Economic Growth

Business is having a 'morality moment'. It could become a movement

CEOs must address systemic issues such as forced labour in a company’s own supply chain

CEOs must address systemic issues such as forced labour in a company’s own supply chain Image: REUTERS/Fabian Bimmer

Amol Mehra
Director of Programmes, Laudes Foundation
Camille Gervais
Fellow, International Corporate Accountability Roundtable (ICAR)
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For too long, maximizing profit has been the market's dominant narrative. Businesses have prioritized redistribution to shareholders and focused on financial bottom lines. They have treated human rights, environmental considerations and governance reforms as externalities.

Companies have roamed the world, extracting value from wherever they can, whatever the price – human or environmental. Oil and mining companies have flooded Africa and negotiated extractives concessions with little or no transparency; apparel companies have relocated production to jurisdictions to take advantage of lax labour laws; and banks have engaged in dangerous and predatory lending practices, leaving many deeply indebted.

Abuses are not just rife, but to be expected. With the exception of recent and relatively sporadic attempts, governments have done little to respond. Elected officials purporting to serve the public interest are often more concerned with catering to corporate interests than supervising them.

While companies’ unregulated, unscrupulous behaviour has harmed people and the planet, it has also led to a general distrust of corporations and a frustration with an increasingly unequal global economy. The majority of US adults (63%) say they are dissatisfied with the size and influence of major corporations, showed a 2016 Gallup poll. This frustration can manifest in dangerous political realities. Consider the election of Donald Trump, whose base support felt, among other issues, disaffected and left behind in the global economy.

Within this context, recent efforts by certain CEOs are notable. The market has an opportunity to correct its course. In January, the chairman and CEO of BlackRock, the world’s largest asset manager, sent a letter to fellow CEOs titled “A Social Purpose”.

Larry Fink asked CEOs to think beyond short-term profit maximization and instead focus on long-term value. They should address environmental, social and governance aspects of their corporate activities. Moreover, he challenged CEOs to adopt a stakeholder focus, rather than a narrowly defined shareholder concern.

Studies confirm Mr. Fink’s reasoning. Positive correlations between corporate financial performance and environmental, social and governance criteria (ESG) were found in 90% of 2,000 empirical studies surveyed in a 2015 report by Deutsche Asset & Wealth Management and Hamburg University.

Socially responsible investments have gained significant ground over the past few years, and today represent more than $8 trillion worth of investment. The combined effect of a company like BlackRock with $6 trillion under management, and these socially responsible investment communities, would mean a staggering $14 trillion of funds available for companies who are committed to making a positive contribution to society.

This “morality moment” does not belong to Mr. Fink alone. Consider the language used by CEOs such as Tim Cook, telling the New York Times that he believed in the “moral responsibility” of CEOs “to help grow the economy, to help grow jobs, to contribute to this country and to contribute to the other countries that [they] do business in.”

Take the actions of Brad Smith, Microsoft’s President and Chief Legal Officer, who, after seeing a rollback on protections for undocumented workers by the Trump Administration, issued a missive about how Microsoft would defend employees who are targeted and would “work with other companies and the broader business community to vigorously defend the legal rights of all Dreamers”. Amazon CEO Jeff Bezos has also chimed in, announcing in January a $33 million donation to TheDream.US organization, to fund 1,000 college scholarships for Dreamers.

Morality is perhaps finally entering the market – and it’s about time. For years, civil society groups and the media have highlighted the impacts and imbalances caused by unfettered capitalism. This work, coupled with consumer and investor pressures, has created fertile ground for enlightened CEOs to plant their own flags.

This should be celebrated. But it is not enough.

Many of these CEOs have focused on key political issues that resonate with their consumer and investor bases. However, they have ignored other pressing human rights, and environmental or governance issues within their own corporations. Tax avoidance, for example. It’s hard to understand how a CEO could make a claim for moral responsibility while helming a multinational that takes advantage of tax havens and loopholes. Consider too labour conditions in factories of production. It’s hard to justify moral responsibility without addressing systemic issues such as forced labour in a company’s own supply chain.

CEOs must understand that morality should be measured not just from statements and commitments, but from evidence that a company is addressing human rights and environmental and governance challenges in its own operations.

Nevertheless, this morality moment could become a movement. The leadership of CEOs like Larry Fink can make it a reality.

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Related topics:
Economic GrowthJobs and the Future of WorkEquity, Diversity and InclusionCivil Society
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