American capitalism feels divided. Stagnant wages and high costs have squeezed workers, while companies and investors have scored record profits and returns. It has become increasingly clear that the market benefits some more than others.
So how to repair it? The business leaders who recognise there are faultlines in the US economy need to start with a few basic steps. The first is to measure more precisely in their own companies what can be improved, and fix it.
Arguably, most important is to gauge the financial health of their workers. Chief executives should conduct a financial stress test of employees to determine how they are doing and then establish where changes can be made. Just Capital Foundation’s polling shows that Americans hold fair pay and living wages as two of the top three issues they want businesses to prioritise.
PayPal is one company that has taken note. Under chief executive Dan Schulman, PayPal gauged financial stress levels of its hourly and call centre employees. It found that 60 per cent struggled to make ends meet and often lived pay cheque to pay cheque. This compelled Mr Schulman to raise wages, reduce healthcare costs, designate employees as shareholders and promote financial education — all because PayPal took time to measure worker wellbeing.
Another step is to report workforce information. Both private and public companies should disclose on their websites how many full-time, part-time and contract workers they have in the US, as well as the number of staff in each wage band by increments of $10,000 under $100,000 (with wider bands above). Other metrics to include are pay equity between genders, diversity, paid parental leave and career development and tuition reimbursement programmes.
Such disclosure would not only inform prospective employees. They would show communities the true economic value that a company brings. There is a big difference between a company with wages so low that taxpayers have to subsidise workers, and one that genuinely provides for its people.
Wages and costs are only part of the story. Equally valuable is environmental management and impact. Here, too, Just Capital has found that the public cares about a company’s record. Businesses should detail their carbon footprint, and report their biggest liabilities. This is not just for environmental reasons; a company’s climate behaviour also brings economic risks and, in some cases, opportunities.
Sceptics will ask how these disclosures improve capitalism. The answer is simple: awareness is the basis for action. If you don’t measure something, you will struggle to change it.
If executives can see with granularity how their workers are doing, they will know how to help them. If workers see how their pay stacks up, they will have more command over their careers. And if investors get systematic breakdowns of how companies score by worker, customer, environmental and community (and not just shareholder) metrics, they can put money into — and benefit from — just corporate behaviour.
The fallacy of our time is that shareholders and stakeholders are in a zero-sum game. But companies that make Just Capital’s top 100 ranking, based on the priorities of the American public, have bigger returns on equity, greater net margins, and enjoy higher valuations than their unranked peers. They also pay their median workers 31 per cent more, are 32 per cent more likely to establish environmental policies, give 8.4 times more to charity and pay living wages to an estimated 11 per cent more of their workers.
The picture is clear: successful stakeholders can also mean successful business. Fixing capitalism is a matter of neither wholesale change nor sticking to the status quo. It simply requires rebooting the system to encourage awareness that can lead to change.
The writer is co-founder and chairman of Just Capital
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