Big business is under big pressure: how will it respond?
As we head into the next parliamentary session, business really needs to take responsibility for its own future: to clean up its act and tell a new story about the good it creates. Because for now, at least, the politicians are losing the will to fight for it, writes WPI's Sean Worth.
At a recent conference of some of the largest businesses in the US, including the likes of Amazon, Coca Cola and Exxon, a group of 181 chief executives committed publicly to ‘redefining the purpose of the corporation’. Essentially, they said it must shift from maximising shareholder value to social value – including to the environment, the communities firms operate in and to employees. Whether or not you believe it to be sincere, it is clear that some of capitalism’s biggest hitters feel pressured to say they care more about social issues.
The public pressure that prompted this is also growing in the UK, and with an election around the corner, politicians are clearly taking note. A voter and consumer movement is growing increasingly frustrated at a perceived lack of care among business leaders for their social impact, particularly on climate change. Accountable capitalism, responsible capitalism – whatever you call it – the evidence from public opinion clearly shows increasing appetite for a more socially-responsive model of corporate practice and governance.
The question, though, is what will really make this happen? Will consumer or investor pressure change corporate focus, or are the public driving policymakers to take the lead?
Direct social pressure can certainly play a part. Take BlackRock, for example, the world’s largest investment manager. In 2018, CEO Larry Fink wrote to the firms they invest in demanding each company “must not only deliver financial performance, but also show it makes a positive contribution to society”. Yet, shortly after, following a mass shooting at a Florida school, it emerged that BlackRock was the largest shareholder in the company that made the gun used in that shooting – and most other gun companies too. Fink was forced, under public and media pressure, to offer new gun-free funds.
Here in the UK, it is arguably climate change that is leading the concerns of voters for greater corporate responsibility. The Government’s recent target for net zero carbon emissions by 2050 and the Labour Party’s ambition to move even faster are a direct response to the fact that the environment has been rising rapidly as a voter concern and, while in the past, it tended to be a ‘Labour issue’, the internal polling of both main parties shows the Conservatives have caught up and this big swing voter issue is now very much up for grabs.
No surprise then, that Shadow Chancellor, John McDonnell recently floated the idea that Labour could delist companies on the London Stock Exchange if they fail to participate in action to help tackle climate change. While this, and other ideas from Labour to enforce new business practices might seem extreme to traditionalists, I gather Labour’s internal polling shows such action has huge public support. I also know the Conservatives’ own internal polling, especially on the groups of voters they are now targeting, has shown real antipathy to big business on social issues, so I expect the party will want to avoid any proactive debate with other parties on this during the election.
It is becoming wholly incumbent on corporates to show action directly to voters that they are taking their concerns seriously, and the environment is becoming the biggest focus for this. Only last month, the Climate Accountability Institute published research showing just 20 companies were behind a third of all carbon emissions since 1965. One of those was UK-listed mining giant BHP, which announced recently that it would link executive pay to carbon reduction targets. An interesting initiative, but both investors and the public want more direct action, such as expediting the spin-off of its thermal coal operations and ending its ties with ‘big coal’ lobbying – a big concern of shareholders at their recent AGM. BHP’s annual report shows that last year, its products were responsible for 305m tonnes of CO2.
Big business is clearly in the crosshairs of a rising populist opinion that is critical of the corporate world. It is much more prone to rally against the social harms and inequalities it sees business to represent than to support the big social contributions businesses make. It is causing politicians who traditionally defended business to shy back and emboldening those who want more regulation, taxes and interference in the way businesses are run. As we head into the next parliamentary session, business really needs to take responsibility for its own future: to clean up its act and tell a new story about the good it creates. Because for now, at least, the politicians are losing the will to fight for it.