Social issues are shareholder issues

At the heart of some of the opposing views is the idea business leaders should stick to shareholder returns as their focus. And steer clear of social – and by implication – political issues.

"Without deep engagement with stakeholders, companies won’t continue to make profits."
Andrew Cornell, BlueNotes managing editor

This is a familiar tune on the juke box which remains popular because it appeals to a simplistic understanding of the nature of shareholder returns.

To the extent there is some intellectual rigour behind the view, it tends to orbit the argument of eminent economist Milton Friedman who argued in his book Capitalism and Freedom “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”.

The crux of this argument is what ‘using resources’ and engaging in ‘activities’ designed to increase profits entails. There is more to that than selling products and cutting costs.

Critically, engaging in what have been described as ‘politically correct’ views or ‘social issues outside the remit of their daily businesses’ are actually essential to businesses sustaining profitability over the longer term.

That’s because these issues matter to society and they matter to customers and they matter to employees. Without deep engagement with these stakeholders, companies won’t continue to make profits. Nor when senior executives enter these debates do they abrogate their own opinions.

ABUNDANTLY CLEAR

As has been made abundantly clear over the years in industries like resources or infrastructure or banking, companies require a social ‘licence to operate’.

If they are not good corporate citizens – and that may mean their environmental behaviour, their corporate governance, their tax paying – their ability to operate at a high level is compromised.

This social licence far exceeds the political regime of the moment. The 2017 Edelman Trust Barometer makes very clear business – along with governments and other ‘elites’ – have suffered a loss of trust.

To address that, the community expects less cold focus on profits and more focus on community values and issues.

There’s also been an argument around how any chief executive or business leader can presume to speak on behalf of a workforce of thousands or tens of thousands. The answer is she or he cannot.

If an organisation has 20,000 employees, there will be a vast array of political, philosophic, religious and behavioural differences.

Far from precluding leaders from having a view on social issues, this actually encourages it. To grow profits over time business requires access to the best talent. The best talent is diverse. The best talent needs to feel included in the organisation’s culture.

In the – very proper – jargon of today, the best employees need to believe they can bring their ‘whole selves’ to work. Which requires support from the top.

The Edelman barometer found ‘Business is Expected to Lead’ with 75 per cent of people agreeing “a company can take specific actions that both increase profits and improve the economic and social conditions in the community where it operates”. That is, there is an explicit expectation to engage with social issues.

Of course, some will disagree, sometimes vehemently. That is their right.  Some of the strongest views we receive at BlueNotes comes from fellow employees who believe we have been drawn into what they believe is climate change activism.

Yet while some believe taking action on climate change is a political decision, the reality is the science – and the banking regulator – demand action and if ANZ and other banks are truly looking at future profits that risk will be taken seriously.

But, as ANZ chief executive (and marriage equality signatory) Shayne Elliott has said, taking climate change seriously and understanding the science doesn’t mean “cutting and running” from carbon intensive industries – because there is a social implication to even the most clear cut financial decision.

The coal mining industry supports communities and banks thrive when communities thrive.

CLEARER CUT

Some social issues are clearer cut however and it can be argued marriage equality is one.

Organisations, public and private, now almost universally have policies against bullying, discrimination, coercive behaviour, racial or gender bias, and so recognising all employees as having equal rights can be seen as a common sense extension of those policies.

Indeed, the landmark US Supreme Court case of Obergegell v Hodges came to exactly this conclusion and the principals involved are universal, not contained by the US constitution. In that case, the US Supreme Court found that denying all citizens the right of marriage is discriminatory.

Equally importantly, the court found granting new rights to one sector of society had no impact on the rights of others: it did not diminish the rights of a heterosexual couple to marry if a non-heterosexual couple marries.

There is even a strong economic argument to marriage equality – in which all business has a vested interest – even though it is subordinate to the moral and social dimension.

According to ANZ Research in 2015, marriage equality in Australia would bring economic benefits to the tune of at least $500 million in the form of additional expenditure related to weddings alone.

That’s certainly something in which shareholders have a vested interest.

Over the years we have seen waves of fashion in what makes a business leader, from the post-war military commander in chief to the economic technocrat to the celebrity CEO to what increasingly is being seen as the model best suited to business today: the authentic CEO.

That is, the CEO as a real person and – crucially – a model of the values demanded of all employees. Real people have opinions, they have tastes. Hopefully they have empathy and an understanding of the complexity of life.

Indeed, a fascinating new chart from McKinsey looks at which jobs are most vulnerable to automation.

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CEOs look pretty safe – and that’s because, as ANZ’s Elliott told a business forum this week, while an algorithm could at least be imagined which could make the strategic decisions a CEO makes, leadership of people takes another person.

Employees actually appreciate this, the engagement literature is unequivocal - which is why so many modern communications strategies are emphasising 'authenticity'.

It goes without saying not everyone will agree with all the CEO’s opinions but, equally, high performance organisations which attract the best candidates don’t have anodyne, scripted – and censored – leaders.

Organisations – and banks in particular – thrive when communities thrive.

That business leaders should not participate in broader debate is not only contrary to what is demanded of them on other matters, such as fiscal or environmental policy, but highlights the need to build a greater understanding of the complexities of business success in today’s environment.

Of course, I recognise some in our society will hold supporting views while others will hold quite strongly different views – and, as ever, we welcome your comments and feedback at BlueNotes.

Andrew Cornell is managing editor at BlueNotes.