1.

“What planet am I on?” When CEOs and board chairs first confront the investment community, they may feel “as though they’re traveling through an alien galaxy,” Sarah Keohane Williamson, CEO of FCLTGlobal, observes in “The CEO’s Guide to the Investment Galaxy: Navigating Markets to Build Great Companies.” Prepare to meet the cast of characters that every CEO needs to understand: asset owners and managers, boutique and retail investors, hedge funds, short sellers, and venture capitalists, alongside intermediaries, analysts and advisors, index providers, exchanges and the press. Like the planetary inhabitants of Douglas Adams’ fictional galaxy, the residents of the “investment galaxy” each have their own time frames and incentives. News flash: Most are indifferent to the long-term success of your company. The guide is a highly accessible primer that can help academics, journalists, students and others beyond the C-suite demystify who’s who in the investment universe. I was left wondering who among them can morph into a superhero when the galaxy comes under threat.

Read here.

2.

In the “10th anniversary” episode of the Acquired podcast, author Michael Lewis relays a story about Warren Buffett, who appears, unsurprisingly, 13 times in Williamson’s guide for CEOs. Some years ago, a publicist for a book Lewis was working on told him she also represented the Oracle of Omaha, and that Buffett had a question for him: Was Lewis the same Michael Lewis who sold some Berkshire Hathaway shares two and four years earlier and, if so, why he sold. “Can you imagine that Warren Buffett is taking the time to watch who is coming in and out of the A shares, and thinking about it,” Lewis exclaims. While we can imagine a few other CEOs who track their cap table in the Buffett way (we’re not naming names), it’s hard to imagine a podcast more worthy of your time than Acquired for the history, strategy and stories behind the world’s greatest companies.

Listen here.

3.

I happened across “Misreading Michael Jensen: The Case of Nicholas Lemann’s Transaction Man: The Rise of The Deal and The Decline of The American Dream,” a 2021 book review by Don Chew in the Journal of Applied Corporate Finance that feels newly timely. It’s been over two decades since I sat through Jensen’s class on agency theory and the imperative to counteract the costs arising from the separation of ownership and control in the modern corporation (here, if you need a refresher as I did).  So, I had missed his late-career turn to incorporating integrity as a factor of production underpinning what he called “enlightened value maximization” – a development that invited many interpretations (for example, here, here and here – I went down a bit of a rabbit hole on the debate!). Chew’s highly enjoyable piece offers just one slice of that debate. He critiques Lemann’s contention that recent financial crises and broader sociopolitical disruptions trace their intellectual origins to ideas popularized by Jensen, an economist and professor at Harvard Business School who died in 2024. Chew argues that Lemann misrepresents both the role of financial markets and Jensen’s work and that “the book’s most glaring omission” is its failure to recognize the role of poorly designed public policy and regulation in producing the societal ills it chronicles. From this critique emerges a defense of shareholder capitalism that may resonate with readers.

Read here.

4.

Speaking of our current moment, geopolitical tensions are translating into “geoeconomic risk” – the danger that trade and financial leverage will erode corporate value. We like two reports that explore this shift, authored by the trio of researchers Matteo Crosignani of the Federal Reserve Bank of New York, Lina Han and Marco Macchiaevelli, both from the University of Massachusetts. In “Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds,” they find that targeted companies from U.S. export controls – a key policy tool in the U.S.-China economic rivalry – experienced a 3.6% drop in cumulative abnormal returns following the imposition of controls, based on data from U.S. equity mutual funds over the 13 years ended in 2023. Active managers often mitigated these losses by selling affected stocks immediately, preemptively shedding shares of U.S. firms with secondary exposure to China. Passive funds, by contrast, remained stagnant, suffering deeper performance declines and higher investor outflows. Takeaway for investors: Traditional skills may not be enough. As the authors note, “Funds with better market-timing and stock-picking skills experience performance declines similar to their peers, suggesting that conventional skills provide little protection against this new type of risk.”  The authors’ companion paper, “Securing technological leadership? The cost of export controls on firms,” focuses on the response of the targeted firms. It finds that while these policies aim to protect national interests, they create significant collateral damage for domestic companies. The authors estimate that export controls cost the average affected U.S. supplier about USD 1 billion in market capitalization, a sharp decline in revenues, profitability and employment, alongside higher financing costs. Interestingly, the authors find that “capital expenditures do not decrease,” which suggests that export controls “do not considerably change firms’ long-term investment opportunities but instead prompt short-term adjustments e.g., cutting segments of their labor force.” Ultimately, while firms may keep their long-term eyes on the prize, the immediate friction of geoeconomic policy is felt most acutely in the domestic labor market and the cost of bank credit.

Read here and here.

5.

We’ve seen over the past year how companies and investors are grappling with the rise in extreme weather events and other physical risks. Two recent studies show how this growing attention is leading to efforts to better size these potential costs, albeit at vastly different levels of analysis. In Asia’s Powerhouses at Risk, authors Jeffrey Tong and Firdaus Anuar of the Asia Investor Group on Climate Change, together with MSCI Institute fellows Siyao He and Ser Jin Tan, focus on listed electric utilities in the Asia-Pacific region, estimating that extreme weather and other physical hazards could cost them USD 6.3 billion over the next year. Without measures to reinforce their resilience, those costs could rise to USD 8.4 billion annually in asset damage and lost revenues in the coming decades. See page 32 of the report, which examined more than 2,400 power plants operated by 11 listed utility companies, for a framework designed to help investors map utilities’ management of material physical climate risks and their actions to build resilience.

Read here.

To get a global, macro view, we recommend “Advancing adaptation: Mapping costs from cooling to coastal defenses,” by Mekela Krishnan, Olivia White, Sylvain Johansson, Sven Smit, Annabel Farr and Kanmani Chockalingam from the McKinsey Global Institute. The report examines both what society is currently spending on adaptation (USD 190 billion annually) and what adaptation could cost in a world that warms 2°C (3.6)°F from preindustrial times by 2050 (An estimated USD 1.2 trillion annually). For a handy catalog of adaptation measures – from active cooling to early-warning systems – check out the library beginning on page 54.

Read here.

To go deeper, join my colleagues Katie Towey, Umar Ashfaq and me on January 27 for a webinar, Risk to Resilience: How Companies Are Responding to Extreme Weather. We’ll examine how companies are actually addressing physical risk, including both the measures they’re deploying and the benefits they’re beginning to realize.

Register here.

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