U.S. corporate leaders remain out of step with the rest of the world when it comes to social purpose, according to a new survey on stakeholder capitalism from Diligent Institute. While 63 percent of global leaders strongly believe that a fundamental change in capitalism is underway, only 33 percent of U.S. leaders strongly agree with that view. The survey results indicate that U.S. corporate leaders may be too busy navigating the economic fallout of COVID-19 to jump feet first into a new kind of capitalism.
“I think companies are still really trying to figure out how to get a path out of this, and how to get back on track in some way. When you're in that kind of crisis response mode, often things like ESG programs may take a back seat. I think there is going to be a lot of fits and starts. In the U.S. it’s not even a downward economic climb—a plummet off a cliff is probably a better way to phrase it,” Diligent Institute Executive Director Dottie Schindlinger told TriplePundit.
Understanding how business leaders are handling this complex balancing act and how it might be changing specific board behaviors was the aim of the survey, “Stakeholder Capitalism: Translating Corporate Purpose into Board Practice,” which included the views of 406 directors and corporate leaders. The idea of stakeholder capitalism is that for too long, companies have valued short-term gains for shareholders and investors at the expense of the long-term well-being of all stakeholders. When the influential Business Roundtable in the U.S. changed its course on this thinking last year with a statement abandoning strict shareholder primacy in favor of stakeholder interests, the tide had turned.
Or so we thought. In fact, U.S. directors are significantly less likely to agree with the “Davos Manifesto” than leaders from other countries, the Diligent survey showed. The Davos Manifesto was launched at the 2020 World Economic Forum and which explicitly calls on companies to establish a clear societal purpose and serve the interests of stakeholders. While 71 percent of global leaders strongly agreed with the Davos Manifesto, only 61 percent of the U.S. respondents did so.
One big reason for the gap between the U.S. and the rest of the world, Schindlinger says, is the lack of regulatory pressure on U.S. companies to meet certain environmental, social and governance (ESG) benchmarks. “In almost every other part of the world, companies are now having some regulatory pressure to disclose what they're doing around ESG while in the U.S. we're a bit behind.”
The glimmer of hope Schindlinger sees in the U.S. leaders’ divergence from their global peers is the degree to which they agreed with the statement: “Boards expect to discuss the impact of their decisions on non-shareholders with very high frequency in the three years following the COVID-19 outbreak.” In this regard, they were aligned with their peers, with 42 percent of directors surveyed saying they expected to discuss these topics at every meeting (compared to 26 percent in the past three years). And 73 percent expect to discuss it at least quarterly, compared to 47 percent over the past three years.
“That’s maybe one hopeful way of looking at it, which is that U.S. directors did tell us that expect to be talking much more about stakeholder interests in the coming three years than they have so far,” Schindlinger says.
Schindlinger expects U.S. corporate leaders to eventually catch up with the rest of the world in embracing stakeholder capitalism, because the calls for action from investors and society are all around them. Skyrocketing interest from investors in companies that are ESG leaders hasn’t waned in the pandemic, as 3p recently reported.
As she explains: “A lot of the pressure on companies in the U.S. is coming from the investor community. People who are kicking in money to these investment funds want to know which companies are strongest on ESG, because they tend to give them the greatest return. And then there’s the pressure from employees, customers, local communities. They are working to hold companies accountable, especially on things like racial justice and diversity, especially on things like protecting the workforce around COVID; we're seeing a lot of pressure in terms of protests and employee walkouts and activism around these issues.”
That pressure cooker will eventually burst, prompting a new look at how we define capitalism. “If there's this big groundswell of support from the grassroots, and there's pressure coming from all sides, change will happen, but it may just take longer. It's about focusing on systemic change as opposed to meeting specific regulatory requirements," Schindlinger says.
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Based in southwest Florida, Amy has written about sustainability and the Triple Bottom Line for over 20 years, specializing in sustainability reporting, policy papers and research reports for multinational clients in pharmaceuticals, consumer goods, ICT, tourism and other sectors. She also writes for Ethical Corporation and is a contributor to Creating a Culture of Integrity: Business Ethics for the 21st Century. Connect with Amy on LinkedIn.