Margot Brandenburg, Senior Programme Officer for Mission Investments at the Ford Foundation, says workers should be owners as well as assets.
The Ford Foundation was established in 1936 by Edsel Ford and his father Henry, with the stated goal of advancing human welfare. Today, the organisation’s mission is to challenge inequality in all its forms, with its ‘Future of Work(ers)’ programme aimed at ensuring that the US workforce has access to quality and dignified employment.
“When looking at the US, it becomes apparent that wage growth has been anaemic over the past several decades,” says Margot Brandenburg, Senior Programme Officer for Mission Investments at the Ford Foundation.
“It has substantially lagged behind gains in productivity, while returns to capital have grown exponentially.”
According to the Economic Policy Institute, the gap between productivity and a typical worker’s pay has increased significantly since 1979. From 1979 to 2020, net productivity rose 61.8%, while the hourly pay of typical workers grew far slower – rising only 17.5% over the past four decades (after adjusting for inflation).
The Ford Foundation recognises that optimal workforce management can reduce turnover, boost productivity, and enhance workforce engagement.
Gallup data describes the phenomenon of ‘quiet quitting’, estimating that over half of the US workforce is engaged in this behaviour, with low employee engagement costing the global economy US$8.8 trillion, or 9% of global GDP.
Brandenburg says there are a myriad of factors that are contributing to quiet quitting in the US, but fundamentally the trend is due to a disconnect between what workers earn and the value of their work in the form of productivity and returns to their employers.
“Wage stagnation or very minimal growth has really plagued the US workforce,” she says, adding that this environment has resulted in jobs that are not family sustaining and do not provide benefits, such as healthcare, requiring workers to have multiple jobs to make ends meet.
“The fact that those workers then show up at their jobs tired, burnt out, and not invested in the success of their company shouldn’t be a huge surprise to anybody.”
From 1981 through 2014, wages for the top one percent in the United States increased by 176 percent while wages for the bottom 90% declined by 3%. The pandemic exacerbated the situation, with 22 million US workers losing their jobs within two months, and Covid-19-induced job losses hitting low-wage workers harder than their higher earning counterparts.
Brandenburg says that the pandemic created a short-term shock that exacerbated a trend which had been building for several decades and laid bare the vulnerabilities that workers face when they don’t have access to childcare or a sufficient wealth cushion to weather shocks.
“Such a workforce is less productive and experiences higher turnover, leading to more frequent recruitment and training,” Brandenburg tells ESG Investor.
“Even if someone does not personally care about inequality or its impact on workers, they can acknowledge that running a company or investing in one is hindered by an actively disengaged workforce.”
Quality not quantity
Quality jobs is one of five investment themes, including affordable housing, financial inclusion, diverse managers, and bio/health tech, that characterise the Ford Foundation’s mission-related investment (MRI) approach.
Through its mission investments, the Ford Foundation invests capital with the aim of addressing global social issues through a mix of grants, programme-related and mission-related investments. The organisation aims to influence and mobilise a wide spectrum of capital providers – from institutional investors to banks and retail investors – to develop a more inclusive form of capitalism and create a more economically just world.
“It’s a strategy where we actively seek investment opportunities, primarily through funds, due to resource limitations for direct investments,” explains Brandenburg. “Specifically, we search for fund managers with a strong quality jobs thesis, which can manifest in various ways.”
One of the funds the foundation invests in emphasises gainful jobs, focusing on appropriate compensation and benefits. Another prioritises the ‘voice of the worker’ and conducts workforce surveys to understand how employees perceive their employers and what they need to thrive at work.
“We also work with a fund manager who specialises in promoting broad-based worker ownership,” she says, adding that these strategies align with its overarching goal of quality jobs, which the foundation believes will ultimately yield superior financial returns.
“Our primary focus is on the “S” (social) in ESG.”
The Ford Foundation executes its strategy through its US$1 billion MRI endowment, specifically designated for market-rate impact investments.
“These investments are expected to have the same financial returns as the rest of our endowment, as we rely on their income to fund our grant-making and operations,” she says. “We cannot compromise on financial expectations, but we seek intentional positive impact that aligns with the Ford Foundation’s mission and values, which are focused on inequality and social justice.”
The foundation had a US$350 million catalytic capital investment portfolio, which prioritises impact investing and may involve taking risks without the expectation of financial compensation. Further, the organisation has a grant making budget valued at over US$5 million.
Growing the pie
Over the past 40 years, not only have US-based workers’ wages stalled despite rising productivity, but institutional investors have replaced retail shareholders as the predominant owners of publicly traded companies.
According to Brandenburg, broad-based worker ownership – whereby a company’s employees own shares in their employer – is an important part of delivering quality jobs.
“The opportunity to give every worker a financial stake in their company has intuitive power in enabling every worker to think and act like an owner, and to be literally invested in the success of their company,” she says.
“We think it’s the right thing to do because workers are the most important asset, as stated by CEOs of most companies. Therefore, we believe they should be rewarded for their work because it’s the right thing to do and because it grows the pie for everyone, including shareholders.”
One path to improvement in the quality of jobs is regulation, and specifically disclosure. The US Securities and Exchange Commission (SEC) Human Capital Disclosure Rule came into effect in November 2021, which require public companies to disclose information about their workforce.
The metrics that companies are required to disclose include workforce diversity, equity and inclusion-related policies and practices, the number of employees deemed to be full-time, part-time, and seasonal, as well as information about the company’s human capital objectives, encompassing how the firm manages, develops, and retains its workforce.
Currently, the reporting requirements are narrative in nature, but investors are expecting the SEC to propose more prescriptive and standardised disclosure requirements later this year.
Brandenburg said that Ford Foundation has been eagerly waiting the SEC human capital disclosure rulemaking, with the organisation hoping to see it land last year, and “cautiously optimistic” that the securities watchdog will finalise it soon.
“There seems to be a disconnect in the available data on company performance that drives value for shareholders and other stakeholders,” she says, adding that over 90% of market capitalisation for S&P 500 companies is intangible, with a significant portion tied to a company’s culture, talent, education, skill sets of its workforce, and workforce retention.
“Unfortunately, we lack the necessary information to understand how companies manage their workforce and how these practices and performance vary across companies,” she says. “It would be beneficial to have a baseline of human capital management disclosures in all public companies.”
Various initiatives, such as the Human Capital Management Coalition and an accounting petition submitted by Shivaram Rajgopal and Colleen Honigsberg at Stanford Law School, have explored additional disclosures that could help investors consider workforce investments similar to how capital investments are evaluated.
These measures would be additive and valuable without needing an extensive list of mandatory disclosures, adds Brandenburg.
Workforce-related issues are a topic of growing interest to investors, she says, as evidenced by this increase in shareholder proposals, and by the fact that companies are increasingly aware of the value of effective human capital management.
The 2020 SEC rulemaking that encouraged companies to disclose what they considered material without providing guidance on what that necessarily means has resulted in more, but inconsistent, disclosure on workforce-related issues.
“It’s just non-standardised; it’s all over the map.”
Brandenburg acknowledges that companies are upping their game. “We know investors are asking for more, but what would really elevate this conversation is a baseline of standardised disclosures so that we’re all talking about the same thing.
“That’s what we’re hoping the SEC will provide.”