The era of cake-ism (as in having it and eating it, too) has come to an inglorious end.
“I think we’re in an era of sober, restrained consideration of tradeoffs – and anchoring on treating workers with dignity and respect,” NYU’s Alison Taylor argues on the latest Agents of Impact podcast.
Taylor, a professor at the Stern School of Business, is the author of “Higher Ground: How Business Can Do the Right Thing in a Turbulent World,” which attempts to chart a more focused and realistic course for ethical business – and challenges many of the assumptions of responsible or sustainable investing.
“We’ve told ourselves this story, that transparency will lead to more trust, and transparency will lead to better behavior. Well, I don’t know about you, but I’ve never lived in such an untrustworthy era,” Taylor told me. “So we have more and more transparency. And it doesn’t seem to be doing what we claim it’s doing.”
In retrospect, “peak Fink,” may have come around the beginning of 2020, when BlackRock CEO Larry Fink famously declared in his annual letter that “Companies must be deliberate and committed to embracing purpose and serving all stakeholders.” In doing so, he said, “Your company will enjoy greater long-term prosperity, as will investors, workers, and society as a whole.” Months earlier, CEO members of the Business Roundtable had similarly embraced stakeholder capitalism.
That was then. In this year’s letter, Fink omitted any mention of environmental, social and governance, or ESG, investing and talked instead about “energy pragmatism” and retirement security.
At the same time, disclosure of climate and ESG considerations have been enshrined in regulations, particularly in Europe, but also by the US Securities and Exchange Commission and the state of California, among others.
“We seem to be assuming that the average consumer, the average employee, even an informed investor can somehow navigate through these disclosures and tell some story about whether the company is good or bad,” Taylor says. “And this story, I’m not saying it’s baseless, but it is not really true.”
Political spending
In Taylor’s view, the problem comes from pressuring corporations to act like governments when they don’t have structures or mechanisms to represent those stakeholders.
Instead, she suggests companies can do three much more limited things. First, end the contradiction between corporations’ stated values and positions and their political spending and lobbying.
“It is relatively commonplace to be out there yodeling about how much you care about climate change or reproductive rights, while your government relations team down the hall is spending money in a completely different direction,” she says. “Until that issue is resolved. I don’t think corporations have any business, saying that they can solve any of these systemic societal challenges.”
Second, be realistic about the issues and challenges that are directly material to a company’s operations and performance.
“If you look at Unilever’s materiality maps, for example, they include topics like inequality, and poverty and growth of global trade and even women, which are broad, baggy topics of questionable relevance and leverage if you are a company that makes soap and mayonnaise and ice cream.”
And finally, she suggests, “take a human rights approach” to corporate culture. Treatment of workers and employees is inarguably an area in which companies have not only material risks, but direct authority for action.
“Young people’s expectations and young people’s willingness to challenge leadership and then undercut corporate narratives on social media and in the public domain mean that we’re in a huge new era where worker voice needs to be taken seriously,” Taylor says.
“Anything related to people in your organization and your wider ecosystem, no company can say, ‘That’s got nothing to do with me.’”
