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Wall Street Superman to the Rescue

Melissa Griffin | December 20, 2012 | Story Politics

"Can you give me a smirk?” the photographer asks. “A victorious smirk—like ‘Yeah, I won.’” You would think that a billionaire investor could flash a well-honed smirk on demand—don’t they teach that look at Stanford? But despite a reported net worth of $1.3 billion and a recent landslide political victory, Tom Steyer seems to lack the requisite smugness. Every attempt at miming arrogance dissolves into amused laughter. The photographer, getting nowhere with his subject, proposes another scenario: Steyer is to don a green T-shirt beneath his dress shirt and tie and then pretend to rip off his button-down like a “green Superman.” Steyer looks at the ground, considers the idea for a moment, and then—well, you can see the result right here.

Regardless of whether he’s capable of feigning smugness, Steyer has every right to feel good about himself after last November’s election. He is the person most responsible for the success of Proposition 39, which closed a corporate-tax loophole enjoyed by out-of-state companies—adding an estimated $1 billion to California’s coffers annually. Although that fact alone is enough to propel Steyer onto every progressive political blogger’s 2012 heroes list, the following one moves him right to the top: The proposition mandates that for the next five years, half of that new revenue (up to $550 million per year) must be used to fund “projects intended to improve energy efficiency and expand the use of alternative energy”—a provision that Steyer, green Superman that he is, ushered into existence.

That Prop. 39 won handily, passing with 61 percent of the vote, is a historic accomplishment. That it was the $30 million hobby-horse of a rich dude proposing a tax increase to create an enviro-bureaucracy makes its success downright astounding. “California’s political graveyard is littered with the bleached bones of wealthy men and women who have tried to buy initiative campaigns,” attests Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California. Steve Bing’s oil tax, Boone Pickens’s alternative energy bonds, Peter Sperling’s renewable power mandates, and Molly Munger’s education reform are only a few recent examples. Again and again, California’s voters have shown their displeasure at being dragged into wealthy people’s crises of purpose.

But Steyer, whose long-standing idealism is combined with unquestionable business bona fides, may have less in common with Bing, Pickens, and Munger (or, for that matter, with Mr. Private Sector Problem Solver himself, Mitt Romney) than with another captain of industry turned political pragmatist: New York City mayor Michael Bloomberg. In fact, Steyer lights up when I draw the Bloomberg comparison. “He’s the real deal,” he says. “Gave $50 million to the Sierra Club. What’s not to like?”

And, like Bloomberg, Steyer marches to the beat of his own drummer. In conversation, he is animated but deliberate, taking time to think before he speaks and demonstrating a modest old-school sensibility. He drives a 10-year-old Honda hybrid and always wears a red plaid tie (though he says that he may retire the look soon). While munching a snack of cashews and dried mango (and even offering to share), he proudly tells me that his Farallon Capital Management office at 1 Maritime Plaza in the Financial District saved a few bucks by buying a soda-making machine to replace canned sodas. He owns neither a private jet—he flies commercial—nor a sports team. He describes his ethnicity as “mutt.” He drinks Coors Light—or at least he did until he “had to give it up because of the gluten.” Essentially, he lives like an ordinary American—albeit one who happened to win the Powerball.

Still, Steyer’s life is far from a rags-to-riches story. Born in New York City to a lawyer father and a school volunteer mother, he attended high school at the hoity-toity Phillips Exeter Academy and went on to study economics and political science at Yale. He first came west in 1981 to go to business school at Stanford, after which he moved back to New York to work for two years at Goldman Sachs under future Clinton treasury secretary Robert Rubin. In the mid-’80s, he returned to the Bay Area and, armed with $14 million ($4 million of it from legendary local investors Warren Hellman and Tully Friedman), founded Farallon Capital Management. A 2008 profile of Steyer in Fortune credited Farallon’s success to its application of the “absolute return” philosophy, which essentially favors bankable, risk-adjusted investments over high-risk moon shots, though Steyer refused to answer Fortune’s questions about his overall strategy. In any case, his hedge fund, now one of the world’s largest, has around $20 billion in assets.

Along the way, Steyer brought up four kids with his wife, Kathryn Taylor, a Harvard graduate who earned both a law degree and an MBA from Stanford. Taylor is the CEO of One PacificCoast, the Oakland-based bank that she and Steyer founded to provide loans to members of underserved communities (while also, through the One PacificCoast Foundation, serving as a philanthropic outlet for the family’s growing riches). It was in part because of Taylor’s roots in San Mateo that Steyer so eagerly moved back to California in the ’80s, and he has a convert’s starry-eyed zeal for his adopted home. “The dream of California is that you can come here and fulfill your potential,” he says, suddenly sitting up straighter. “This is your chance.”

When I point out that California is often maligned by outsiders as a bastion of governmental and budgetary dysfunction (not to mention the stomping ground of the loony left), he retorts, “I like to say to them, ‘Where are the great companies that you’ve produced in the past 20 years? If you guys are so realistic and mature, name the great companies you’ve produced. Because I’ll name you 10!’” Achievement here, he says, “usually involves a small number of people going off by themselves and creating something new to solve the problem and change the world. That’s how great things are done, not by joining a high-quality professional institution and working your way up.”

Not surprisingly, Steyer has applied that same queue-jumping philosophy to politics. Though he cut his teeth as a staffer for Walter Mondale’s presidential campaign in 1983, he has otherwise eschewed the “work your way up” path in favor of rapidly buying his way in. Since 1999, he has donated over $500,000 to Democratic candidate and causes, allowing him to rub high-powered elbows as a delegate to the Democratic National Convention in 2004 and 2008. (At the 2012 DNC confab, he was tapped as a speaker.) In this Wild West era of Citizens United, Steyer is as vulnerable to accusations of electoral engineering as right-wing bogeymen like the Koch Brothers and Sheldon Adelson. And yet his words—and his record—betray far less self-interest than is characteristic of his billionaire fellow travelers.

It is a rare thing to get through a conversation with Steyer without hearing him bring up the concept of duty in some fashion. His deepest motivators, he says, are “stewardship” of the planet and the “social compact” we have with one another. In a 2010 interview with Christiane Amanpour, he actually choked up while discussing his support for higher taxes: “I think that people have sacrificed a lot more than a little tax money to make the system available for all of us,” he said. “And I would be ashamed of myself if I didn’t give some credit to that.”

For Steyer, these concepts aren’t merely spiritual or patriotic googah: They are grounded in economic rationalism (another conviction that he shares with Bloomberg). Steyer opened the community bank with his wife because it offered an efficient use of his charitable giving, and he’s working to improve education via his brother James’s “Too Small to Fail” project. It is only logical that climate change tops his priority list: What’s the point of bettering kids’ education if the cities they live in are literally under water? “I argue with my brother,” Steyer says, “because he thinks that providing educational opportunities is the biggest question in society. And I say, ‘Jim, you have to have a society!’”

Climate change, Steyer maintains, is in large part an economic issue, and it is costing us a fortune. “What we’re doing is insane,” he says. “If we actually did the math right, we’d understand how expensive [carbon emissions] really are” in terms of health, property damage, and military spending. Once the costs of global warming are made apparent, he believes, the public will be motivated to embrace the shift to a cleaner world. Of course, he says, the change needs to be presented in a positive way. “This transition is not going to be ‘Eat your spinach.’ It can be ‘You know what? Instead of eating your Big Mac, we’re going to go and have an omelet.’”

This is the area where Steyer’s other philosophy—his business one, honed over three decades of predicting risk and reward in the markets—begins to emerge. In his view, voters are not demographically predestined units: They are rational actors—customers, if you will. This mindset was instrumental in his first high-profile initiative campaign, in 2010. At that time, he joined with former secretary of state George Shultz to form “Stop Dirty Energy” with the aim of defeating Proposition 23, which would have rolled back California’s signature anti–global warming legislation. Veteran Democratic operative Chris Lehane, who was a consultant on the campaign, describes Steyer’s approach thusly: “The environmentalists wanted to come at it with butterflies and things, but he took a realistic approach and made it about jobs and health.” Adds Schnur, “He put a more pragmatic face on an environmental message than many environmentalists do.”

Steyer’s strategy was hugely successful: Prop. 23 lost by more than 2.2 million votes, receiving more no’s than any other initiative or candidate in the 2010 election. According to a September 2012 report by the nonprofit Democracy Center, the anti–Prop. 23 campaign’s focus on “local concerns” like the economy rather than simply on “messages that motivate the activists” has changed the way that environmentalists campaign for their causes.

This year’s Prop. 39 battle was yet another case study in the “Steyer Way.” Lehane, who directed the campaign for the measure, describes how he and Steyer built their game plan. “When Tom was first looking at closing the corporate loophole, I told him that he should assume a price tag of at least $30 million to pass it with a 60 percent likelihood of success... He said we should go out and make sure we increased the chances of winning to 80 percent.”

In order to accomplish that, the campaign had to take a two-pronged approach: First, make it clear that the proposition had broad support on all sides, and second, eliminate the opposition. As for the first objective, the list of endorsements left no one out: Unions, environmentalists, business groups, and even the American Lung Association gave Prop. 39 the thumbs-up. It was in eliminating the opposition that things got interesting.

Prop. 39 was initially Senate Bill 116, which died largely due to lobbying efforts by out-of-state companies calling themselves “California Employers Against Higher Taxes.” So Lehane, with Steyer’s approval, directed the “Yes on 39” campaign to take swift preemptive action against those companies. In the last week of July, well before election season was in full swing, the campaign ran a full-page ad in the Sacramento Bee, calling upon the CEOs of General Motors, Kimberly-Clark, International Paper, and Chrysler to pledge not to oppose Prop. 39. “If they choose to stand against California,” the ad threatened, “we will launch ‘The Big Four Tax Dodgers’ campaign—a sustained effort to inform taxpayers, consumers, and government officials about the conduct of these four companies, including, but not limited to: the specifics of their government contracts; their record of state and local tax delinquencies; the amount of bailout money they received that came from California; their record of off-shoring of jobs; and what contracts or other issues they are currently lobbying before federal, state, and local governments.” To top things off, the campaign hired a plane to fly over the Democratic Convention in Charlotte, pulling a banner sporting the logos of the four companies and the slogan “Stop tax dodgers! Yes on 39!”

Aside from raising a total of $45,000—all of it before mid-August—none of the named companies made any public effort to oppose Prop. 39. Having earned his fortune in part by internalizing the id of corporate America, Steyer had known exactly how to “change the value proposition for the opposition,” says Lehane. “He understood what was going on in the boardrooms of the companies who might fight us, so we made it too damaging for their brand and their bottom line to come after us.”

Indeed, in an election in which wealthy people were universally vilified and defeated, from the private-equity-championing Romney to the meddling Charles and Molly Munger to the Proposition 33–backing insurance magnate George Joseph, this calculated preemptive strike may have saved Steyer from a similar fate. When I asked Schnur why Steyer was not tarred and feathered as a rich dilettante, he unhesitatingly answered, “No one wanted to buy any tar or feathers.”

Nathan Ballard, the campaign adviser for the Mungers’ unsuccessful Proposition 38, agrees that Steyer was wise to neutralize the opposition. “Going after other rich guys,” he points out, makes it easier to escape the “millionaire’s curse.” Steyer, he adds, “didn’t really step on anyone else’s toes. Molly was trying to improve education, but in the process earned the ire of the governor and the Sacramento establishment.”

Steyer wouldn’t necessarily disagree. He told the audience at a November 13 event for the Public Policy Institute of California that Prop. 39 addressed “a really obvious loophole” and that the innovation it would fund was “low-hanging fruit.” But Lehane has a different theory as to why Steyer wasn’t personally attacked: “First and foremost, he has won. When you win, that impacts an awful lot of perceptions.”

Apparently, winning has changed even Steyer’s own perception of his future. On December 31, he will resign as comanager of Farallon Capital Management because, he says, he is “very wound up” about California and energy issues and would like to devote more time to them. When he told me, however, that he “has no idea” specifically what he’ll be doing next, it was the only time during the interview that he seemed slightly disingenuous. Asked at the institute event whether he would run for governor of California, he answered evasively: “I would only do that if I thought there was something really dreadfully wrong, and there wasn’t somebody who was absolutely positioned to fix it.”

At his office, I asked Steyer if he would consider either Lieutenant Governor Gavin Newsom or Los Angeles mayor Antonio Villaraigosa (both shoo-ins to run for governor in a post–Jerry Brown era) a viable option. He chuckled. “Those are both smart, nice guys, but I’m not even thinking about 2018,” he said, referring to the year when a hypothetical second Brown term would end.

“Can you imagine Congress?” I pushed.

“I couldn’t imagine that. It’s hard for me not to think of myself as an entrepreneur. But could I imagine holding down a job in a huge institution? Yeah.”

As it happens, one big institution where Steyer might imagine himself working is about to have some vacancies: the Obama administration. Treasury Secretary Timothy Geithner and Energy Secretary Steven Chu are both said to be planning their exits, and Steyer’s name, which was on many pundit watch lists for the treasury in 2008, is again being floated for a cabinet post. He remains friendly with his Goldman Sachs colleague Rubin, is a passing acquaintance of Rubin’s former boss, Bill Clinton, and put on a 2008 fundraiser that brought in almost $8 million for Obama in one night. It all adds up to a small but legitimate chance for a cabinet post—that is, if he decides to pursue it.

And why shouldn’t he? After years of failed campaigns by business titans like Meg Whitman, Carly Fiorina, and, most recently, Romney, with their unrealized promises to “run government like a business,” Steyer’s unique skill is to see government like a business: with a mission statement, competitors, and products to sell to customers in the marketplace. As Lehane puts it, “What distinguishes Tom is that as he has achieved enormous financial success, and he has channeled his skills into actions to help people.” The operative analogy, once again, is the superhero: the mild-mannered, gluten-intolerant regular guy by day who rolls out the big thinking, and the even bigger assets, by night. Smirking may be the only thing he can’t do.

Originally published in the January 2013 issue of San Francisco.

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