Sarah Keohane Williamson, FCLTGlobal CEO joins Yahoo Finance Live to break down how companies can navigate volatile markets in 2021 and weigh in on the advantages of companies investing in ESG.

Video Transcript

- One of the discussions we've been having pretty regularly is are we seeing froth in these markets, either overall or in specific areas. And this is something that Sarah Williamson thinks about. She's the FCLTGlobal CEO. This is an organization that focuses on thinking long-term when it comes to investing. And Sarah, I mean, the answer to this seems fairly obvious, I guess. Is short-termism dominating to a high degree right now? And is that creating some of these maybe risky, bubbly areas in the market?

SARAH WILLIAMSON: Julia, well, thank you very much. So I think that we've seen short-termism dominate in spurts over time. And what we do know, of course, is that markets look to the future. They discount the future into today. But what we've seen in the last year, and frankly, probably in the last decade or so, is a real divergence between what's happening on Wall Street and what's happening on Main Street. And at some point, those have to come back together.

So we clearly see the market looking ahead, looking to recovery, discounting that future, but we see the average business still hurting. And I think that is still going to take a while to recover. So clearly, some sectors have had a huge surge from this, and that will probably continue, some tech sectors and so on, but we do think those two have to come back together over the long run. Fundamentals do rule in the long run.

- Sarah, I'm curious thinking about one particular trend in investing styles that has been so popular, which I would think of as a long-term trend, but maybe it's short-term, is ESG, because it's the predominant way, in my view, that we're now marketing new types of investments or new company pivots. But is that kind of a way to maybe companies pretend they're doing the right things, and then they say, oh, it's ESG? And how do you see that trend evolving? Because I think it's easy in the media to be cynical about it, but on the actual investment side, are investors serious about what they want from businesses?

SARAH WILLIAMSON: I think investors are serious about what they want. And I think that's because there's good evidence for that. You know, we need to remember that the expectations of companies change over time. And those companies that adapt to the world around them outlast and outperform those that don't. And that's true whether we're talking about evolving technologies or changing customer or employee or societal expectations.

So one area related to ESG, where expectations of companies have significantly changed, is on diversity of boards. And I'm sure you know NASDAQ has a proposal into the SEC right now that asks their companies to disclose the level of diversity on their boards and explain why if there isn't much diversity there.

And there's strong evidence that diversity and long-term value go hand in hand. So our research shows, for example, that companies with the most diverse boards outperform those with the least diverse boards by almost 3% looking at return on invested capital. And similarly, our models show that we all know that sales growth drives long-term value. But actually having a diverse board has as much impact on long-term value as sales growth, which we all spend a ton of time thinking about.

So what I would say is it's unclear whether having a more diverse board drives performance, or whether the better performing companies have more diverse boards. You know, it's a little chicken and the egg. But what is very clear is that companies that are less diverse are the under-performers.

And so I think as we think about ESG, there is right now some window dressing, green-washing, whatever you want to call it. But the fundamental concept that companies that are looking to the future are trying to be sustainable are thinking about where the world is going will likely outperform over time. I think it's pretty hard to argue with when you look at the arc of history.

- Sarah, when we talk about all of this, and we talk about long-term value and long-term investing, what are we talking about exactly? What is long-term when you're trying to make these sorts of assessments.

SARAH WILLIAMSON: Yeah. So we think of long-term a little bit as a state of mind almost more than an exact time frame. But if you think about a future-oriented company, a company that takes the long view. And if you think about investors, what are investors trying to do? Most investors have a long-term goal. They're saving for their retirement, or they're trying to fund their children's education or saving for a home or something like that.

So the way that we think about long-term is that it's not, you know, it's not forever. But what it is is trying to align an expectation about a company or an expectation about performance with the expectation about the investment. And so we've just done some work which we've published about the gap between investors' intentions, many investors invest with intentions of using that money in eight years or 10 years or 20 years, but they get very focused on what's happening today, tomorrow, the next day.

That's where we see the loss. It's when people chase the short-term at the expense of the long-term. It's not that the short-term isn't important. It's when they chase the short-term at their own detriment in the long-term.

- And thinking about this, Sarah, I'm curious what you make of the surge and the surge in interest and also participation from retail that we've seen this year. It'd had really been two decades. And the last time retail was in the market, FCLT wasn't an organization. So I'm curious how you're thinking about that, given that new dynamic?

SARAH WILLIAMSON: Yeah. Yeah, we've only been around for four and 1/2 years, so that's for sure. But I would say that one of the sort of interesting things of the people being at home is this increased interest in managing their own money, which, of course, is very important. And I think that there is a real value in people understanding the companies that they own, what they're investing in, what the purpose of that company is, what the company's long-term strategic roadmap is. And then trying to watch that company and see if they are making progress on that long-term roadmap.

And if they are, and if they are hitting their KPIs along the way, then probably in the long run that's going to be a pretty good investment. I think that the trick for retail investors at home is to not get caught up too much in the day to day because what we all know, and what we've learned from the behavioral scientists, is that we feel losses more than we feel gains. And that's just wired, hardwired into our brains.

And so the goal is to keep coming back to what's the money for. Is it for something in 10 years? Is it for something tomorrow? If it's for something tomorrow, it shouldn't be in the market. So aligning that long-term time frame, or whatever that retail investor's time frame is, with their perspective is hard. And now, I understand it's challenging to do. It's challenging for anyone. But that should be the goal.

- Yeah, especially when people maybe are getting that stimulus check, and maybe don't have work right now. So they're finding a new hobby, so to speak. It seems like that's what's driving part of this trend. Sarah Williamson, thanks so much for being here. FCLTGlobal CEO. Good to get some time with you today. Thank you.

SARAH WILLIAMSON: Thank you.