Are U.S. Execs out of Touch on Corporate Social Purpose?

In the wake of the killing of George Floyd, something unusual happened in the U.S. corporate world. Amazon.com Inc., Netflix Inc., Nike Inc., The Walt Disney Co., ViacomCBS Inc., Warner Brothers Entertainment Inc., YouTube, and many other prominent companies issued statements condemning systemic racism and injustice. 

Never before had so large a swath of corporate America spoken out simultaneously about such a hot-button issue. But was this a hollow, momentary blip—or are corporate leaders ready to be catalysts for real systemic change?

A new study from the Diligent Institute, the research arm of New York-based software firm Diligent Corp., offers some noteworthy insights on corporate social purpose from a domestic and global perspective, amid civil unrest and the novel coronavirus pandemic.  

The survey aimed to find out how many corporate leaders agree with the ideas that a company is more than a tool for generating wealth and that corporate performance should be measured not solely on shareholder returns but how the business achieves environmental, social, and governance (ESG) goals. 

“When we looked at it by country, there was a pretty big disconnect between how directors inside the U.S. felt versus those in every other part of the world,” says Dottie Schindlinger, executive director of the Diligent Institute.

For instance, 63 percent of directors outside the United States strongly agree that we are experiencing a “fundamental change in capitalism, from a primary focus on shareholder return towards a system in which corporations must have a societal purpose and serve all stakeholders.” But only 33 percent of the U.S.-based directors strongly agree with that statement, according to the survey, which was conducted June 16 and involved 406 directors and corporate leaders.

Meanwhile, 11 percent of U.S.-based respondents, and 5 percent of foreign respondents, disagree that a fundamental change in capitalism is underway. 

Asked whether they strongly agree with the Davos Manifesto statement that a company is “more than an economic unit generating wealth,” 61 percent of U.S. directors said they do, compared with 77 percent of directors from other countries.  

The apparent disconnect is likely rooted, at least in part, in the fact that other regions of the world, including the European Union (EU) and the Asia-Pacific region, have “experienced a bit more evolution of regulation around ESG disclosures,” Schindlinger says. She noted that businesses in those regions might already be creating second versions of their annual reports focused on sustainability practices. 

“Especially in the EU, you’ve got a lot of countries that are working together cooperatively, and they are trying to set common standards for lots of different things, including ESG,” she adds. “The U.S. does not really have that same kind of overarching approach to regulation or to standards.” 

The survey also shows that corporate boards expect to discuss the impact of their decisions on non-shareholder stakeholders, such as employees and customers, more frequently in the wake of Covid-19 than they did before the pandemic.  

“While you may not, at this stage, be required to disclose that information to a regulator body, you might very well find yourself required to disclose that information to the board,” Schindlinger says. “And so it’s something worth understanding.” 

From: CorporateCounsel