Commentary

The Culture Wars

Company culture is shaped by its values alongside its commitment to all stakeholders, writes Denise Le Gal, Chair of Brunel Pension Partnership. 

Since its recent resurgence, stakeholder capitalism has had a short honeymoon. Now the knives are out.  

In August 2019, the Business Roundtable, whose members are CEOs of America’s largest companies, changed its definition of the purpose of a corporation, shifting from “shareholder primacy” to a “commitment to all stakeholders”.  

But if stakeholder capitalism rejects the idea of the market as a Darwinian free-for-all held in check by laws and regulations, was it just about limiting damage? Or could it be good for a company’s internal vitality and long-term profitability?  

There are urgent questions, given widespread pushback against stakeholder capitalism. One reason for the pushback is that you won’t get all stakeholders to agree on values. Stakeholder capitalism then risks becoming a proxy for the culture wars. 

Another is the enormous spike in global inflation, which has particularly hit energy and food – in the US, inflation has struck a 40-year high. Governments feel drawn to new priorities as a result. Some would rather intervene in markets than allow investors to make their own decisions on what investments make best long-term sense.  

West Virginia’s Treasurer Riley Moore said in March that the state’s treasury would no longer use a BlackRock fund due to net zero strategies that would hurt its coal, oil and natural gas industries.  

But much of the backlash predates Russia’s invasion. Last November, a coalition of 15 US states representing more than US$600 billion in public assets, promised to take “collective action in response to the ongoing and growing economic boycott of traditional energy production industries by US financial institutions”.  

Shifting priorities  

Corporate greenwashing only added to the sense that, too often, talk about stakeholder capitalism was really a PR exercise designed to echo the mood of the times. It certainly looked that way at Davos.  

Long-term investors cannot afford such a short-sighted approach. For pension funds like ours – we have just turned five – this is doubly true, since fulfilling our fiduciary commitments is a matter of decades, not just years.  

As for individuals, so for companies: a single relationship does not entirely define them. Companies have to work with a whole range of stakeholders: clients, shareholders, employees, suppliers, communities, industry groups, regulators and government (in our case, the Department for Levelling Up). If one of these relationships fails, the company puts itself at risk.  

And then there are risks that reflect changing political and social priorities, such as in the case of stranded fossil fuel assets. So, certainly, stakeholder capitalism is a form of risk control. (Socially careless companies, take note.)  

But stakeholder capitalism isn’t only about risk aversion. It grew out of the belief that profitable companies could become a force for good across society and among multiple stakeholders – including the natural world – and that it might even be good for long-term profitability. 

Cultural motivation  

A good deal of this comes down to culture and motivation. In 2018, Harvard Business Review published the findings of research conducted by BetterUp, which showed that nine out of ten employees are willing to sacrifice lifetime earnings for greater meaning at work. 

A stakeholder capitalism approach won’t deliver a greater sense of meaning unless it includes employees as a priority stakeholder. For many, that starts with well-flagged policies to support staff across parental leave, flexible working, career progression, and mental health – issues that the pandemic has thrown into relief.  

For public pension funds unable to compete with the wider financial sector on salaries, the BetterUp findings offer a particularly valuable lesson. Employees need to feel motivated by their responsibility to multiple stakeholders – from future pensioners to the environment those pensioners will one day inhabit. 

The reality is that every company has a culture shaped by its values – however little it might think about them – and is never only defined by its commitment to shareholders. 

It is not necessary to delve into the culture wars to agree core values. Companies differ in their values and priorities, meaning jobseekers often have choice between competing sets of values. Companies need not try to tick every box out there.  

Part of the solution

For pension funds with the scale to access private markets, there is a further dimension. They can become part of the solution to major national problems, such as the long-term decline in UK infrastructure, public transport, and affordable housing – declines that are recognised on both sides of the culture wars.  

These are sectors where responsible private investors are sorely needed. The prospect of solving social problems can be a major motivation for individual employees – and so help to build a company’s culture.  

More broadly, asset owners and managers need to view social and environmental due diligence as a core part of their fiduciary duty to shareholders and clients, rather than as an ethical add-on. 

It will make their proposition all the more compelling to clients and shareholders. For asset owners, it will make it more compelling to the asset managers who want to manage their funds, to their employees, to industry groups, and to society. 

And I have never found the support of multiple stakeholders to be a hindrance to business. 

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