Savvy business leaders invest in society, not short-term financial returns
Corporations are powerful actors in our democratic politics and responsible global decision-making, writes Rod Oram, but their response so far has been rhetoric, not reform.
“Corporate political accountability” is a new and growing requirement of companies in some countries. It is a call for businesses and their leaders to play a constructive role in helping their nations solve their greatest challenges, such as climate, inequality, mistrust, division and racism.
In simpler times, the minimum expectation of businesses was to comply with the letter and hopefully the spirit of the law. When change was needed, the company found that companies only wanted actions that suited them or that they could adapt fairly quickly.
But nowadays, our challenges are much more complex, multifaceted and long-term. Only responses from society as a whole will solve them. The Covid is an obvious example, the climate crisis another. The first shows that we can do it. The second shows us how often we fail.
Assuming political responsibility means companies will have to advocate for stocks that pay off well beyond their short-term investment horizons. And/or benefits accrue to society rather than business owners. The wise, however, understand that they can only prosper if society prospers.
In recent weeks, a wave of senior executives and organizations speaking on their behalf have declared their commitment to corporate political responsibility. Here are three examples:
► Larry Fink, chief executive of BlackRock, the world’s largest asset manager, said investors who focus on the interests of society at large reap greater returns.
“Stakeholder capitalism is not about politics,” he said in the letter, titled The Power of Capitalism, which he wrote to chief executives of BlackRock-owned companies. “It is not a social or ideological program. It’s not “awakened”. It’s capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your business relies on to thrive.
He particularly highlighted the limits of what companies can do to respond to the climate crisis. “Companies cannot do this alone. We need governments to provide clear pathways and a consistent taxonomy for sustainability policy, regulation and disclosure across all markets.
► In the UK, some 200 businesses have condemned a parliamentary bill that would impose tough new restrictions on public protests. Similarly, in the United States last year, Amazon and General Motors were among the big companies that spoke out against “discriminatory” election laws proposed by Republican lawmakers.
Such actions are still rare, but with concerns about civil liberties and democratic integrity rising in many countries, calls for companies to report where they stand will grow. “It’s going to be more and more like ‘Which side are you on?’ moment,” says Aron Cramer, director of BSR, a sustainability consultancy in the UK. “Companies will be expected to step in – and many CEOs and boards are not comfortable doing that.”
► The Davos meeting of the World Economic Forum last week – online only this year due to the pandemic – featured several sessions exploring the theme. Such as renewing a global social contract and environmental, social and governance measures for a sustainable future. The Forum also has an ongoing work stream on stakeholder capitalism in collaboration with the International Business Council.
The Forum also highlighted the latest edition of the Global Trust Barometer compiled by Edelman, the world’s largest public relations firm. His poll of 36,000 people in 27 countries (which did not include New Zealand) showed that businesses were the only institutions people trusted (by his definition; see chart below). It was a marked change from his 2020 poll.
Trusted institution reserved for businesses (%)
From this and other survey findings, Edelman concluded that “societal leadership is now a core business function.” In particular, business leaders are expected to shape the conversation and policy on jobs and the economy (76%), wage inequality (73%). percent), technology and automation (74 percent) and global warming and climate change (68 percent).
Moreover, governments “are not seen as capable of solving societal problems”.
The government is not seen as capable of solving societal problems
However, when it comes to existential challenges such as the pandemic and the climate crisis, business performs just as poorly as government, NGOs and the media in Edelman’s quartet of institutions.
Institutions fail to address institutional challenges
This finding is the most worrying of all because existential risks account for nine of the top 10 global risks for the next decade, according to the 2022 edition of the Forum’s Global Risks Report.. The only purely economic/commercial risk is a potential debt crisis at number nine.
“The most serious risks globally over the next 10 years”
Yet if business leaders are truly serious about corporate political accountability, they must also embrace their role in creating and solving climate crises, biodiversity loss, social cohesion, livelihood, damage to the human environment, natural resources and geo-economic confrontation.
Like Martin Wolf, the Financial Times’ chief economics columnist, wrote in his column this week: “We in the Western world face two crises: a collapse of confidence in our democratic political system and a global environmental threat. The first requires the renewal of the common goal at home. The latter requires not just a common home goal, but a shared global goal. These are things that companies cannot provide. Rather, an effective policy will be needed. A big question is whether corporations will be able to promote needed political solutions or simply create political problems.
He concluded, however, that business and capitalism as we practice them today are a major part of the problem, not the solution.
“Companies operate in a system: market capitalism. This system is globally dominant today, at least in the economic field. This is true even in today’s China. The essence of capitalism is competition. This has profound implications: Competitive profit-seeking entities are essentially amoral, even if they abide by the law. They will not easily do things that are unprofitable even though they are socially desirable, or refuse to do things that are profitable even though they are socially undesirable.
Wolf is an eminent economist with a long and fruitful intellectual career. In the late 1980s he was a neoliberal much admired, for example, by Roger Kerr and his colleagues at the NZ Business Roundtable.
But by the time Kerr invited him here to give the 2004 Trotter Lecture, Wolf was already articulating a more sophisticated and balanced view of capitalism, globalization, and the role of government. At the gala dinner, if I remember correctly, Kerr seemed pained by Wolf’s words as he delivered his lecture.
In his latest column, Wolf explores why businesses remain ill-equipped to deal with the existential crisis and how society and governments can address it. It is based in part on a collection of articles on the subject which constitute the latest edition of the Oxford Review of Economic Policy.
Particularly important are the essays by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute. “Both view the role of business leaders as influential yet self-serving voices in shaping public policy in corporate law, competition law, taxation, financial regulation, environmental regulation and many other areas. The result, according to them and other authors, has been the emergence of an opportunistic rent-extraction system that creates uninsurable risks for the majority and vast rewards for the few. in turn played a significant role in undermining faith in democracy and increasing support for populists.
However, “the pandemic has created an opportunity for a policy of competence and shared purpose. This at least gives us a chance to do better. I believe that it is necessary to reform in depth our form of capitalism, while preserving its essence of innovation and competition. It would not be unprecedented. The creation of the limited liability company was once a very controversial innovation. The same was true for the creation of social insurance. Today, however, the biggest problem, in my opinion, is the relationship between business, society and politics.
Wolf explains how to improve this relationship. But he admits the answer, away from business, is rhetoric, not reform.
“The pandemic has brought many lessons. But perhaps more important is what can be done if the skills of private companies are combined with public resources to achieve pressing goals. That’s what makes the vaccine story so heartening (and the anti-vaxxer backlash so depressing),” he says.
“Business leaders are rational people at the helm of important institutions. They must understand the need to strengthen our ability to make collective decisions in a sensible way. Like it or not, they are powerful actors in our fragile democratic politics and therefore also in global decision-making.” They must take this role seriously and play it decently and responsibly. Despite all the rhetoric we’re hearing, that’s not what we’re seeing yet.”