May 22, 2020
We’ve seen plenty of evidence of company-driven actions that give us hope for long-term positive change. But while the COVID-19 crisis may lead to new ways of doing business, the tipping point will come when companies seek help in transitioning to business models that add value for all stakeholders.
Everyone is saying it: the coronavirus crisis will be the tipping point in terms of the importance of ESG factors and expectations of company behaviour in a post-COVID world. The proof is yet to come, but we believe this crisis will serve to accelerate pre-existing trends. There is no question that business in general has been trending toward greater adoption of ESG considerations in their strategies and activities. Some are there already.
Unilever is a good example of a company that has seamlessly responded to the demands of the COVID crisis in ways that put the needs of employees, customers and stakeholders ahead of the short-term interests of their shareholders. With a multi-stakeholder approach deeply embedded in Unilever’s culture, the actions the company has implemented – like income guarantees and the donation of health care products – were easily arrived at, aligned with their vision, and have proved great for the company’s reputation.
But not every company has the strong multi-stakeholder culture of a Unilever. Many have stepped up to undertake similar types of actions, but find it difficult to change their businesses practices in the absence of a clear strategic framework or longstanding multi-stakeholder culture.
We saw evidence of that with Union Square Hospitality Group (USHG), owners of Shake Shack. The latter company applied for and received $10M from Washington’s $349B Paycheck Protection Program (PPP), only to run into strong pushback around the idea of using tax dollars to help large, publicly listed companies. Red-faced, Shake Shack returned the money.
USHG CEO Danny Meyer told the Financial Times that asking for PPP support was “the best decision we could (make) with the information we had at the time,” arguing that with the wisdom of hindsight, PPP support is actually ill-suited for restaurants anyway since funding ends in June, before most establishments are likely to be able to open again.
If you choose to interpret this story generously, these kinds of missteps are to be expected from a company that’s used to operating one way yet is trying think in another way altogether. That’s why it’s what happens next that counts.
The most important thing, if multi-stakeholder capitalism is going to take hold in a meaningful way, is having the will to change, and, as Meyer showed, being able to publicly admit mistakes. The best way forward is to be open to conversations with investors who have experience helping companies make the transition. That’s what NEI does through corporate engagement. It may take a while for management to get comfortable with the fact investors like us (and the organizations we collaborate with) are simply trying to make their companies better, but for the companies that come to the table, experience tells us they can soon embrace this approach. The real change then – the change we all hope to see on the back end of the coronavirus – will be a surge in companies that overcome this initial reluctance. If the COVID disruption inspires a willingness to consider how the policies adopted during the crisis can act as a blueprint for company operations going forward, that will mark the true tipping point for positive change.