Why Wouldn’t We Want Companies to be More Ethical, Equitable and Accountable?
Lately there’s been an onslaught against companies that have implemented ESG policies, especially in conservative media and political circles. You often see the mantra “Go Woke, Go Broke” as part of their attack on all aspects of ESG. In fact, the Wall Street Journal editorial page openly questioned this week whether having a diverse board caused Silicon Valley Bank’s rapid demise, a notion former Goldman Sachs CEO Lloyd Blankfein called “laughable” during a TV interview.
It does make you wonder: do they understand what ESG is and, if so, why would anyone be against it?
ESG stands for Environmental, Social and Governance. As an investor, it relates to investing in companies that are ethically responsible and considers environmental, social and governance factors in making decisions about what companies align with their spending goals. For individual businesses, it’s about taking a deeper look at policies and business practices to set and measure against goals addressing real issues facing society whether climate change, health care or employment disparities, or issues specific to their industries. Ultimately, it’s about being accountable for the outsized role business plays in the world.
Every day the news is filled with examples of what happens when companies aren’t accountable. Norfolk-Southern CEO admitted during a congressional hearing their safety standards weren’t sufficient. Silicon Valley Bank’s CEO and other leaders sold millions in stock before disclosing their precarious financial situation to the public. And the list goes on.
Perhaps most importantly, nothing about this approach to investing is new. Some articles cite the roots of socially responsible investing back to the 1800s when the Methodist Church urged its members to avoid investing in companies that made alcohol or tobacco or other such vices. It became more mainstream in the 1960s as part of the Civil Rights Movement and reactions to the Vietnam War, and progressed in the 1980s as global businesses left South Africa due to apartheid. In 1953, IBM CEO Thomas Watson Jr. issued what’s known as policy letter #4, making clear the company had no intention of segregating its facilities in southern states despite whatever laws were in place. In doing so, he publicly made clear the policies and values of the company his father founded.
Fast forward 75 years, and there’s a growing movement afoot to punish companies who seek to establish ESG metrics and hold themselves and others accountable. How can it be anti-business to be pro-society, pro-equality, and pro-Earth? Look at any company’s annual sustainability report and you will find them focused on improving their business by addressing real issues facing their industry and the world.
In Coca-Cola’s 2021 report, you’ll learn about their progress towards greater water security and reusable plastics, reducing sugar known to be bad for our health, and sustainable farming. In John Deere’s sustainability 2022 report, they talk about reducing dependence on harmful herbicides and addressing food insecurity while connecting their machines and reducing emissions. In United Airlines report, they talk about increasing human trafficking awareness and fuel efficiency.
Why would any of this raise concerns, no matter what side of the political aisle you’re on? In fact, quite the opposite: The reports themselves, along with publicly stated goals for carbon emissions, equity pay and other issues, are exactly the kind of transparency investors and other stakeholders should seek in businesses. That leads us to the G in ESG – governance. Having independent directors on boards and third-party auditors reviewing business practices is essential to maintaining business integrity. Rather than watering these requirements down, politicians and others should be seeking to strengthen them to ensure accountability is real and not simply window-dressing.
Finally, I’ve worked at publicly traded companies across different industries for decades. There wasn’t a single CEO or senior executive who didn’t prioritize financials and performance. While other issues were discussed and had their place, making – and preferably, beating – the quarterly numbers led the way, every day. Businesses aren’t failing because they’re focused on doing good instead of doing well. They are failing because of a lack of strategy, leadership and discipline to ensure they succeed.