Is this crisis giving capitalism a moral nudge?
Even before the coronavirus, leaders of many corporations were already acknowledging public pressure to shift toward a “stakeholder” model of corporate purpose, with emphasis on societal and worker interests as well as profits. Times of crisis, historically, add momentum to existing trends.
“Economic shocks tend to accelerate the pace of structural change,” says Neil Gregory, chief thought leadership officer of the International Finance Corporation, the private investment arm of the World Bank Group. Thus, corporate moves already underway toward greener, more sustainable operations, as well as wider use of online services, should speed up, he says.
Why We Wrote This
New thinking was already percolating in corporate boardrooms. Now many corporations are acting to address the pandemic – or risking criticism if they don’t care for “essential workers.”
Many businesses are focused on survival more than do-goodism. But some have also moved to boost pay for lower-wage workers, avoid layoffs, maintain health insurance for those they do lay off, or to offer fuller protections for frontline workers in the pandemic.
“I feel like we’re in a musical chairs moment,” says Shelley Alpern, director of shareholder advocacy at Rhia Ventures, a social investment firm in San Francisco. “When the self-quarantining phase is over, it’s basically like the music stops and we see where the economy has landed.”
Stories keep rolling in of corporate good deeds in the midst of the coronavirus pandemic:
- Carhartt, the clothing maker known for its sturdy work pants, has redirected factories in Kentucky and Tennessee to produce gowns and masks for medical workers.
- Shoe company Allbirds of San Francisco, which brands itself around low environmental impact, has donated $500,000 in footwear as part of an effort “to lift up our healthcare community.”
- In Baltimore, steel-basket manufacturer Marlin Steel got an order one Friday evening in March to make test-tube holders for companies testing patients for COVID-19 – a product it had never made before. Employees volunteered to work the weekend to design and build them. Then, due to a canceled airline flight, two Marlin employees drove more than 1,000 miles overnight to deliver them to the first client by Monday morning.
Such examples of corporations helping a broader community are spurring hopes among some that the coronavirus crisis can hasten a shift – even if the steps may be modest and gradual – toward a more benevolent capitalism. The latest signs of movement aren’t limited to the United States. The company Allbirds has roots in New Zealand as well as the U.S., and the coronavirus has prompted companies around the world to make moves beyond the interests of their shareholders.
Editor’s note: As a public service, all our coronavirus coverage is free. No paywall.
Why We Wrote This
New thinking was already percolating in corporate boardrooms. Now many corporations are acting to address the pandemic – or risking criticism if they don’t care for “essential workers.”
“I feel like we’re in a musical chairs moment,” says Shelley Alpern, director of shareholder advocacy at Rhia Ventures, a social investment and advocacy firm based in San Francisco. “When the self-quarantining phase is over, it’s basically like the music stops and we see where the economy has landed. … It’s an amazing opportunity that’s coming up before us. It’s whether the government and civil society with the aid of companies can help to re-envision the future and design an economy where the rewards are more broadly distributed for workers and we’re all in a far more resilient place.”
Of course, a quest for shareholder profits and an often-charitable spirit have long coexisted in capitalist economies. And for now, legions of businesses are focused more on survival than on do-goodism.
But even before the pandemic, leaders of many large corporations were already acknowledging public pressure to shift toward a “stakeholder” model of corporate purpose, with a stronger emphasis on societal and worker interests as well as profits. And times of crisis, historically, can add momentum to existing trends.
“Economic shocks tend to accelerate the pace of structural change,” says Neil Gregory, chief thought leadership officer of the International Finance Corporation, the private investment arm of the World Bank Group. Thus, corporate moves already underway toward greener, more sustainable operations, as well as wider use of online services, should speed up, he adds.
One of the biggest challenges now facing businesses is massive layoffs. The Labor Department reported Friday that 20.5 million Americans lost their jobs last month, causing unemployment to soar to 14.7%, a level not seen since the Great Depression. Some companies have tried to soften the blow by allowing workers to hang onto their health care benefits. Gravity Payments, a credit-card processor in Seattle that won plaudits five years ago for raising workers’ minimum pay to $70,000 a year, found a different solution.
Losing $1 million a month, the CEO turned to his employees for cost-cutting ideas and within a day they had them, including workers volunteering to take temporary pay cuts. The CEO and chief operating officers were so impressed they cut their own salaries to zero, doubling the amount of time the company can continue to operate before running out of cash and having to lay off workers.
“Workers are the No. 1 stakeholder”
The pandemic has also shined a bright light on weaknesses of contemporary capitalism. Any lasting changes in CEO thinking may end up being spurred most heavily from the outside the boardroom – by workers and watchdog groups or consumers and socially conscious investors.
Will the pandemic really force social change? “I wouldn’t say I’m optimistic,” says Ms. Alpern of Rhia Ventures. Yet she adds: “What does give me some optimism is that I think ... there is rising awareness of how vulnerable so many people in certain sectors of the economy are.”
The economy’s reliance on low-paid, often part-time employees, has suddenly become more starkly visible, as truck drivers and grocery clerks have become front-line workers in the battle to keep households supplied while citizens are largely sheltering in their homes.
“Workers are the No. 1 stakeholder in this particular instance,” says Julie Gorte, senior vice president for sustainable investing at Impax Asset Management. “It’s so easy to expose your workers to the potential for infection.”
Individually, many companies have stepped up to the plate to help out these workers. Large chains such as Walmart, Target, Kroger, and Albertsons have increased pay temporarily. CVS and Trader Joe’s have handed out bonuses.
Even many firms that weren’t seeing a surge in business have acted to help their lowest-paid employees. Restaurant chain Chipotle raised hourly pay 10% and handed out first-quarter bonuses. Darden Restaurants, owner of the Olive Garden and LongHorn Steakhouse chains, extended paid sick leave to all of its hourly employees.
It’s not always clear when companies are acting from high ethical standards and when they’re simply trying to avoid bad publicity.
Seattle-based Amazon has won praise for stepping up its operations and hiring 175,000 new workers to keep consumers supplied with goods when so many stores are closed. But the result is also extra market share in a now-shrinking economy. And Amazon workers have held public protests at several locations, including at its Whole Foods division, complaining the company hasn’t done enough to protect them.
So last week, when announcing first-quarter earnings, executives told shareholders to “take a seat” in case of shock because the company planned to devote all its expected $4 billion second-quarter profit to pandemic-related activities. The actions will include protective equipment for all workers, stepped-up cleaning and monitoring, and the building of a facility for its own coronavirus testing.
Even so, Amazon’s public image took another hit this week, when vice president Tim Bray resigned, citing the firing of employee whistleblowers on safety concerns.
Actions under public scrutiny
Bad press has dogged some corporations – and perhaps prompted corrective changes – during past economic downturns, too. During the 2008 financial crisis, several corporations that got government bailouts gave their executives huge bonuses, which raised a public furor.
“There’s nothing like that during this crisis,” says Ms. Gorte at Impax. In fact, some corporate CEOs have gone out of their way to emphasize that they’re trimming or even eliminating their pay for the year.
Still, a controversy this year involves participation in emergency federal loans for small firms, which are forgivable if used to keep workers employed. The program’s rules were loose enough that some large publicly traded companies managed to qualify for the program, partially draining it of cash. When they faced the glare of media headlines, several returned the money.
Another prod for corporations is the prospect of legislative efforts to address the treatment of workers or income inequality. The crisis has added to hopes on the political left that ideas like a higher minimum wage, universal health care, or even a universal basic income could gain political traction.
Whether through political leverage or investor and consumer activism, some experts say the social forces that guide corporate behavior are already shifting, if slowly.
“We already are at that inflection point,” says Barbara Dyer, executive director of the Good Companies, Good Jobs Initiative at the Sloan School of the Massachusetts Institute of Technology. “We’ve known, for example, that the policies and laws that shape our employment and labor systems are antiquated. … They came out of the New Deal. And there are many people who have been working to think about what the 21st century legal structure ought to be. And they’re ready.”
Editor’s note: As a public service, all our coronavirus coverage is free. No paywall.
