shot."
Eric Wetlaufer
Yeah.
Matt
And I wonder if you have a sense of where the, I don't know if it's the individual level fear or the organizational level fear? Or maybe it's both? Like, where's this fear come from? Because it really does feel like "I don't even want to think about it."
Eric Wetlaufer
Yeah, I, I think there is that fear of being perceived as different or odd by peers that you've sort of worked hard to be perceived as one of the club. I mean, you wear those clothes, the suits, the ties, the scarves, the whatever, jewelry every day. I think there's the, "ugh, that sounds like a lot of work. And I don't even know if it's gonna pay off. And, you know, I just, I don't have the energy. You know, that's for younger people to to be experimental and to, you know, go down dark alleys and see what they find."
Matt
Yeah.
Eric Wetlaufer
But you know, we're a board and we have responsibility to make sure that we tick all these boxes, and let's just get that done. And then whatever other time we have, we can think about the art of the possible maybe. Sure, sounds great. But let's do that next year, easy to kick the can down the road, maybe? Trying to define in your own mind, what your role is on the board, what your real contribution is. Trying to understand if it's been maxed out, and if your seat was taken by somebody else, would that help the company more than you're helping it? And that's fine, because everything comes to an end, you're gonna not you're gonna leave the board, you're gonna leave this planet. Like, everything comes to an end. So what's a good ending? And we see it with politicians, we see it with sports, you know, with athletes. There's bad endings all over the place, people overstay their welcome all the time. You know, we'll just we'll just work harder. We'll gut it out. You know, we don't want to face that, the end. You know, we don't think about and we try to avoid the topic. But the end of one thing is at the start of another. And you only have so many hours in the day, and you might as well feel good. Some of my ends, you know, they've been the good and the bad and the ugly sometimes it's been my choice. Sometimes it hasn't been. But they've all led to new things. And so I think well, why not engineer an elegant, properly timed exit to all the things you do? Except for the things you don't want to exit. Right? Like your home and your family.
Matt Voiceover
This. This is what I'm talking about. This is what's different about Eric. It feels normal to him to wonder why, and to ask the curious question, and to understand when the fit isn't great and to move on when the time is right. Thanks again for tuning into Sound-Up Governance. We actually have a bit of a bonus episode with Eric coming up next week too. As usual, my inbox at soundup@groundupgovernance.com is open for any cool pictures of bugs or any other arthropods you happen to encounter in your life, as well as comments, questions, praise and complaints. Until next time.
Sound-Up Governance (ep.43) - Even "mainstream" directors can be fun...and they can be quitters, too (feat. Eric Wetlaufer)