At Trian, we invest in what we think are fundamentally great companies where management and, by extension, the board, is struggling to make the company best-in-class: best-in-class organic revenue growth, best-in-class margins, best-in-class return on invested capital and best-in-class from an ESG (environmental, social, and governance) perspective.
ESG investment is a growing force in the world of Wall Street, one that, in the wake of the multiple upheavals of the past year, has taken on significant new weight in finance. That growing media and market awareness has prompted corporations and investors alike, including Trian's Ed Garden, to seek to position themselves as leaders in ethical business practices, including supply chain management.
But Garden's extended response to a question about Trian's vision of ESG demonstrates the hedge fund's narrow view of socially responsible investment:
"Charles Elson: Let’s talk a little bit about Trian and your approach to investments. What’s your opinion of ESG and whether stakeholders, in addition to shareholders, should be part of the equation in a company?
Ed Garden: At Trian, we invest in what we think are fundamentally great companies where management and, by extension, the board, is struggling to make the company best-in-class: best-in-class organic revenue growth, best-in-class margins, best-in-class return on invested capital and best-in-class from an ESG perspective.
We believe there’s a strong correlation between being best-in-class from an ESG perspective and best-in-class operationally. Our job is to work with the board and the management team to really get the company on its front foot. At Trian, we think a fundamental part of what we do is bring a strong ownership mentality into the boardroom...
... The vast majority of companies that we invest in got off track because management was trying to make short term numbers that hurt the business. When you’re truly acting like an owner, you don’t buckle under pressure from people who are looking for short-term fixes to prop up the share price. If you’re truly acting like an owner, you’re thinking long term. The management teams I’ve seen get into trouble are trying to meet unrealistic goals and they get on a treadmill of spinning rhetoric to try to explain what’s happening and doing things that hurt the business long term.
I’ll give you an example. Trian has been invested in Wendy’s since 2005. We’re the largest shareholder and it’s been an amazing turnaround story. When we became the largest shareholder of Wendy’s, it had been in a state of decline since Dave Thomas, the founder, died. Store sales and margins were down, and the business was going in the wrong direction. What had happened, in our opinion, was that management was trying to make quarterly numbers and had cut the quality of the food — cut the quality of the bun, cut the quality of the beef, cut the quality of the condiments — and hadn’t invested in the physical plant. You had stores that had the linoleum floors and looked circa 1974. Consumers are not dumb. When you’re serving bad food in an unattractive building, what do you think is going to happen? We went to shareholders and said this is going to take a number of years to fix but we’re going to invest in the food — better quality bun, better condiments, better cheese, better burger, better fries, better salad. And we’re going to spend significant money on the physical plant. Fast forward, the reason we’ve been successful at Wendy’s is we’re serving great food at a great price in a really nice building."
"Great food, at a great price, in a really nice building"...
In Ed Garden's vision of ESG leadership, an efficient business is an ethical business, or, in his terms, "there’s a strong correlation between being best-in-class from an ESG perspective and best-in-class operationally."
But what about the health and safety of workers in Wendy's supply chain during the COVID-19 pandemic, a time of unprecedented challenge and loss for the food industry? Nowhere to be seen. Racial and economic justice for the thousands of Black and Brown workers employed at Wendy's restaurants -- whose average annual salary of $13,566 is less than .2% of the $7.2 million earned by Wendy’s CEO Todd Penegor -- in a time of rising Black Lives Matter protests? Doesn't merit a mention. Human rights protections for farmworkers in Wendy's supply chain in an agricultural industry marked by labor scandals ranging from forced labor to sexual violence? Not a word.
But leadership in the ESG investment market is earned, not assumed, and in the post-2020 financial world, the jaundiced vision of ethical business described by Trian’s Ed Garden simply doesn’t move the needle.
In fact, if recent developments in shareholder and investor circles are any indication, Trian’s approach to corporate accountability has Wendy’s stumbling out the gate in the race for primacy in the ESG market...
