Active ownership right now is not a distraction from the crisis – it’s the solution to our recovery!
The themes to emphasize concern resilience
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Here’s a question: how can companies and investors even think about longer term environmental, social and governance questions at a time when global economies are being hard hit both by the covid-19-related shutdown and the oil price war?
More to the point, how can we not?
Concerns with decent work, inclusion, productivity and sustainable business practices are unavoidable when a corporation is faced with economic challenges that test its resilience. As we navigate an uncertain future, corporations and their shareholders have to consider how we re-orient resources and systems to be more resilient to shocks, to incorporate sustainability and social inclusion into future investment decisions, and to strengthen governance.
That’s not a distraction from the crisis – it’s the solution to our recovery.
Those questions define the active ownership agenda right now. As shareholders, we need both to communicate our concern and support for best practices that help address the current crisis, and set the groundwork for a mid to long-term approach to building resilience and sustainability across the economy.
An active ownership agenda during the current crisis will vary by sector and company, but in broad terms the themes we need to emphasize can all be framed around the concept of resilience. Responsible investors will be looking to engage companies and policy makers on how resilience is nurtured at a company and economy-wide level, with a focus on a set of fundamental issues.
- Business continuity: In the short term we’ll look to company boards and executives to clearly articulate strategies for business continuity, including addressing debt, capital expenditures, liquidity, cash management, dividends, pension liabilities and executive compensation that is responsible to the business and to its stakeholders. For the longer term, we’ll be asking companies how they’re evaluating strategy for recovery in what may be a very different set of economic and social circumstances.
- Decent work: This crisis has exposed serious fault lines in worker protections, particularly for the workers in the “gig economy” (where workers are considered to be “self-employed”) or in franchised operations where structural issues limit liability for worker protections (so-called “fissured” workplaces). In the short term, we will engage with companies on protections for worker incomes and health and safety during the crisis, including all categories of workers. For the longer term, we need to engage on solutions and systems to instill accountability for decent work for all workers that contribute to a company’s success. That conversation starts now.
- Supply chains: At a time when workers need support from their employers the most, the buyers from global factories are most likely to pull back orders. In the short term we need to ensure that companies work collaboratively with their suppliers to get through this intact, up and down the chain, and to address any inventory and distribution bottlenecks as conditions change. That includes special attention to suppliers from already-disadvantaged communities where the economic impacts of the crisis are being felt the most. In the longer term, this is a time to develop the kind of supply chains that are both more resilient, to strengthen purchasing teams and their coordination with sustainability teams, to gain insight into vulnerabilities within lower tiers of the chain, and to nurture the kind of long-term supplier relationships throughout the chain that allow for improvements in working conditions, wages, and environmental sustainability, supported by buyers.
- Climate crisis and Just Transitions: When the original plan goes out the window, organizations have to adapt for a different future. That’s a good time to think differently about what that future should look like. While the COVID-19 crisis is foremost in our minds, the climate crisis also has devastating human and economic effects and requires exactly the kind of large shift in planning that is now being required of us. In the current reality, we cannot expect actions from companies with high short-term financial costs or that might otherwise strain scarce corporate resources. Climate should, however, be part of conversations about strategy, scenario planning and recovery. The conversation we need to be having with the energy and financial sector, for example, is whether projects which are now on hold in the oil patch should even be part of the portfolio even when the economy recovers. The position of workers in any transitions has to be part of this conversation at the policy level, with companies, and between companies and worker representatives.
- Compensation: Many executives will be taking a hit, at least temporarily, on the current value of their stock-based compensation, but with so many performance metrics based on relative returns, some executives will continue to receive high payouts. We’ll be looking for leadership from boards on limiting payouts, especially when workers are facing layoffs and salary cuts. In the longer term, better aligning approaches to compensation at all levels of the company should be an abiding lesson of this crisis – that “we’re all in this together” has to mean something.
- Taxation and lobbying: There is already frantic lobbying taking place on the terms and conditions of government support for business and recovery measures, both positive and negative. In the short term, responsible investors can articulate their support for government measures that promote protections for workers, stronger healthcare, and appropriate investments in businesses that help maintain employment, liquidity and debt relief during this period. We can publicly support conditions on bailouts that restrict buybacks and executive compensation while receiving government assistance. In the longer term, there will be a bill to pay for all of this. We should articulate a vision on taxes – and lobbying about taxes – that ensures the burden is shared appropriately while not hurting the recovery itself. Transparency, effective oversight and accountability for corporate lobbying activity has long been a part of our work; taking positions on public policy that supports a sustainable, inclusive and productive economy is also a mainstay of our work as responsible investors. Both will be needed as we navigate the next few months.
This is by no means a comprehensive or final look at what lies ahead. There are a lot of unknowns for all of us right now. What we do know, however, is that active owners have to take part in the conversation about corporate responsibility in this crisis, and about a recovery that creates a more sustainable, inclusive and productive – and therefore more resilient – economy for the long run.
Kevin Thomas is Chief Executive Officer at Share in Canada