In this episode, Meredith Benton, Principal and Founder of Whistle Stop Capital, discusses how foundations, university endowments, and other long-term institutional investors should be thinking about AI. The conversation explores why shareholder engagement — not divestment — is the smarter path forward, and how investors can ask better questions of their managers to ensure AI is being developed and deployed responsibly. Benton also shares key findings from the Tech Forward initiative, which surveyed over 40 human rights organizations to identify the governance criteria most linked to strong long-term company performance.
Hello, everyone. This is George Suttles, executive director of Common Fund Institute. And I'm Amanda Novello, associate director at Common Fund Institute. And this is Espresso Chats, a podcast by Common Fund Institute where we deliver short, strong shots of governance and leadership insight. We are absolutely thrilled to be joined today by Meredith Benton, principal and founder of Whistle Stop Capital. Thanks so much, Meredith, for joining us. Glad to be here. Awesome. Well, Meredith, let's jump right in. Can you tell us briefly about Whistle Stop Capital, your role as principal and founder, and the tech forward investors initiative? So I founded Whistlestop Capital in twenty seventeen. We're a research and analytics consultancy that focuses on latent, emerging, and overlooked risks in the marketplace, and that tends to be sustainability issues. It tends to be human rights and environmental topics. Tech Forward is one of the initiatives that we facilitate. It really thinks about what is tech's relationship to society and what are the implications of that relationship, how tech companies manage the responsibilities they have and and the impacts that they receive from societal actors. That initiative has been underway now for over three years and recently published a study looking at the key criteria that the human rights community would like to see tech companies put in place and what that criteria has meant historically, at least in terms of tech company performance. Amazing. Thanks, Meredith. And it's really you sit at this very interesting intersection of investments, tech, advocacy, and almost fiduciary duty. So pushing companies to govern themselves better through the shareholder channel. In an investor context, many foundations and university endowments and other long term institutional investors hold significant stakes in big tech platforms driving AI development. So where does AI fit into the work and why does, or should it matter right now? Is there a role for these organizations to take concrete actions as investors to influence how those companies build and deploy AI? Really just looking for your perspective from an advocacy lens and an investor lens as well. Absolutely, and I'll take a bit of a step back when we think about AI, it is definitely the hottest topic in the investor landscape right now. But one of the things that investors have always struggled with is manager agency risk. What is in the best interest of the executive, how they might be exploitive of the current point in time or the enthusiasm you might have for their business is not always in the best interest of the investor. And they need to be very active and intentional in monitoring that risk and ensuring that the companies that they invest in are built to their advantage, not to advantage the executives in charge. With AI, we're really seeing that expanded. We're seeing a lot of sort of fear of being left out. We're seeing a lot of this sense of like there's easy money. We want to make sure we grab it. We don't want to put guardrails in place. We don't want to put any restrictions in place. And it's, I have a little bit of an allegory that I wanted to share. It's sort of the modern day tinfoil, right? It's really shiny. It's really sparkly, and it's new. And I have this, and I want, it's, I need to make clear that I don't believe that all of the facts of the story I'm about to tell are correct. I went to Oberlin College. I graduated in two thousand. When I was there, there was a clear lack of endowment funding, specifically as it related to the college's library. And the reason that I was told for that was because Charles Martin Hall, a metallurgist, had been an alumni and he had figured out how to get aluminum out of rocks more cheaply and easily. And he had left a huge amount of stock to the college when he passed. So then for a period of time, Oberlin was sort of rolling in it. We had this beautiful library. But the students became uncomfortable with where the money was coming from. It was very dirty stuff at the time and they pushed the college to sell the stocks and move out. And that that was the what I had been told in the nineties for why we didn't why our books were a little antiquated that we had access to. Now, looking back on that, I'm thinking, okay, the story isn't actually about divestment. It's actually that they must have reallocated capital poorly, whatever. It's irrelevant why we ended up in a poor financial position at the time. But I've taken that lesson with me into my work because they didn't need to sell out. In fact, what selling out of these companies by leaving these companies turning away from the opportunity that aluminum presented did was it short shorted the college significantly. And it didn't change the way that aluminum was created. Not in any way. What we've seen now with AI is the same. If we have investors who say I'm uncomfortable with the impact that might be created from AI, we're not going to invest it at all. Like we're going to go to something tactile and tangible that we understand well. It's not going to help them. And it's certainly not going to change the way that we think or we understand or we utilize AI in current society. So it's a cautionary tale, right? You don't want the opportunity to be passing you by with a theory of missing out, being a participant in that harm. Right now with AI, there's a sense like this huge amount of dry powder. Everyone's allocating capital. If we don't move fast, we're going to miss out. But that concept is the shiny tinfoil. It needs to be done well. It needs to be done smart, smart and thoughtfully so that you're invested in the correct things with the ability to have the impact that you want so that you're creating a world that is the sort that you need to be invested in for your students and for your pensioners. What's really interesting is, you know, there still seems to be that tension between, and spoke to it very elegantly between divestment and shareholder activism, really sort of maintaining a seat at the table so that you can not only control the narrative, but deploy capital in a way that will incentivize a different type of responsibility. So that feels like we're still managing that tension and that there is a case to be made for sort of shareholder engagement in this space. Yeah, there's absolutely an opportunity for investors to be stepping up. In fact, would say it's essential. You can't, you have a nascent, it's not a new industry, right? Tech preexists, but you have an industry that has a history of hysteria and then booms and busts. And you have a sense of that repeating itself here, right? All of this money just flowing into the space with the expectation that somehow money is going to continue behind it. But it's not necessarily going to play out the way unless we're smart about it. We're thoughtful about it. Let someone else go into these goofy companies. You as an investor, as a steward, think about actually the underlying, whether or not it's a true tactical asset allocation that fits with the world that you want to build. What we need to see is companies that are well governed. The ideas will prove themselves out over time, but if there's a poor executive team, if they don't have the knowledge and expertise needed, then the company isn't going to be able to succeed beyond stock price hysteria. And that is what knowledge is needed at the companies. It's important for the investors themselves to take a step back and say, hey, I might not understand what they're doing. Right? Like, I don't understand what they're selling, but can I understand if they have the right expertise and knowledge? Do they have the right training? Do they show that they have an appropriate mindset around strategic development and costs? Or are they also just grabbing onto this bandwagon, this manager agency risk that I referenced, where they, as an executive, are saying, hey, everyone's willing to give me money. I am willing to take it. No one can blame them for that. The important part that that to speak to your question around engagement, the most important thing an investor can do right now around AI is to think about where is it appropriate to bind the companies that they invest in? What are the guardrails that they want? What's the knowledge and assurance that they want in those executive teams? And where do they want to be sure that they are not restricting them? Where do they want to ensure that they are allowing those companies and those executives that they have confidence in to move through an unfettered landscape? I really need to be intentional about thinking about that with AI. Thanks, Meredith. Boards and investment committees at nonprofit institutions wear a lot of hats, as both you and George know very well. So there's fiduciary oversight, governance, mission risk, mission alignment, manager selection, and so many related decisions to be made. And it seems like AI has the potential to shift the parameters or at least the considerations for, in all of these areas. So how should leaders be thinking about their role in this new era of technology, and are there new structures, policies, or competencies that they should be considering or putting in place beyond just knowing what the right questions to ask their managers are? Well, that's not importance of thinking about what questions you wanna ask your managers. So let's let's let's actually pause on that and say, hey. That is actually at the core of what, an investor that allocates externally needs to be doing is saying, do I want to ask my managers? Internally, there's, I think, operational impacts. You know, how can we use this to be more efficient? How do we ensure accuracy? How do we ensure team cohesion as we use AI and the new efficiencies that it brings? I think that's true. It's not just about you being an investor. Every single company is thinking about that from the smallest to the largest. How do we use this well without harming our output product? In terms of the investors though, they really need to take a very intentional step back and say, what is it that we want to help build in this window of time? What is necessary to build this that we would like to see? Let's think about who our underlying beneficiaries are. What is the world we want them to be in and what component parts of AI can we see being additive to that? What component parts of AI would be harmful and be a little bit more intentional in where assets are being allocated in this window of time towards the beneficial and to be engaged as investors where they see the potential for harm with really taking that to back and saying, what are our big picture goals here? AI is a part of that goal. It shouldn't be something that comes sweeping in front so everyone is blind to everything else they're trying to accomplish. Our research at Tech Forward saw that from a societal perspective, the main goals that we were seeing from the human rights community were actually around the knowledge that the companies would hold around human rights and the account, like the accountability mechanisms that they would have in place. How do we know that they are doing the things that they say they will do? And then what transparency do they have? What are they reporting back to the public, to their investors? When we did, an empirical backtest on the materiality of that criteria, what we saw was those companies that are intentional in having knowledge at the executive levels and the board level around human rights issues, they were within a five year timeline. Obviously, past results do not predict the future, but they did have stronger returns. The volatility on the stock price itself was lower. And as we think about the likelihood, maybe they're going, we're not going to have a bubble that bursts, but we might have a retraction of enthusiasm. And that level of volatility and the concern around volatility is going to be at the forefront. So it's important for investors to be thinking now how much risk can we get hit gone? How much assurance do we need that the managers that we are investing in are being strategic, being aware of future bumps? And what's really interesting, Meredith, is that it feels like whenever you introduce a new component of a risk management framework, it can take a while for folks to wrap their arms around it, but this is just good investing. Is that right? Like this is just good, prudent, responsible investing outside of what you might feel about AI, whether there's a bubble, where you think the opportunity sets are across asset classes. Really, what you're talking about is just good, smart, prudent, responsible long term investing. Is that right? Or am I missing something? No, that's absolutely right. You should be at all times, right? Regardless of the investment, AI or not AI, like what are the goals you have for your beneficiaries or your your underlying clients what kind of world are we trying to invest in in order to make their lives better long term should always be a guiding mandate What does it mean if we go into a high risk investment? Okay, a of times it's appropriate, but is that risk priced appropriately? Like you can have a lot of risk that has no return. And that's what we're seeing with the AI right now. We're taking, sure, you're right. Yeah. You could take on tons of risk, but where's the upside? And where's your promise of that upside? And are you being intentional in understanding that you have executives and board members in place that upside will be, have a sense of where that risk will be and can manage towards it. Just putting AI at the front of something, like I said, I was in undergrad in the late nineties. That means I hit the dot com bubble right as I graduated. You know, you could have put dot com on the end of anything for a window of time and that stock was gonna shoot up. And we're seeing something very similar right now where you can be a shoe company and you can put AI in your name and your stock's gonna shoot the moon. So there has to be a little bit more of a cautionary tale. Let the others lose their money. You're a steward. I do think with with folks who are stewarding well, they will they will ask questions. And there is an extraordinary amount of power from from a protecting your assets perspective and saying, hey, why are things this way? Not advocating for an outcome. Just saying why are you doing things this way to your managers and to the companies that you own because it's the confidence and the knowledge and the answer that will tell you if something is amiss. If these if you get a a we are not sure, we'll have to get back to you. Like, that's a little flag to be watched much more carefully. But the other thing that investors should be doing in this window of time is to really understand their own expectations and to define where their boundaries are. Where do they want not want to be and what company policies they want to see in place or what disclosures they want to see from the companies they invest in before they're willing to invest, what they're willing to invest in and then push for to have changed or improved and understanding their capacity to do that either internally or with an external consultant like WhistleStop. What is it that they are seeking in this window of time? Is it positive change? Is it making sure that they have a risk profile that's aligned with a long term investment? Or are they really hoping like they want a twenty five percent return? We've had years where you could do that. They want to go back to those years. Other thing to think about is measurement. I think that's something that we're going to start to see in the next few years is how do you measure if those goals are being met? What d like, what details do you need that provide you with comfort? And let's start thinking about those actively and start asking companies for those data because I will tell you, as someone who's done a lot of corporate engagement, you ask year one, you get the data year four. So if you're gonna be investing, you might wanna start thinking about those questions and start percolating them for corporates. And talk to your investment managers, consultants, advisers. Make sure that they have that knowledge in house, that they are also being thoughtful. And ask them what experts they're leaning into, what resources they've tapped into. If they haven't, that should be a concern. Right? There's another flag. Make sure that they're doing so. There's a lot of opportunity with AI and with opportunity comes a responsibility to be intentional. No, absolutely. And I want to get to, I want to be cognizant of time, so I want to kind of get to brass tacks, but I feel like you've covered a lot. So, you know, boards and investment committees in particular, they want to ask better questions, they want to navigate tech and AI, you know, more adeptly. Where do they start? Where would an investment committee start if you had to give them one first step or a couple of first steps? Where would one begin? Yeah, I think they need to be internally aware of what their goals are. And that's usually a conversation. Sometimes it's facilitated by an external consultant to say, hey, what are the priorities here? Where in all things, right, there's a compromise in life, you know, where are you willing to make concessions? What are absolutely obligatory for you? Is it social impact? Is it making sure that you're beating a benchmark? Is it that your students will be proud of their alma mater? What is it? Right? Where are you trying to go? And then understanding best practice and what they want to follow relative to that goal. So the tech forward research would point to as a very strong something you can lean into as a resource because we talk to forty different human rights organizations about what societal needs are. So we have that set of criteria available to you as an investor to say, okay, these are the priorities from a human rights perspective, and these are the ones that have had the strongest relationship to stock performance. So maybe start with those. Start saying, okay, we want to make sure we're going to lean into the top five. We want to make sure that the companies have someone on the executive team with human rights experience. Like, it sounds really obvious when you say it. Many companies don't have it in place. Push for that. We wanna make sure that they have clearly elucidated policies around AI development and deployment, and that they are public and communicating to stakeholders around that. Push for that. Right? Make or tell your manager we we don't wanna invest unless they're willing we're seeing a willingness to change from those companies. Right? But it's really the first step. If you want, George, the very, very first step is to have that meeting internally that says what is most important to us in this window of time, given that we have to go back to my aluminum example, we have a shift in technology that is changing what we value in this landscape, and it has the potential for harm and it has the potential for significant upside. No, absolutely. So you've given us, you've done a ton of context setting. You gave us a great anecdote, shout out to small liberal arts school education for sure. But you also gave us a little bit of a roadmap, like where does one start? I want to give you this final question. What's most exciting about this work for you right now? You've got this this report out, folks are really beginning to have these conversations, you can almost leverage the report as a starting point and a roadmap for engagement, it seems. So what's exciting you about this time that we're in and about this work? We are seeing tech and the way that the investment community is responding to AI, it's very different than any other issue we've worked on. Whistle Stop works across a wide range of sustainability topics and climate, workplace culture, health. And this is one where folks, our investors are coming to us saying, hey, we get that there is very significant societal impact from the deployment of AI. It is front and center. We're not trying to convince anybody. We don't need to convince anybody around this concept that we're gonna have very significant upheaval in the way that our culture works, the way that businesses operate because of AI development. And so in a way for what's exciting is that we're already we're already starting at eighty in terms of the cars on the road alongside us. We are going fast because the marketplace understands that this is a topic area that needs to be managed and understood. What they what they don't understand is necessarily where to go. So we've got a lot. I'm frankly really excited that we've got a lot of interest in the work. We've had a very significant response and demand for the research. And now we need to translate it into action. So I spoke to that one year to four year, it takes a little while sometimes. It's great to be starting at year six. Absolutely, so we've got the research, we've got the momentum, we've got some fomenting action, that feels really, really good. Meredith, this has been an incredible conversation. Thanks so much for your leadership in this space and all that you and your colleagues do. Thanks for coming on the show. We really appreciate it. Thank you. Thanks very much.
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