End of Week Notes
Corporations must prioritize stakeholders in this moment!
It’s not that hard to do the right thing
Responsible investors are urging companies to take steps to protect their workers, suppliers, and customers in the fight against the coronavirus by providing paid leave, prioritizing worker and public safety in their places of business, and maintaining employment and supplier relationships.
One group, in a letter released yesterday from 195 investors representing nearly $5 trillion led by Domini Impact Investments, Interfaith Center for Corporate Responsibility and the Office of the New York City Comptroller Scott M. Stringer, urged company managements to forego share buybacks and limit executive compensation for the duration of the crisis. “During this period of market stress, we expect the highest level of ethical financial management and responsibility.”
Details from the letter:
Provide paid leave: We urge companies to make emergency paid leave available to all employees, including temporary, part time, and subcontracted workers. Without paid leave, social distancing and self-isolation are not broadly possible.
Prioritize health and safety: Protecting worker and public safety is essential for maintaining business reputations, consumer confidence and the social license to operate, as well as staying operational. Workers should avoid or limit exposure to COVID-19 as much as possible. Potential measures include rotating shifts; remote work; enhanced protections, trainings or cleaning; adopting the occupational safety and health guidance, and closing locations, if necessary.
Maintain employment: We support companies taking every measure to retain workers as widespread unemployment will only exacerbate the current crisis. Retaining a well-trained and committed workforce will permit companies to resume operations as quickly as possible once the crisis is resolved. Companies considering layoffs should also be mindful of potential discriminatory impact and the risk for subsequent employment discrimination cases.
Maintain supplier/customer relationships: As much as possible, maintaining timely or prompt payments to suppliers and working with customers facing financial challenges will help to stabilize the economy, protect our communities and small businesses and ensure a stable supply chain is in place for business operations to resume normally in the future.
Similarly, JUST Capital has published a list of principles to help guide corporate America during the coronavirus crisis:
- Support Workers’ Health and Financial Security
- Adopt Practices to Minimize Job Loss
- Put Workers First, and Work with Government to Do So
- Support Communities, Local Suppliers, and Customer
- Have the C-Suite Lead by Example
Many companies, or so it seems, are trying to rise to the occasion. JUST Capital is also keeping a running tally of how corporations are treating their stakeholders amidst the coronavirus pandemic. Its search tool allows you to look at a number of different responses by company.
For example, want to know which companies are offering continued pay for hourly employees? Twenty-seven companies are on the list, employers of an estimated 3.3 million people in the U.S. (not all of them hourly workers). The biggest employers on the list: Amazon, AT&T, TJX, Starbucks, and Darden.
Some of the other policies you can search for: backup daycare, bonuses and financial assistance, community relief funding, executive pay cuts, and paid sick leave.
Also of note, Salesforce CEO Mark Benioff has called for CEOs to join him in a 90-day no-layoff pledge.
Once this crisis is over, corporate performance during this time will be evaluated not just through the lens of financial resilience, but through the broader lens of how well companies treated their stakeholders. This is what stakeholder capitalism is about.
And going forward, stakeholders will expect higher standards of corporate responsibility and more investors will consider ESG in their decisions, a point made in a Wall Street Journal article this week:
The recent volatility in financial markets due to the coronavirus pandemic could provide investors with more of an incentive to grill companies on nonfinancial risks.
Environmental, social and governance investing was growing in popularity before the virus began to circulate, as investors flocked to companies that have taken steps to manage nonfinancial risks related to matters such as climate change, board diversity or human rights issues in the supply chain.
But the pandemic has demonstrated on a large scale the importance of other factors that are paramount to ESG investors. Among them: disaster preparedness, continuity planning and employee treatment through benefits such as paid sick leave as companies direct employees to work from home.
And just so corporate leaders are aware, there is going to be more pressure for them to speak up about systemic issues, like the need for a national heathcare system and universal coverage. The lack of both has proven to be major obstacles to fighting the coronavirus.
Corporate leaders have a huge stake in not just healthcare but in the health of all systems in which we live and their businesses operate. Thus, we also, quite frankly, need their leadership in the fight to preserve liberal democracy and the rule of law at this time.
Notes from my Twitter bookmarks:
Interesting Financial Times chart, tweeted by Citywire’s Chris Delahunt (@cdelahunt1) comparing flows into ESG equity ETFs and the top 25 US equity ETFs. It’s good to see ESG flows holding up during March, a sign that ESG assets may be stickier than non-ESG assets. That makes sense intuitively. ESG investors are focused on long-term sustainable growth and don’t seem to be the types who would ditch ESG during a bear market — especially because ESG funds appear to be holding up relatively better than the conventional funds, as I’ve been reporting.
One caveat to the chart, though. The comparison doesn’t prove the stickiness point conclusively because the top 25 equity ETFs are used as trading vehicles by a lot of investors, so they are going to have their ups and downs; it would be more telling to compare ESG equity funds (open-end and ETF) with conventional funds over this period.
ESG is a bear-market necessity, not a bull-market luxury. Another sweet turn of phrase from Bank of American Global Research, reported in Barron’s. BofA’s report showed that stocks with top-quintile ESG scores outperformed those in the bottom quintile by five to 10 percentage points in the U.S. and Europe. And an RBC report showed much the same thing:
Interesting read here on a framework developed by the World Economic Forum (WEF) in collaboration with Boston Consulting Group to help companies identify material ESG issues. Companies should expect growing investor focus on sustainability issues, including expectations for “hyper-transparency” of corporate practices, “escalating shareholder activism fueled by social media”, and “changing societal expectation in the new age of shakeholder activism.”
Last word goes to Corey Klemmer, Director of Engagement, Domini Impact Investments:
“We all must do what we can. The decisions companies make in this moment will have profound implications for our social and economic systems. Workers create tremendous value for companies, they are a source of value companies should fight to protect. We stand by ready to work with companies and stakeholders however we can.”
Be safe, healthy, keep your distance, and carry on!
