Index funds, vaccines and shifting balances

Appearing in In The Black magazine, April 2022

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever
By Robin Wigglesworth
Penguin, $33, 352 pages

As the global finance correspondent for the Financial Times, Wigglesworth has had a front-row seat to a development that has remade financial markets: the rise of index funds. The revolution has been slow but it has been inexorable, to the point that they now dominate the investment landscape. Wigglesworth walks through the early academic work which hypothesised that a basket of passive investments would usually outperform active traders, taking account of the fees charged to investors. Turning theory into practice was tricky but Wigglesworth has a good time with a sprawling cast of characters, with a man called Jack Bogle, who created the first working fund, in a starring role.

Wigglesworth is generally supportive of index funds, emphasising that investors have saved billions in fees. But he acknowledges the downsides, noting that the number of active traders has dramatically reduced. This pattern amplifies market movements, makes entry for newcomers more difficult, and reduces the transparency of decisions. Yes, index funds have brought more people into the wealth-creation process but they have also concentrated power in a few hands. The long-term consequences of lopsided markets are not clear, but Trillions has a remarkable story to tell and Wigglesworth tells it well.

A Shot to Save the World: The Remarkable Race and Ground-Breaking Science Behind the Covid-19 Vaccines
By Greg Zuckerman
Penguin, $35, 384 pages

The COVID-19 pandemic is the story of our time, and this book shows how the vaccines which have been critical in turning the tide were developed. Zuckerman, a science writer at the Wall Street Journal, points out that drug companies had long seen vaccines as a low priority but when the crisis hit they quickly pivoted to a new paradigm. There was a massive program of investment, research, and testing, with remarkable co-operation between governments, researchers and the private sector. It was done in record time, very different to the usual pace of drug development. In fact, there were several races moving in parallel although the research streams ultimately converged.

Zuckerman explains the underlying science and the technological advances required for large-scale production and distribution. He acknowledges that companies always had an eye on the bottom line but believes there was also an acceptance of the need to look beyond profitability. The virus has not yet been defeated, especially with new strains appearing, but Zuckerman predicts that it will become a seasonal disease rather than a global threat. The book adds up to a fascinating account of how the corporate sector, and the broader community, can rise to meet challenges.

Shifting the Balance: How Top Organizations Beat the Competition by Combining Intuition with Data
By Mark Schrutt
ECW Press, $50, 256 pages

Analytics, algorithms and Big Data have changed the fundamental nature of business and in this book Schrutt, a consultant specialising in disruption and digital transformation, examines their advantages and limitations. While they provide huge amounts of information they are usually focused on what has already happened, and the result is that they can be reactive. Emerging threats, changes and opportunities can be missed, and old biases can be inadvertently baked in.

Nevertheless, Schrutt makes clear that the old method of leaders making strategic decisions according to their ‘gut’ is unsuitable for the Digital Age. The answer is a hybrid system where company principals draw on all the available information but still retain the final decision on strategy, using their knowledge of the marketplace and their observations of what is coming down the road. Looking at the practices of companies that have developed combination models, Schrutt emphasises that leaders need to be able to understand the value of data. They also need to recruit data specialists who can provide information that is relevant to strategy. Data should not – and cannot – replace experience and wisdom, but leaders must be willing to utilise the new generation of tools at achieve the best outcomes.

Downloadable Resources

Podcast

The Built For Change podcast series from consulting giant Accenture provides some useful discussions, mainly around the theme of taking advantage of new technologies. A particularly interesting segment (Episode 10) deals with how brewing company Carlsberg utilised cloud tech and related algorithms to improve inventory control across its global operations, track consumer preferences and adjust the local product accordingly, and re-make its distribution infrastructure. The larger point is that data collection and storage is a means and not an end in itself, and the cloud offers the potential to dissect, manipulate and disseminate information across a widespread group.

Download from:
https://www.accenture.com/ca-en/insights/company/built-for-change-podcast

Workplace research

In this interesting TED Talk, Harvard academic Ashley Whillans examines how, especially in the COVID-19 era, work has increasingly crept into our private lives. This is a recipe for burnout, she says, but there are some ways to re-establish balance. Her research shows that time issues are best negotiated at the recruitment stage, to ensure that family commitments are acknowledged and accommodated. Another critical point is to ensure that private time is insulated from work communication, especially email and mobile phones. Co-workers should be informed when you are not available, so that ‘time away’ allows for genuine mental re-charging.

Watch at:
https://www.ted.com/talks/ashley_whillans_3_rules_for_better_work_life_balance

Equity scorecard

A study from the College of Business and Economics at the Australian National University has placed Australia equal last on a gender pay gap scorecard comparing six developed countries, with a gap of over 14 per cent. There are disclosure requirements at the industry level but the underlying assumption that reporting would help to close the gap has not been borne out. The report authors believe that the focus of reporting should shift to individual companies, that there should be clear minimum standards for pay equity, and that the government should be willing to impose sanctions on non-compliant firms.

Read at:
https://cbe.anu.edu.au/news/2021/australia-has-ranked-last-international-gender-pay-gap-study-here-are-3-ways-do-better

Hotline

The Australian Cyber Security Centre has released a package of improvements to help businesses with their security. This includes enhancements to the Australian Cyber Security Hotline (1300 CYBER1), so it now operates 24/7. The Hotline can be used to obtain advice and report attacks. Data from the ACSC shows that the threats facing Australian small and medium-sized businesses are growing, as they are seen as easy targets. Cyberattacks, especially ransomware raids and business email compromise, are becoming more sophisticated and destructive.

The ACSC has also released new online learning resources offering simple-to-follow advice for businesses and individuals, available at cyber.gov.au/learn

For further information, go to:
https://www.cyber.gov.au/acsc/view-all-content/news/acsc-call-247

Disruption discussion

Gerald Kane, Rich Nanda, and Anh Nguyen Phillips are experts on business and technology strategy as well as co-authors of the important book The Transformation Myth. In this interview on the site of MIT Press, they explore avenues for dealing with disruption, using the pandemic as an object lesson. The discussion is an hour long so there are opportunities to drill into cases and solutions. The key points are that new technology has to be designed with customers in mind, leaders have to prioritise organisation resilience, and attempting to  merely ‘weather the storm’ means missing critical opportunities for positive change.

Watch at:
https://mitpress.mit.edu/blog/author-talk-transformation-myth-gerald-c-kane-rich-nanda-anh-nguyen-phillips-and-jonathan-r

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