Dr. Chris Brummer gave us an in-depth look into the mission and operations of Silicon Valley Bank on this episode of the Fintech Beat podcast through an in-depth interview with CEO Greg Becker and top lawyer Michael Zuckert. Together with a team of panelists including Kate Waldock of the Capitalisn’t podcast and Yesha Yadav, a leading lawyer and business professor at Vanderbilt University, Dr. Brummer raises interesting questions about the future of risks as Becker and Zuckert discuss the ins and outs of Silicon Valley Bank, the lessons learned from the summer, and the future of the innovation economy.
Dr. Brummer, a professor and faculty director of Georgetown’s Institute of International Economic Law, made waves in his field over his paper, “What Do the Data Reveal About (the absence of Black) Financial Regulators?” which was published by Brookings in September of last year. On his podcast, Fintech Beat, Dr. Brummer interviews experts and insiders in financial technology to explore the “intersection of policy, finance, and tech” for the benefit of potential investors and enthusiasts alike. In every aspect of his work, Fintech Beat included, he carries a passion for the future of finance, a future in which more diverse voices are becoming increasingly more prominent and essential. In his discussion with Becker and Zuckert, its clear that they have not only taken lessons away from his work but have been shaken by the summer’s events into not only investing in the future financially, but philosophically as well.
Silicon Valley Bank, founded in the early 80’s on the eve of the launch of the MacIntosh Computer, switched focus to the technology and innovation space after the real estate crash of the 1980s as a means to distance itself from the pack. By focusing on the innovation economy, Silicon Valley Bank can get on the ground floor of various startups, investing in biotech and medical technology that will not only eventually make a substantial profit, but will benefit society at large. Whereas so much of the market is slow or stagnant, new and exciting changes are happening in the innovation market all the time. When asked if he was worried about competition, Becker said what he’s said to his own employees, “We have massive bullseyes on our backs and we should just assume that will be the case.” The market is growing exponentially, so that eases the traffic, but in a market where success is not guaranteed, the key to winning over startups is to assure them not of a probability of success that improves through SVB.
A key bit of terminology to the future of finance and, by extension, the future of fintech is ESG or Environmental, Social, and Governance Criteria. Increasingly how seriously a company takes climate change, how ethical they are as employers, and how much work effort they put into fostering a diverse, anti-racist environment, are all becoming more and more important to investors. Recently, in Fintech Beat’s MLK Day Special, Dr. Brummer and a panel of guests interrogated what it meant for a corporation to harm its own ESG when Coinbase censored their own employees under threat of contract termination for speaking out about the George Floyd protests. Not only did this call the corporation’s ethics into question, but it contributed to an environment of mistrust with multiple team members jumping ship months before Coinbase was scheduled to go public.
Contrast this with Silicon Valley Bank, which took the protests last summer as a major wake up call. CEO Greg Becker, with surprising frankness, admits to realizing his company was not doing enough. Now, in light of the protests, they’re doing everything they can to separate themselves completely from a strategy of silence and censorship: “We do town halls now on a regular basis where the focus is on diversity, equity, and inclusion.” To be held accountable, within and without, is the only way forward in a future where the ethics of a corporation are as important as their profits. Top lawyer for Silicon Valley Bank, Michael Zuckert, cites a necessary tool for inclusion and progress: the diversity rider. A rider in the term sheet allowing underrepresented investors can also invest side-by-side with brand name investors. When underrepresented firms have a seat at the table, a myopic environment of censorship and de-facto prejudice has less room to grow.
ESG, more so than other factors in a corporation’s success or failure, is contingent on the emotional quality of a market which Dr. Brummer notices is very different depending on where you are, citing his own little joke about Financial Technology: “The West Coast makes it, the New York scene trades it, and Washington DC regulates it and they all really can’t stand each other.” Silicon Valley Bank, very early in its career had offices every where from California to India and is uniquely predisposed to being aware of a place’s social mores and how they affect a corporation’s ESG if at all. Michael Zuckert says the voice of the Silicon Valley employee is “more insistent” than employees elsewhere. Part of it is the age of the workforce, which is younger and more progressive than previous generations. Greg Becker argues that while each location pursues ESG with an equal intensity, the west coast has a more vested interest in the environmental and social aspects of it, while the east coast has a lot more concern for the governance. Again, these are the right lessons to take away from a time of pollical controversy and upheaval.
Dr. Brummer sums it all up very well to the point where it seems not just like he is wrapping up an interview, but making a moral for the story of corporations reckoning with their own morals and taking a stand, one way or another over the course of the last year. “Values can drive value,” Brummer concludes, “and it’s incumbent on firms to incorporate both into financing.”