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Investors should start “automatically” voting against the chairs of companies that “fail to demonstrate a concerted commitment to a stakeholder primacy model”, says the debut report from a new, high-profile initiative on corporate purpose. In a world first, the report ranks more than 800 firms on their response to COVID-19 and on tackling inequality, in what it calls a “quantitative stress test of corporate purpose”.
Co-led by Hiro Mizuno, ex- CIO at Japan’s government pension fund, Sacha Sadan, Director of Investment Stewardship at Legal & General Investment Management, and Oxford academic Robert Eccles, The Test of Corporate Purpose was formed earlier this year to test whether corporates are ‘walking the talk’ when it comes to their statements around stakeholderism.
Its inaugural report, ‘COVID-19 and Inequality: A Test of Corporate Purpose’ warns of corporate “purpose washing” and ranks poorly many of the signatories to last year’s statement by the Business Roundtable (BRT), despite their lofty claims about expanding the corporate horizon beyond maximising shareholder returns to consider wider stakeholders and the environment.
‘If it is the dawn of a new model of purpose-driven leadership, then 2020 is a make or break year for companies to live up to their commitments’ – Test of Corporate Purpose
BRT signatories to be ranked in the bottom quartile include corporate giants like Amazon, Bank of America, BP, Exxon, Facebook, Ford, Morgan Stanley and Walmart. US banking giant JP Morgan Chase, whose CEO Jamie Dimon chaired the BRT at the time of its statement, was ranked in the third quartile by the initiative.
Overall, TCP found that BRT Signatories “did not outperform their S&P500 or European company counterparts” and “underperformed (slightly) on their pandemic response as compared to their S&P500 and European company counterparts”.
What matters more than words, the report found, was “whether a company has a strong track record of proactively managing issues that may become material during a crisis”.
Asset owners are called upon in the report to integrate TCP’s analysis into manager selection to help them judge investment managers’ “handling of critical stakeholder issues” at investee companies.
Managers are similarly called upon to use initiative’s work to inform their engagement with corporates.
TCP’s analysis is underpinned by ESG data from US-based artificial intelligence specialist TruValue Labs, whose Head of Index, Thomas Kuh also sits on the initiative’s advisory board alongside figures such as John Streur, CEO of Calvert Research and Management, Gianna McCarthy, Director of Corporate Governance for the Office of the New York State Comptroller, and Yumi Narita, Executive Director of Corporate Governance for the Office of the New York City Comptroller.
“If it is the dawn of a new model of purpose-driven leadership, then 2020 is a make or break year for companies to live up to their commitments”, the report states. “The global pandemic and the death of George Floyd have sent seismic waves through the corporate community, pushing companies to take a decisive stance on how they treat their stakeholders during a crisis and their role in addressing inequality.”