Ed Garden on an "Ownership Mentality" for Boards: As an engaged shareholder, Garden aligns ESG with profits.

• Position: THE CHARACTER OF THE CORPORATION

As chief investment officer and a founding partner of Trian Fund Management, L.E, Ed Garden has influenced some of the largest corporations in the U.S. He currently serves on the boards of General Electric and Invesco and is a former director of Wendy's, Family Dollar Stores, Bank of New York Mellon and Legg Mason.

In an interview with Charles Elson, executive editor-at-large of Directors & Boards, Garden discussed the benefits of "having skin in the game" as an investor and a director whose active engagement often leads to a company's turnaround and sustainable success.

This text has been edited for clarity and length.

Charles Elson: Let's talk a little bit about Trian and your approach to investments. What's your opinion of ESG and whether stakeholders, in addition to shareholders, should be part of the equation in a company?

Ed Garden: At Trian, we invest in what we think are fundamentally great companies where management and, by extension, the board, is struggling to make the company best-in-class: best-in-class organic revenue growth, best-in-class margins, best-in-class return on invested capital and best-in-class from an ESG perspective.

We believe there's a strong correlation between being best-in-class from an ESG perspective and best-in-class operationally. Our job is to work with the board and the management team to really get the company on its front foot. At Trian, we think a fundamental part of what we do is bring a strong ownership mentality into the boardroom. I would argue that there's been a transfer of wealth from public shareowners to private equity over the last 40 years, with private equity buying public companies or divisions of public companies. We were told as shareholders those companies had become commoditized with low growth and were not great businesses, but somehow private equity firms were able to make a lot of money from those investments.

When you look at a private equity portfolio company, there's a very clear distinction compared to a public company. In a private equity context, the board is made up of the owners of the company--partners of the firm; management reports to them and those board members know the company as well as management does. The firm has a lot of skin in the game and the board is highly incentivized. That's very different from a public company boardroom where directors in a lot of cases own very little stock and don't really know the industry that well. Directors don't necessarily feel comfortable holding management accountable and there is a low level of ownership mentality. We call our model "hybrid private equity" where we seek to bring that ownership mentality into public company boardrooms.

ESG gets to the heart of shareholder primacy. It's interesting that the Business Roundtable made a statement arguing for more of a stakeholder-centered model. I would argue that what's missing in this whole dialog is that if you're actually going to execute on the goal of delivering for all stakeholders, you need a real ownership mentality in the boardroom. The main objective of every owner is value creation and we believe that is inextricably linked to...