Grey areas

Every superhero and arch-villain has a backstory. A set of circumstances and experiences that combine and conspire to make them into who they are today.

Unlike in the comic books, in real life, it can often be hard to tell which is which.

Kenny is a fixer. Possessing a talent for identifying problems that people didn’t realise they had. Then solving them, for a nominal fee.

He grew up the hard way. Little guidance. Less money. No support. Lots of responsibility.

Kenny’s mother was a junkie. More a job description than a judgement. It required cunning. Focus. The investment of long hours of effort in unsafe conditions in return for a fleeting and paltry reward.

She had been an early bloomer. A young girl’s mind occupying a grown woman’s body. Easily led. Desperate for acceptance. Low self-esteem. Willing to do anything to be popular.

And popular she was. For a time. Everyone’s favourite party girl. The town bike.

Until she got pregnant. Kicked out of home. A mother for the first time at age fifteen.

A cautionary tale. Back in the olden days, fathers might have made clichéd jokes about buying shotguns and building moats to protect their daughters’ virtue from horny teenage boys.

Times have changed. Today the fear is about being accused of harbouring ideas that may be perceived as controlling. Demeaning. Discriminatory. Disrespectful. Sexist.

The new way is to provide education and access to birth control. Empower young women to make their own well-informed decisions. Teenagers are going to fuck either way. It has ever been thus.

An approach built on assumptions.

Advanced preparation.

Diligent application.

Planning.

Clear thinking in the moment. When hormones are racing. Primal urges undermining rational thought.

It depends upon an empowered female. Who is in control. That consent will be sought and respected.

Which seemed to work for the 55% of pregnancies that were planned. Not so much for the third of all births that were not.

Nobody knew who had fathered Kenny. The list of candidates was as long as the electoral roll, and just as varied.

Kenny’s step-father was a career criminal. Not a very good one. In and out of jail his entire adult life.

An overworked police force would apprehend, charge, and remand him.

The underfunded criminal justice system would eventually prosecute, convict, and incarcerate him.

Then the overcrowded prison system would give him credit for time served. Time off for good behaviour. Early parole. Not because he was rehabilitated, but because they needed to free up capacity.

Rinse and repeat.

Each time he would return home slightly older, but rarely any wiser.

Partying hard to celebrate his liberation. Partying harder to enjoy his newfound freedom.

Kenny’s mother would fall off the wagon. Addictions relapsing. Fall pregnant yet again.

Before long, he would be arrested again.

Not always caught for the things he had actually done. However, he had usually done something.

He knew it. The police knew it. Law of averages applied. A form of natural justice.

Back to jail. Receiving a roof over his head and three square meals per day. Which isn’t a lot, but it was more than his ever-growing family enjoyed on the outside.

Kenny had always been an enterprising kid. Identifying opportunities. Playing angles. Spotting marks. Always hustling.

He had little choice. Learning from an early age that if he wanted to eat, he needed money. Any cash his mother received was swiftly injected in search of an escape from the harsh realities of life.

Aluminium can collector.

Car washer.

Dog walker.

Paperboy.

Dumpster diving behind the newsagent. Searching for unsold Playboy magazines, to sell to horny high school boys, who were too embarrassed to purchase them in store. High risk. High reward. Many of the high schoolers preferred to beat up young Kenny rather than pay him.

By the time Kenny started high school, he was taking care of five younger siblings.

Raising them on a diet of breakfast cereal, orange juice, and generous servings of hot chips from the local takeaway shop. Hardly a nutritionally balanced diet, but it was cheap and filled young bellies.

Doing his best to keep them all together. Having vicariously observed that the only kids who led a harder life than his own were those trapped in the foster care system.

In the olden days, councils were afraid that social housing tenants might not pay their rent. Instead, rents were paid directly to the landlords. Automated. In full. On time. Reliable.

Times had changed. Today, the fear is about being accused of harbouring ideas that may be condescending. Demeaning. Disrespectful. Unempowering.

The new way paid the benefits to the tenant. Trusting that they would then pass on their rent to the landlord. Empowering tenants to learn how to manage money. Make good decisions. Gain life skills.

An approach built on assumptions.

Advanced planning.

Careful prioritisation.

It depended upon the well-organised tenant. Free from threat. Temptation. “Life happens” events.

Which seemed to work for many. Not so much for the additional 36% of tenants who were subject to landlord initiated eviction orders just four years after the changes were introduced.

Interestingly, by the end of 2019 eviction order numbers had returned to their former levels. Landlords would point to the increased cost and difficulty in evicting tenants in arrears. Few would suggest that tenants were any better at paying their rent on time or in full.

Kenny’s mother had other priorities for her social security income. When it came to choosing between the sweet embrace of the needle versus paying the rent, there was simply no competition.

Kenny needed a reliable way to increase his earnings, to ensure they kept a roof over their heads.

His science teacher was delighted by his sudden keen interest in biology, particularly the growing of tomatoes hydroponically. They spent hours discussing optimal air circulation, grow lights, nutrients, pH levels, and temperature. Little did she realise that Kenny was diligently applying her tutelage by converting the crawl space of his mother’s council house into a foil-lined hydroponic farm for a similar, yet far more lucrative, crop: cannabis.

Kenny felt the ethics of this agricultural entrepreneurship were a morally grey area.

On the one hand, he despised drugs. What they had done to his mother. His siblings. Himself.

On the other, his younger siblings needed to be fed and clothed. High morals and a clear conscience weren’t going to pay the rent or keep the heating connected throughout the winter.

Kenny had once read Joseph Heller’s Catch 22 for an English assignment. He idolised the Milo Mindbender character, who wheeled and dealed his way from Army mess officer to major player. Going from rags to riches in the process.

Shortly after Kenny’s 16^th birthday, his step-father arrived home for one his brief sojourns outside of a cell. The usual assortment of miscreants, ne’erdowells, and reprobates helped celebrate his newfound freedom. The party-goers all arrived on their feet, but many departed inside bodybags, thanks to an unusually strong batch of heroin.

Suddenly orphaned, Kenny’s greatest fear was realised. His younger siblings were separated and taken away by children’s services.

At 16 years of age, the state determined that Kenny was old enough to join the military and die fighting for his country. Yet not old enough to drive. Own property. Vote. Or care for his siblings.

Facing the prospect of life in foster care, Kenny enlisted in the Army. Seeking to emulate Milo Mindbender’s feats by joining the Royal Logistics Corps. He figured the folks who procured and distributed all of the Army’s food and equipment would be the least likely to go without.

The function of his role would be to keep military units around the globe supplied with everything they needed to perform their function well. Some of that equipment was designed to kill people. Blow stuff up. Transport soldiers during their commute to and from doing either. A morally grey area.

On the one hand, the military was tasked with furthering a nation’s interests. Even if that involved performing unsavoury deeds.

On the other, it turned out that soldiers sometimes requested special logistical favours smuggling items unlikely to appear on the shelves at their local Marks and Spencers. Black market goods. Contraband. Questionable legal status. Liberating ill-gotten gains from faraway places like Afghanistan, Iraq, Libya, Syria, and Ukraine.

Lucrative. The sort of thing that it was best not to ask too many questions about.

Several years later, the newly promoted Corporal Kenny had an epiphany.

In the olden days, investors had focussed on discounted cash flows. Fearing they might pay too much for future earnings. Not giving much thought to how those earnings may have been generated.

Times had changed. Today, the fear is about being perceived as unethical. Failing to be a socially responsible investor. Striving to invest in those companies who embrace a “don’t be evil” approach to business.

Seeking to avoid companies that contribute to climate change.

Damage the environment.

Deploy predatory marketing practices.

Exploit their workforce, a gamut ranging from discrimination and inequality to modern slavery.

Have questionable or captured corporate governance practices.

Injure public health.

An approach built on assumptions.

Behaviours align with values.

Executives focus on sustainability and societal impact, not just profit maximisation.

That ethical practices are universally applied. Up the supply chain. Down the sales and distribution channels. Across the holdings wherever pension contributions are invested.

It depends upon investors being able to see through the marketing hype and corporate virtue signalling. Successfully able to assess the effectiveness of environmental, social, and corporate governance practices. From the outside.

Kenny’s epiphany was identifying a potential arbitrage play.

If ever-increasing numbers of investors were focussing on ethical investing, then there would be less competition bidding up the valuations of those companies who were perceived as being unethical.

Fossil fuel.

Agriculture.

Real estate development.

Mining.

Organisations catering to the individual’s propensity for self-harm and stupidity. Alcohol. Consumer credit. Gambling. Guns. Junk food. Media. Politics. Religion. Social media. Tobacco.

ESG investing is currently fashionable.

Index funds are starting to grab headlines by flexing their muscles and agitating for change.

Influencing corporate strategy.

Changing agendas and priorities.

Reforming or replacing corporate boards.

Driving organisations to divest or withdraw from business operations that markets perceive as undesirable.

One thing that Kenny had learned growing up with a jailbird and a junkie, was that wherever demand exists, a supplier would always step up to meet it.

His hard-won global logistics and supply chain experience only served to reinforce this view.

The demand for unethical products that had been cut down, dug up, or killed wasn’t about to go away.

Nor would humanity’s taste for armaments, casinos, cement, fertiliser, mass-market air travel, or pesticides.

Kenny thought he had identified a contrarian value investment play.

A way to get rich by swimming against the tide. Investing in those profitable yet unfashionable companies. A morally grey area.

Regardless of ethics, consumer demand for their products remains strong.

Even ESG investors consume products with adverse environmental consequences. Avocados. Bananas. Beef. Cheese. Disposable nappies. Sugar. Tampons.

Even ESG investors enjoy using products or services that sit at the end of a socially questionable supply chain. “Blood” diamonds. Cobalt in smartphone batteries. “Fast” fashion.

Even ESG investors wax lyrical about successful companies with dubious corporate governance records. Accounting fraud. Optimistic revenue recognition policies. Tax avoidance. Transfer pricing.

Kenny left the Army to apply his accumulated skills and experiences towards exploiting this opportunity. Join a profession that was comfortable operating in and profiting from morally grey areas.

He decided to start a value investing hedge fund for contrarians that would invest in the market’s profitable ugly ducklings.

---

References

• Baker, A. (2020), ‘Blood Diamonds’, Time
• BBC (2020), ‘Government “must stop garment worker exploitation”‘
• CFA Institute (2020), ‘ESG Investing and Analysis‘
• Clifton, S., Fuller, E., and Philo, D. (2013), ‘National Survey of Sexual Attitudes and Lifestyles (Natsal-3)‘
• Conger, K. (2018), ‘Google Removes ‘Don’t Be Evil’ Clause From Its Code of Conduct’, Gizmodo
• Heller, J. (1961), ‘Catch-22‘, Simon & Schuster
• Henisz, W., Koller, T., and Nuttall, R. (2019), ‘Five ways that ESG creates value’, McKinsey Quarterly
• Hickman, P., Kemp, P.A., Reeve, K. & Wilson, I. (2017) ‘The impact of the direct payment of housing benefit: evidence from Great Britain’, Housing Studies, vol 32, no 8, pp1105-1126
• Loveday, M. (2014), ‘How old do you have to be to own a property?’, The Times
• Ministry of Defence (2020), ‘A decade of deployments: 2010 to 2020‘
• Ministry of Defence (2020), ‘How old do i need to be to join the regular army?‘
• Ministry of Justice (2020), ‘Mortgage and Landlord Possession Statistics, in England and Wales‘
• Ministry of Justice (2020), ‘Mortgage and landlord possession statistical data‘
• Pettifor, A. (2020), ‘BlackRock gets praise for coal divestment. What it really needs is regulation’, The Guardian
• Powell, J. (2020), ‘Tesla’s cash to be collected: redux’, Financial Times
• Public Health England (2018), ‘Health matters: reproductive health and pregnancy planning‘
• Robertson, J. (2019), ‘Why smartphones are no longer driving the search for “blue gold”‘, BBC
• Wellings, K., Jones, K.G., Mercer, C.H., et al. (2013) ‘The prevalence of unplanned pregnancy and associated factors in Britain: findings from the third National Survey of Sexual Attitudes and Lifestyles (Natsal-3)’, Lancet, vol 382, pp1807-1816.