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What We Learned from JUST Capital and the US Chamber

The ongoing debate over the role and purpose of corporations is complex, vibrant, and long-running. There are also many unanswered, and even unaddressed, questions about the boundaries of company responsibility, the nature of corporate-government interaction, and more.

Those are the topline takeaways from a three-part series of discussions that the Bipartisan Policy Center hosted with JUST Capital and the U.S. Chamber of Commerce from July 2020 to February of this year. Topics ranged from how corporations were responding to the COVID-19 crisis to the evolving nature of capitalism, and everything in between. Tom Quaadman, executive vice president at the U.S. Chamber’s Center for Capital Markets Competitiveness, and Martin Whittaker, CEO of JUST Capital, were incredibly generous with their time and thoughtfulness on these issues.

Below, we have summarized the main themes from those discussions. Some of them foreshadow what will be examined by a new task force BPC launched on ESG: environmental, social, and governance factors. Others relate to big-picture issues of corporate purpose. All of them are relevant to the emerging debate in Washington over what the public and its elected representatives expect from companies.

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Debate and Disagreement Are Healthy

The nature and purpose of the corporation have evolved over hundreds of years. Debate over its proper role and orientation toward society has been present since the beginning. The U.S. Chamber, Quaadman pointed out, has been exploring ESG and the question of stakeholder interests for several years with partners across the country.

But the long-running discussion over corporate purpose and responsibility has been given renewed energy during the COVID-19 pandemic. Companies found themselves in the position of not only reacting directly to the virus and its effects, but also helping their employees, customers, and communities respond. The crisis has raised new questions, too, about how companies interact with the government.

Such debate—and inevitable disagreement—is a good thing, according to Quaadman and Whittaker. For one thing, it is so far being driven by the market, by companies themselves. For another, it reflects a healthy dynamism of capitalism and shifts in the nature of competition.

Stakeholder Capitalism Is Complicated

To a casual observer, the debate about corporations is simple: do they have a responsibility to maximize shareholder value or to serve the interests of a broader set of stakeholders? Quaadman put this question in terms of two different types of education he received. In school, he said, he learned that “corporations are not eleemosynary institutions.” They exist to create value for their owners and investors. At the same time, as an Eagle Scout, he learned “to leave your campsite better than you found it.”

And that, according to Quaadman, is what stakeholder capitalism and ESG come down to: “whether a company is being a good corporate citizen and making their portion of the world a better place,” even as they pursue their value creation purpose. What they do with stakeholders must connect to creating long-term value.

For Whittaker, stakeholder capitalism reflects continuing shifts in the economic landscape and the general public’s expectation of companies. Every company, he says, “has a basic set of stakeholders.” This includes employees, customers, suppliers, communities, investors, and others. That provides a “universal, common starting point.” There is a “false tradeoff,” Whittaker said, often posed between shareholders and stakeholders because “building a more just and inclusive economy must be done with the private sector.” We can’t mandate it through government—and incentivizing companies “to do more of the heavy lifting” is good for competitiveness and corporate performance.

As both Quaadman and Whittaker pointed out, however, basic conceptualization is only the beginning. Additional questions swirl around that are complex and difficult to resolve.

For example, even when companies make a commitment to stakeholder interests, how are they supposed to balance competing stakeholder values? Moving toward more sustainable resource use is good for the environment but may result in higher prices for customers. Shifts in the supply chain to reduce the carbon footprint may result in the loss of jobs in some areas.

As Whittaker pointed out, the question of balance among stakeholders “is not a straight line.” We need a framework for evaluating tradeoffs—but that requires better data.

Measurement Matters

There is no shortage of ratings, standards, and measurement frameworks promulgated around ESG, but standards are not metrics—and neither standards nor metrics is data. There’s been less investment, said Whittaker, in “new sources of data that have meaning.” Quantity has outweighed quality thus far, creating a “credibility gap,” according to Quaadman.

This creates challenges for companies seeking to disclose information on ESG performance or stakeholder engagement. Better data, and standards built on that better data, would go a long way toward increasing corporate confidence (and legal comfort). There is, according to Whittaker, “still a lot of work to be done on data quality and validation.” It’s not easy to know, for example, what “stakeholder value” means from one industry to another and how we are supposed to know what it means. Concerns about “greenwashing,” or exaggerating a company’s environmental record, continue to be prevalent among asset managers.

Improving the data that is collected on ESG would bring clarity to the public and private sectors, not least because, as we heard from our discussants, a good deal of activity is underway.

Companies Are Active Already

Corporate commitments to ESG beyond the bottom line were on the rise well before the COVID-19 pandemic. Many companies, said Quaadman, “viewed themselves as doing stakeholder activities already.”

Walmart, for example, has been engaged in a nearly 20-year effort to reduce energy use. Quaadman described ways in which some companies are helping their employees manage high levels of student debt while also saving adequately for retirement. JUST Capital tracks activities by hundreds of public companies.

Balancing stakeholder interests while creating shareholder value, said Whittaker, is “really not that different” from the way many executives are running companies. That momentum has contributed to growing expectations among the public for what companies can and should be doing. According to polling by JUST Capital, the public is “emphatic” in their expectation that companies should prioritize the interests of workers and communities.

Despite the normative expectations of some, current law requires companies to answer to shareholders. There have been some attempts to provide companies with legal pathways to serving both shareholders and stakeholders—through, for example, “benefit corporations.” Still unresolved is whether shareholders—to whom legal obligations are owed—support the use of companies to advance societal goals that have traditionally been the purview of elected officials. Especially if it means lower return on investments, and if that lower return comes at the expense of Americans saving for retirement.

So, What’s Next?

The Biden Administration has already sent strong signals about its commitment to ESG and the active role the government will take along many fronts. New standards and requirements are coming into effect in Europe and already affecting some U.S. companies. Interest is growing on Capitol Hill as to supply chain resilience, worker welfare, and more. The next four years promise to be active in terms of policy interest and action. We’ll leave the last words to our hardy participants, Tom and Martin.

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