Three months ago, Brian Chesky, chief executive of Airbnb, made a bold pledge: if he conducted an IPO, he would turn his business into a “stakeholder” company, serving employees and society as much as future shareholders.
It initially seemed just a trendy promise. After all, many US companies have made similar pledges since the Business Roundtable, the US corporate lobbying group, embraced stakeholder interests last August.
But now Airbnb is being tested, along with many other businesses. As Covid-19 has decimated its revenues, Mr Chesky has been forced to cut staff. But it was initially unclear how to do this in a “responsible” way.
So Mr Chesky has branched out: on May 5 he cut 1,900 jobs, or 25 per cent of the total, but gave those laid off 14 weeks of pay, an Airbnb laptop, equity stakes, job advice — and healthcare insurance for a year. “It was important that we had a clear set of principles, guided by our core values, for how we would approach reductions in our workforce,” he explained in an anguished letter to staff.
Other executives should ponder this tale. In recent weeks, as the coronavirus slump has intensified, some observers have wondered whether the 2019 chatter about stakeholders was just “a luxury good”, to quote from the title of a presentation by Linda Eling-Lee, global head of ESG (environmental, social and governance) research at index group MSCI.
At an FT event last week, Michael O’Leary, head of Ryanair, argued that ESG would disappear in the downturn. “I suspect a lot of the environmental agenda is going to be put on the back burner for a few years [because of Covid-19],” he said.
Representatives of ESG initiatives insist this is wrong. After all, Ms Eling-Lee points out, companies with high ESG rankings have outperformed rivals during the crisis.
That means interest in ESG is likely to rise — not fall — according to Frédéric Samama, head of responsible investment at Amundi, the French asset manager. “Companies are more and more scrutinised [and] ESG factors can be a way to assess the adaptability skills of corporates,” he says.
Thus many investors and some chief executives argue that a key theme of the coming months will be not simply how to rebuild the economy after the Covid-19 shock — but how to build back better, in the sense of creating a more sustainable world and corporate sector alike. “Building back better is the key task now,” says Paul Polman, former chief executive of Unilever, who now runs Imagine, a network for companies trying to develop this agenda.
Determining how to do so is not simple. For one thing, the focus of “stakeholder” culture is undoubtedly changing. “I always say to people that ESG is a three letter word.” says Bernard Looney, chief executive of BP. “Before it was one dimensional . . . focused on climate. [But] this current crisis has caused that to evolve to the societal aspect of the role of corporations.”
Moreover, determining what the “S” in ESG should mean is harder than the “E” (and much trickier to measure). Many companies have responded to Covid-19 with a wave of philanthropy or practical help. AllianceBernstein, to cite one example, has started 3D printing medical supplies with equipment that the global asset management firm typically uses as part of a mentoring programme for local youths.
Some companies have approached the “S” by rethinking how they deal with clients and business partners. The world’s largest cosmetics maker, L’Oréal, has undertaken for example to pay all its suppliers on the first day they can, rather than delaying as normal.
Sometimes, as one chief executive notes, “working out what is the responsible thing to do . . . is hard — attitudes shift”. Public opinion has also been an important guide for company behaviour, as our list of examples of best and worst corporate practice shows.
Consider Shake Shack, the restaurant group, which last month applied for a $10m loan from a US government small business programme. The company thought it could use the money to help staff. But its application caused a furore, since Shake Shack was deemed too big and healthy to qualify — so it returned the cash.
“We were right to give it back,” says Danny Meyer, chief executive of Union Square Hospitality Group (USHG), which owns Shake Shack.
Another flashpoint is dividends. The International Corporate Governance Network has asked companies to slash dividends to preserve long-term value and be socially responsible (ie preserve capital to protect employees instead of shareholders).
Some are complying, particularly in Europe: a report from Morgan Stanley highlights “evidence of ESG factors behind dividend reductions or cancellations”. However, the US is lagging behind in this respect, and many executives consider it important to keep paying dividends, irrespective of any ESG pledges.
The biggest challenge, though, revolves around how companies treat staff. Some companies have faced censure for treating their employees in a cavalier way during the pandemic. Amazon vice-president Tim Bray resigned earlier this month in protest at the company’s firing of whistleblowers who were raising warehouse employees’ concerns about Covid-19 risks. Unions have complaints about similar problems at some retail giants and meat processing plants.
Similarly, companies have also been criticised for how they have cut staff. In March the scooter start-up Bird triggered a social media storm by firing 400 workers with a two-minute Zoom video call.
However, a number are trying to behave with more empathy. When USHG’s Mr Meyer had to cut his restaurant staff, he put his own salary into a financial aid fund for them and promised help looking for new jobs. “We are trying to be the best unemployer we can,” he explains.
Whether this will be enough to convince sceptics of the merits of ESG is unclear. It may not win public trust — yet. A recent poll by Edelman public relations group shows that while public trust in business is up four points to 62 per cent since January, only 43 per cent of the 13,000 people polled in 11 countries believe companies are protecting their employees sufficiently from Covid-19. “Our promises about stakeholder capitalism are being put to the test,” observed Richard Edelman, chief executive.
The longer the crisis drags on, however, the more important treatment of the workforce will be. Another recent survey by the Finsbury-owned Glover Park Group in Washington, for example, showed that 82 per cent of Americans want companies to offer sick pay to employees and 81 per cent want them to keep paying staff, even if operations stop.
Maybe that is just wishful thinking on their part. However, it probably also highlights a shifting zeitgeist. The C-suite ignores this at its peril; particularly if Covid-19 continues to spread — and the impetus to “Build Back Better” continues to swell.
Business ‘saints and sinners’ in the coronavirus crisis
To shed a light on some of the stellar, and not so stellar, corporate responses to the pandemic crisis, we asked the FT’s network of correspondents and columnists for examples of what they considered to be best and worst practice.
This list is intended not to be exhaustive but to illustrate a range of behaviour — from how companies have treated employees to the speed with which they have met society’s most important needs in lockdown.
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