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Business leadership in society

Beyond ESG: Corporate Activism and Moral Leadership

By January 27, 2022August 11th, 2022No Comments

“With great power comes great responsibility” is an old adage that frames well the moral and political leadership challenge now confronting business leaders. Large firms are among the most successful global institutions we have, with over half of the world’s top 100 economies by revenue now global corporate and financial firms with an impact, reach and resources exceeding that of many nations. It is not surprising that in this environment, society is looking to business to take greater leadership and responsibility. Sixty-eight percent of respondents in the 2021 Edelman global survey believe that CEOs should step in when the government does not fix social problems and 65% say that CEOs should hold themselves accountable to the public and not just to the board of directors or stockholders.

As we explore in Beyond ESG: The Role of Business in Collaborative Governance, meeting these expectations takes us well beyond the confines of ESG to the central questions of what role business currently plays in the governance of society and in setting the “rules of the game” and what role we need it to play going forward. In a recent article, Business leaders have to play a better political role, Martin Wolf, the chief economics commentator at the Financial Times, explores this challenge well. Drawing on a new report on the economics of contemporary capitalism by the Oxford Review of Economic Policy, he notes that the crux of the current problem with capitalism has been the ability of business to use its influence to set the “rules of the game” under which it can then play. This has resulted in a form of capitalism that, “for all its undoubted economic superiority over alternative systems, creates a highly unequal distribution of rewards and shifts unmanageable risks on to ordinary people…This has in turn played a big role in undermining confidence in democracy and increasing support for populists.” As an example, Wolf points to the financial crisis of 2007-12 and how many tens of millions of innocent people suffered while the institutions whose behavior caused the implosion were rescued.

Against this analysis, Wolf calls for business leaders to use the pandemic crisis as an opportunity to ask a series of question about the moral/political leadership role they play, starting with:

“What am I as an influential individual, business leader and member of business organizations doing to increase the capacity of my country and the world to make sensible decisions in the interests of all? Am I mainly lobbying for special tax and regulatory treatment for our own benefit or am I supporting political action and activities that will bring the people of my divided country together?”

In 21st Century Business Leadership and the Rise of Corporate Activism, we explore how business leaders are responding to this leadership challenge. Encouragingly, we see that a small but growing number of CEOs are speaking out, individually and collectively, on hot-button social issues from voting rights to gender and racial equality to climate change. At a collective level, we see business organizations from the Business Roundtable to the World Economic Forum making public declarations and commitments to sustainability and stakeholder capitalism – unthinkable a decade ago. Perhaps most significantly, we have seen the leader of the world’s largest asset manager, Larry Fink, issue a clarion call to business leaders to step up, starting with his 2018 letter to the CEOs of the companies BlackRock invests in, writing, “We […] see many governments failing to prepare for the future […]. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose.”

While this expanding corporate activism around social issues is an important first step in redefining the role of business leadership and responsibility in society, significant challenges remain. Chief among them is the reform of corporate lobbying and tax management practices. Corporate leaders are now challenged to ensure that their companies’ policy advocacy work supports governments in creating regulations that establish a level playing field for business while protecting the public interest. They will also be expected to support policymakers in developing a tax code that will ensure a “fair” share of their profits support  government’s ability to enforce new “rules of the game” and deliver on their mandates. A recent NYT article, C.E.O.s Were Our Heroes, at Least According to Them, noted that while Marc Benioff is deservedly a highly respected philanthropist and CEO activist on social justice and even local taxation issues, the company he runs, Salesforce, by using tax subsidiaries scattered from Singapore to Switzerland, succeeded in paying no federal taxes in the US in 2020 despite reporting $2.6 billion in profit. While Mr. Benioff may not be directly responsible for the current tax code, support from him, his activist colleagues and the industry associations they participate in will be critical to future efforts to close corporate tax loopholes and make the tax code more equitable.

In the coming year, we can expect to see increased scrutiny on these kinds of issues as investors and stakeholders focus not simply on the role of businesses in terms of ESG practices within their fence line but their larger role in shaping the “rules of the game” and ensuring these protect the public interest. Working with the Financial Times and other partners, we will continue to explore how business leaders can most effectively respond to these expectations and work with government and others to address the systemic challenges we now face. As a start, in the next Financial Times Moral Money Forum report, we will explore when and how companies should speak out on ESG issues. We welcome your feedback on this question and invite you to share your thoughts with the FT through this survey: bit.ly/32yqenI.