Is 2019 the year companies turned cuddly?
From pay to paternity, investing to the environment, #MeToo to mindfulness, 2019 was a turning point for the corporate world. FT writers look at why companies changed tack and whether it's a long-term trend
Produced and edited by Joe Sinclair
Transcript
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Well, for about 50 years it was fairly easy to know what to do running a large corporation, at least in the Anglo-Saxon business world. Milton Friedman, the Chicago economics professor, had set down in an essay in 1970 the very simple mantra that the sole purpose of business was the legal production of profits for its shareholders. That changed in 2019.
The pressure on asset managers to consider so-called ESG factors - that's environmental, social, and governance factors - has amplified.
There's been a real tipping point in the way companies think about climate change and climate risk disclosure.
The biggest change in a lot of companies across a whole range of sectors is maternity and paternity leave, gender pay issues, harassment in the workplace, mental health initiatives.
It started with a letter from Larry Fink, who runs BlackRock, one of the world's largest investors, who wrote to every CEO of every company that BlackRock invests in saying you have to tell me what broader social purpose your business serves beyond simply sending me dividend cheques.
Of course, there are corporate leaders who are pushing back, none other than Warren Buffett, the chairman of Berkshire Hathaway. He doesn't feel right putting any of Berkshire Hathaway's money to work for a charity or a cause because it's not his money. The money belongs to the investors.
He doesn't really know what the right thing to do is. He's 88 now. He says I've been eating candy all the time all my life. Is this all good or bad? I don't know. Well, his view is very clear. It's up to the government. That is the organisation that should be looking out for the social good.
But...
For the long-term sustainability of the asset management industry they'll lose clients if they don't adapt to thinking about these other issues.
We're still living through the backwash of the financial crisis, which shattered trust in business. And companies and their CEOs have been very, very keen to try and regain that trust. They are increasingly staffed by millennials who come to work thinking about something other than just pure profit.
They're motivated more by saving the planet, making their own lives more meaningful. I think CEOs rather like the idea that they can be activist CEOs, that they can have a voice at the table, particularly in a period where government in the US, in the UK, is often, they feel, abdicating some of these big questions which are relevant to the future of their businesses.
The number of companies that publish a CO2 emissions report has gone up about 20 per cent this year, compared to 2018. That's only the first step because after you disclose your carbon dioxide emissions and measure them, you also have to start reducing them. There's also signs from regulators that they're going to make climate risk disclosure mandatory.
Yes, it's changing because you can't not listen anymore. The younger generation of workers have a different attitude and won't stand for things that perhaps their predecessors did. On the #MeToo front, employers can't afford to brush things under the carpet anymore.
Standard Life Aberdeen, one of the UK's biggest investment managers, this year introduced one of the most generous parental leave schemes in the whole of the UK, allowing any employer, male or female, nine months' paid parental leave. Employers need to acknowledge the fact that work is stressful. Work is stressful. Yoga, walls of gratitude or meditation before meetings are all examples of initiatives that employers have been implementing this year. They'll benefit from happy workers and better retention.
There is a flip side to this idea that capitalism has become too pure and focused on profits. The flip side is capitalism lost its purity. In other words, the core problem with capitalism that has led to alienation, and disenfranchisement, and inequality is the fact that it's become crony capitalism. That companies are run for the benefit of their managers. And when it's lost its purity, it lost its ability to create wealth for everyone in the system.
But realistically, if the world is to, for example, meet the target of the Paris Agreement, oil companies will have to change dramatically, and shareholders are going to have to play a role in encouraging them to do that.
It's very hard to discern the difference between what is just greenwashing and what is really significant. We had a very interesting study that was conducted by the Financial Conduct Authority in October, and they found that there was not a significant difference between products that were marketing themselves as green products and products that were not green products. But that's going to become more and more clear in future. The EU, for example, is introducing the world's first green standard, which is a standard definition for what is and isn't a green asset.
There is no question that this debate about profits versus purpose has been taking place at a time when profits have been booming. Maybe it's a little easier to make these broader promises about impact on society when the bottom line is looking healthy.
Will it survive the next economic downturn though? We haven't yet seen this new employee friendly, customer-friendly mantra tested in a period where companies have to make some harder decisions.
And that is probably what we're going to figure out over the next 20 years, whether people who are 20 and 30 right now, whether they still care about these issues in 15, 20 years' time or not. And if they do, then that suggests that there's going to be a big shift in the asset management industry.
There is no question that this cuddlier form of capitalism comes with at least a short-term cost in many cases, whether you have to change the plastic bottles your shampoo comes in or whether you're no longer encouraged to drill for oil in the way you used to be. But what we're increasingly hearing from the CEOs we speak to is that the cost of inaction is probably higher.
But the point is that not every captain of industry and not every investor thinks that capitalists need to think more about the social good. There are still people out there who think: you know what capitalists should be thinking about? Capital and how to increase it.
