PURPOSE, INC.

Participants:

Michael Young

Alison Taylor, Executive Director, Ethical Systems

Michael Young:

Welcome to the Purpose, Inc., the podcast where we discuss corporate purpose and stakeholder capitalism. I'm your host, Michael Young.

A few weeks ago, I saw a headline in Quartz at Work entitled “The Corporate Responsibility Façade is Finally Starting to Crumble”.

And that headline stopped me dead in my scroll. So, I hopped on Twitter and DM’d the author and I’m thrilled to welcome Alison Taylor who’s the author of that piece today to the podcast. Alison is the executive director of Ethical Systems, a research collaboration housed at NYU’s Stern School of Business where she serves as an adjunct professor.

Alison has a long track record and history in consulting for multi-nationals on strategy, sustainability, political and social risk, culture, corporate behavior, human rights, ethics, compliance, stakeholder engagement, ESG and anti-corruption. She has previously held leadership positions at BSR, the big sustainability consulting firm, in control risk. She’s worked at PWC, Transparency International, IHS Global Insights. Alison holds a bachelor of arts from Balliol College-Oxford, a master’s in international relations from the University of Chicago and a master’s in organizational psychology from Columbia University.

And on today’s podcast, Alison unpacks the main points of her argument in her article, specifically that any claim to be a responsible corporation has to be predicated on addressing the major abuses of corporate power including the pervasive non-accounting for negative externalities, creative tax avoidance, systemic racism, gender inequality, regulatory capture and so on. And while many companies are clinging to the façade that has been built around corporate values and purpose and transparency, many are still strenuously lobbying governments and regulators to avoid penalties, taxes and disclosures. But her point is that that whole architecture, that façade if you will is starting to crack and Alison says that we’ve arrived at an excellent moment to refocus sustainability in terms of addressing strategic environmental and social questions and not just spend another year gathering data and reporting. So, it’s a really, really great discussion and Alison speaks with incredible clarity and authority and insight on this topic and her critique is as vast and withering as it is precise.

I’m thrilled to welcome Alison to the podcast today.

So, without further ado, my conversation with Alison Taylor of Ethical Systems. Alison, thanks so much for coming on the podcast.

Alison Taylor:

Thanks so much for having me.

Michael Young:

So, the thing that got us connected or caught my eye about your work in particular was your article in Quartz from March entitled “The Corporate Responsibility Façade is Finally Starting to Crumble”. So, that’s a headline. Let’s get into that article and really your point of view on the disconnect between the rhetorical embrace of corporate responsibility and what corporations may actually be doing and financing.

Alison Taylor:

Yeah, absolutely. So, what I would say is that you can look at the corporate responsibility/purpose/ESG/sustainability movement over the past decade and it’s a good news story. In terms of an international consensus on what corporate responsibility looks like, we’re starting to see that emerge. We have the sustainable development goals, we have the Paris Agreement on climate change, we have massively increased investor interest in ESG issues and we’ve really seen the debate advance substantially. And so, now what I think we’re facing is a reckoning over how companies so far have tended to address corporate responsibility issues which usually is via a department that is called something like corporate citizenship and sustainability that undertakes a number of initiatives and reports on those initiatives. But what I don’t think today’s corporations have addressed yet is what we might call the whole organization approach to corporate responsibility. And so, as the field matures, as there starts to be more momentum around corporate responsibility, as there starts to be more of a desire for consistent and a consistent understanding, we and corporations in general are starting to have to tackle some of the more obvious disconnects in their corporate responsibility programs and they can longer treat as standalone programs. So, to take a very obvious and newsworthy example, we have seen a lot of corporations over the last week or so using their voices to support Black Lives Matters and it’s very interesting because there seems to be much less concern than you might expect over things like critiquing the police force which is not traditionally what we would expect corporations to do. So, we’ve seen this big rhetorical shift but now as these protests progress, we’re now seeing a lot of commentary and I think it’s well-taken both around these corporations’ own diversity and inclusion performance and then even more significantly I would argue where they are deploying political finance and trade association memberships and political spending in general that might be undertaking their rhetorical message.

Michael Young:

Right. And so, a couple of thoughts or further questions there, Alison. So, who is going to hold corporations to account on the rhetorical gap?

Alison Taylor:

I think a lot of stakeholder groups can hold them to account. I would point very directly to employees as being the most powerful stakeholder group in this particular scenario. And so, if we look at what’s been going on in terms of internal governance and culture around responsible business, we can illustrate I think the point that I just tried to raise. So, employees are more and more concerned about questions of purpose and corporate responsibility that is primarily but not exclusively a generational shift. So, this was pioneered by Millennials and is now being vastly accelerated by Gen Z by which I mean the people that started graduating in around 2018. And if we consider that Millennials, the eldest Millennials are now around 40, we are now in many companies particularly those with the younger workforces having a situation where a big and powerful cohort within the organization is very concerned about questions of environmental and social responsibility and is increasingly using their voice and leverage to make their opinions felt. During this same time period, we’ve seen an evolution of whistleblowing into employee activism.

So, now if you are an employee that wishes to challenge something that your employer is doing, you are far more likely than you were before to take your concerns onto social media or directly to the media. And again, we can see this playing out very dramatically in the last few weeks with employees at companies like Amazon and Facebook going to the media to express their concern about what their leadership is doing. And so, the point here I think is that internal employees by definition have access to a lot more information about strategy and decision making and client acceptance and that kind of thing and they are very often now using that information to get reputational leverage with the general public. So, one thing I'm very fond of saying is that companies today need to behave as if everything they say or do might become public knowledge. I think traditional legal protections like non-disclosure agreements and non-competes are not really sufficient to stem this tidal wave of employee voice that we're really seeing getting louder and louder.

Michael Young:

Yeah, interesting. And that alignment now or connection more increasingly between employees and activists.

Alison Taylor:

Exactly. And so, you can say why is this different? Have employees not always used their voice? And they have but they have traditionally used their voice to fight for more pay or better benefits or that kind of thing. That's in this conversation but I think even more we are seeing employees use their voice to say things like we don't think you should be working with the oil and gas industry or we don't think you should be working with ICE. And so, we're seeing this emergence of really a movement to democratize decision making in organization around corporate responsibility and a focus on who you are working with commercially and where you are spending your political dollars not so much on CSR programs or the traditional ways that companies have signaled that they are responsible actors.

Michael Young:

Right. And maybe just to skip then to investors and capital and another guest recently dropped the quote of passive investors are the new regulators or passive capital are the new regulators. How do you see the regulatory space in general and then the role of capital in particular in not necessarily regulating but holding management to account on these issues of sustainability which are increasingly viewed through a lens of materiality and risk?

Alison Taylor:

Yeah, two great questions. So, in terms of the regulatory space and I'm going to restrict my comments to the U.S. So, there is a global story here that we can follow up on as well if you're interested. I think there is a very direct connection between what I'm describing as this move to democratize organizational decision making and the political and regulatory dysfunction that you see today in the U.S. So, we, of course, are in an extremely polarized environment with a government that is either swinging wildly between policy positions or in paralysis. So, a lot of regular voters are very frustrated with this and then the political cycle and the ability to vote does not really seem to be addressing those frustrations. During this period as well and I mean primarily during the Trump presidency, you have seen companies increasingly willing to use their voice and take positions on a variety of hot button social and environmental issues, things like gun control and immigration, even women's reproductive rights where they would have previously stayed quiet and thought that was too toxic and too risky. So, we've seen the increase of corporate voice on policy matters in the U.S. context. We've also seen massively increased frustration with the political process. Both of these things are kicking back on corporate voluntary behavior. But I think over the past six months or even the past three months, our public health crisis has brought to the fore the fact that there is a limit to what the private sector can do without a welcoming policy environment and I think s has reopened this really significant discussion about what is the role of business and what is the role of governments and where does regulation fit in there. And so, I predict that the 2020s will see a lot more attention and a lot more focus on political capture and political spending by business and trying to reframe those relative responsibilities or at least that will happen if we're lucky.

Your second question was with regard to the role of capital. This has been a big story about the pandemic because ESG indexes and ESG investors are doing much better than the average market. There has been a fairly dramatic shift towards ESG investing from the mainstream investment community over the past two to three years. The organization I used to work for, BSR, has seen an enormous increase in its financial services work during that time period and I don't think there's any big mystery here. The reason this is happening is that there is now a lot of data correlating good ESG performance with good financial performance over the long run and we are starting to see the ESG field starting to mature and define itself. So, we might be able to end up with comparable and understandable metrics though I don't think we're quite there. So, I think investors are having an enormous impact. I think corporations are still struggling with investors’ demand for very, very detailed data that may not be relevant combined with the needs to be very nuanced and analytical about how you evaluate ESG company performance.

But one of the hopeful signs I think from the pandemic is the opportunity to combine risk assessment with an understanding of material sustainability issues so that companies get better at anticipating and measuring and responding to the kind of big systemic challenges that we all need to work on in the 2020s, pandemics being one of them, climate change and inequality being other very obvious examples of big picture challenges where companies cannot act on their own but if we don't solve them, we're in a very bad way indeed.

Michael Young:

Yeah, yeah. No, that's excellent and a great summary. And there's a part of me that really wants to be helpful in this space and then there's this other moment where I look at regulatory capture and just this week in the midst of the protests about the murder of George Floyd, you have Trump saying that they're basically going to put all environmental checks and balances on hold or toss it out because of an economic emergency. And getting to a question or a comment here that I'd like your response is it seems like regulatory capture and unpriced carbon and negative externalities are just highly accretive to shareholders.

Alison Taylor:

Exactly. And I think it goes back to your comment about passive investors as the new regulators. If you are a pension fund that is investing in a lot of companies across the board, then there's only a matter of time before things like stranded assets and the systemic impacts of climate change start to affect your portfolio as a whole. So, we're definitely starting to see that shift and we're starting to see more of a consensus emerge I think on what minimum good corporate responsibility performance looks like. And one of the other new things in 2020 is that now I think that includes a much sharper focus on labor rights and health benefits and that kind of thing which haven't been completely ignored until recently but I think for the investor community it really has been a very sharp focus on climate change until rather recently and now we're seeing a lot of attention towards the social factors of ESG performance which in turn may get us into a more realistic conversation about when and how the E and the S might contradict each other. Because I think that's something that the sustainability and corporate responsibility professionals like to avoid. We like to treat this as if it's all a win-win, you can make more money and do the right thing and have positive external impacts. But of course, if you close down a factory and cut thousands of jobs, you will also reduce your climate emissions. And so, I think we need to have a more robust and transparent conversation about when and how to manage trade-offs between stakeholder interests. Until that happens, I'm not sure that the corporate responsibility field will ever be fully credible with the mainstream.

Michael Young:

Yeah. And it's interesting, your comment about the move and it seemed like a couple years ago governance was it, right? And yes, there was this acknowledgement that climate mattered or E and now all of a sudden, the S has become very dominant through workforce. I do want to talk a little bit about the connection between social and governance and in particular through the lens of Black Lives Matter and diversity and inclusion and that's one of those areas where it feels like corporations have been saying a lot but not doing a lot. I saw one tweet this week which she said essentially thank you for all of the heartfelt comments about Black Lives Matter. Could I see a photograph of your board please? Right?

Alison Taylor:

Exactly, exactly.

Michael Young:

And so, and I think as a risk element this—and actually my first guest, my friend Anthony Goodman at Russell Reynolds, talks about cognitive diversity on the board. And how do you see social and governance changing especially post-George Floyd?

Alison Taylor:

Well, I do hope that this horrible series of events marks a sea change in how companies try to address the diversity and inclusion issues. So, let's start there. I mean I think there have been a lot of efforts by companies on diversity inclusion. There are a lot of programs in some states. You have gender quotas on the board and that kind of thing. We at Ethical Systems would tend to argue that a lot of what has happened in this sphere is based more on the impetus to deflect reputational risk rather than actually tackle the issues. And secondarily, a lot of the dominant approaches to diversity and inclusion at the moment actually aren't proven to work. So, I think one of the issues here which actually translates across a lot of domains is that there is a tendency on a number of issues including diversity and inclusion for companies to benchmark in terms of what their peers are doing via consulting solution, roll that out, say they're doing something and very often there just isn't the scientific behavioral data to say that approach works. So, we would tend to say that we need a lot of new thinking and experimentation around diversity and inclusion. Training obviously won't fix the issues on their own. Managing the pipeline won't fix the issues on their own. Fixing the education system won't fix the issues on their own. Having senior mentors won't. So, this is another good example of a systemic challenge but I think one of the problems at the moment is that companies are trying things over and over again that, in fact, there's very little evidence that they will improve things and indeed, things aren't improving very much.

You also raise this interesting question about governance and risk management. Michele Wucker who wrote The Grey Rhino was on a podcast I run a few weeks ago and was really interesting on this and the lack of boardroom and C-suite diversity really lessening the ability of companies to anticipate and measure and manage risk. So, risk is a function that is very susceptible to group think. There is an organizational bias to have a chart of risks with a risk owner and show risk mitigation efforts and show that the risk level has gone down and that aligns with corporate mainstream reporting. And so, again, it's become more performative and about making it look as if you're on top of the situation rather than sticking your neck out and saying well, we really don't know what to do about the enormous and wide-ranging systemic impacts of climate change. This is what we're going to try to do. Here are the initiatives we have. That kind of language and thinking doesn't fit in today's dominant risk management approach. But in the in the investment field by the TCFD and other initiatives, there is now a big push to getting companies to think more about resilience and scenario planning and managing climate risks over the long term.

Michael Young:

Yeah. And we've just in the last three months again have been so instructive in the stark relief that these issues are now being drawn in whether it's work or safety or pay or diversity. And I think what you said at the top is that perhaps the thing that makes me hopeful is the generational intergenerational change. It does make me helpful although my son who is 24 and lives in Brooklyn said something to me yesterday which I've been thinking a lot about which is yes, that is all true but we live in a world, in a post-truth world. And many of those same young people growing up have had objective reality demolished for them. Right?

Alison Taylor:

Yes.

Michael Young:

And so, while on one hand, I am hopeful and I look at people in the marching and I see what's happening as a sign of a shift. You see this challenge in the infodemic that we have and how staunchly people can hold on to erroneous beliefs. Do you counsel, do you guide, do you think about that in the information context? How do you think that will impact corporate behavior and also those inside corporations employees and board members, etc.” How do you think about the infodemic that we face?

Alison Taylor:

Yeah, it's a great question. So, Jonathan Haidt who founded Ethical Systems had this metaphor of the Tower of Babel. So, he says that since 2011, we have not had the same idea of objective reality and there's no real sign that we will have it. So, no question this is a huge issue, no question it has accelerated our current polarization crisis. There's no real sign that that is going to change. There is a very interesting live discussion at the moment going on about content moderation on social media platforms. This is probably the most interesting business ethics complex challenge that we're facing today given its knock-on effect on everything else as you've described it already. And so, ultimately, I think those discussions and how they play out will be extremely significant. Nobody seems to really trust Facebook to regulate itself. A government solution is not necessarily any better given the historic role of governments in controlling and directing free speech. At the same time, we've got some really interesting and worrying trends going on in the corporate surveillance sphere where human employees are increasingly having everything they say or do tracked and the degree to which they're concentrating and their temperatures in case they may have the coronavirus and so on. So, I'm very concerned we're going to come out of this pandemic and end up in a scenario where the lucky people among us could get to work remotely but the price of that is getting tracked by our employers in terms of everything we're doing. So, that's one area where control and management of sensitive information is going to afflict every company.

In terms of what you said about the post-truth environment, I think everybody needs to weigh in on this social media and content control conversation and then I think it is increasingly the role of corporations, not least in this pandemic, to provide valid and reliable information on healthcare and everything else. And so, there's not no such thing as truth anymore. There is a different scenario where we all have far more access to information about company supply chains and practices and spending than we ever had before. What we are lacking is the ability to filter and analyze that information in a consistent and reliable way. I wish I had an answer to this but there is most certainly a role for the private sector here. There is certainly a role for us all as citizens. There is a huge amount to be done in building the capacity and ability of the media to manage these challenges. And I mean honestly, I think it's terrifying and I'm not quite sure how it will all play out over the long term.

Michael Young:

Yeah, I agree. And I guess maybe to tie up a couple of things here, we have Facebook with a share structure and a governance structure which allows the boy king, Mr. Zuckerberg, to do whatever he wants and to see him as an avatar of this very robotic disassociation of concern for truthful information as really a proxy for revenue generation. And I'll pause in a moment but there's no real government oversight there and there's no ability for the government to actually transform what Facebook does. And in fact, there may be an interest in not having Facebook change from the current administration’s standpoint.

Alison Taylor:

Yeah. I mean personally I don't want Facebook governing itself or making commercial decisions about free speech and facts.

Michael Young:

Yes.

Alison Taylor:

I absolutely don't want the government controlling that either.

Michael Young:

Yes.

Alison Taylor:

So, David Kaye who wrote an amazing book called Speech Police is really, really convincing on this if anybody has questions about this. There's also a lot of discussion about the Facebook Oversight Board right now. But this is in theory exactly the kind of situation where we need to think about governance and governance in the public interest and governance involving a lot of stakeholders and representing the voices of the vulnerable and using human rights frameworks to tackle these questions. One of the big challenges is that if you are a company like Facebook, you have billions of stakeholders. So, even with the best will in the world—and I'm not saying that they have the best will in the world, far from it—this would be a really tricky nut to crack. I've done some work with them on this. One of their challenges is that they have to have consistent global policies whereas clearly, you have a very different attitude to nudity if you're in Sweden versus the UAE. So, they have these extremely difficult challenges and then on top of that, they are trying to protect their business and to make very difficult trade-offs about the impact of various sorts of policies and I also don't think they want to take on the content moderation challenge themselves. So, they're also trying to find ways where they don't have to take on that management burden and again, if they did, we're going to end up with a lot of algorithms controlling our speech which is not necessarily in our interest either. So, there are no easy answers here. We're starting to see a productive conversation emerge but there's a very, very long way to go.

Michael Young:

Absolutely, absolutely. Alison, I feel like we could literally talk the rest of the afternoon but we are going to have to leave it here for today. I'm incredibly grateful for you coming on the podcast and I want to continue this conversation with you. It's been very illuminating. Thank you.

Alison Taylor:

Thank you so much for having me. It was an absolute pleasure

Michael Young:

The Purpose, Inc. Podcast is a production of Actual Agency, helping innovators communicate in a changing world. More at www.Actual.Agency.

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