The writer is founder of the Coalition for Inclusive Capitalism
Now that the US private sector is receiving its largest aid package in history, the government must insist on a quid pro quo. The silver lining of this terrible pandemic must be a true reform of capitalism to make it more inclusive and sustainable.
When companies benefit from payroll tax relief, unemployment payments or direct aid, the public deserves to know how they plan to protect the wellbeing of their employees, customers, communities and the planet. The next round of Covid-19 legislation should permanently require disclosure of these matters in annual financial reporting.
In the summer of 2019, 181 of America’s largest corporations, members of the Business Roundtable, made a commitment to protect the interests of all their stakeholders, not only shareholders. This year, 140 of the world’s largest companies agreed to a “Compact for Responsive and Responsible Leadership”. Yet, we are now seeing the chasm between corporate words and actions. Many companies, including JPMorgan, advised their shareholders to vote against proposals to adopt climate and diversity reporting. Jamie Dimon was the face of the BRT pledge and now he does not want to report on these vital matters.
These times call for an end to virtue-signalling. Governments must ensure mandatory reporting of standardised, comparable metrics about corporate treatment of their workforces, customers, communities and the environment. And these requirements should be adopted with the same urgency as GAAP financial accounting was after the Depression. Before 1929, US financial markets had no form of standardised financial accounting. Each company was allowed to decide what information, if any, it would disclose.
In the sweeping reforms of the New Deal, the government funded the privately run Financial Accounting Standards Board to establish new rules. In recent years, many organisations have come up with ideas for how companies can report assurable, standardised non-financial information. Either FASB or a new organisation should be funded to rationalise this work for the needs of the new economic order after this crisis.
They should be required to issue their first set of metrics within one year and the Securities and Exchange Commission should mandate disclosures for all public companies. Armed with this information, all stakeholders can support or reject companies. This will create a race to the top, and performing best will become more valuable.
A recent global survey conducted by Edelman showed that 81 per cent of consumers say trust is a top priority in deciding whether to support a brand. Transparency will create a virtuous circle where the most ethical and inclusive brands become the most valuable companies.
I was part of an 18-month effort involving chief executives representing $32tn of assets under management, led by EY and the Coalition for Inclusive Capitalism, to test the proposition of non-financial value creation. At the end, participants agreed that the most innovative and safe products, best environments for workers, highest brand integrity, and protection of the planet were all value accretive to shareholders. Last year, more than $30tn of global investment was directed toward sustainable, ethical and inclusive investment opportunities. Those investors are not going to close their eyes to the way companies treat their people and the planet during the pandemic. Business will be judged in the future by how they behave now.
This crisis has shown that when business is in most trouble, it turns to government for relief. The public understands that business is an indispensable partner to government and essential to economic prosperity. But, unlike after the last crisis, this partnership must demand a long-term quid pro quo from business and investors. A little more disclosure is not too much to ask.
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