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EP9: Connecting Corporate Social Behavior and Business Performance with Alison Omens of JUST Capital

Transcript

Participants:

Michael Young, Host

Alison Omens, Chief Strategy Officer, JUST Capital

JUST Capital Report on Companies That Prioritize Workers During COVID-19 Perform Better

https://justcapital.com/news/just-chart-of-the-week-the-companies-that-prioritize-workers-have-been-significantly-outperforming-their-peers-during-the-coronavirus-crisis/

Michael Young:

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

There’s long been a belief that responsible corporate social behavior was good for business. The whole premise of the S in ESG is to measure corporate social action and impact through the lens of risk to guide investor allocation of capital towards companies with more sustainable business practices. But with the advent of COVID-19, that linkage between corporate social behavior and business performance and market returns has never been more clearly and starkly defined and visible. And my guest today is uniquely qualified to talk about this topic. Alison Omens is the Chief Strategy Officer at JUST Capital and JUST Capital’s mission is to build an economy that works for all Americans by helping companies improve how they serve all stakeholders—workers, customers, communities, environment and shareholders. JUST Capital is a data-driven research organization that correlates American consumer public opinion about companies and ranks them with tools and indexes that help measure and improve corporate performance in the stakeholder economy. Alison is responsible for overseeing JUST Capital’s programs, revenue, partnerships and strategic engagement with companies, investors, foundations and not-for-profits. Previously, she worked as an advisor to the U.S. Secretary of Labor, Tom Perez where she managed the inclusive capitalism strategy for the Secretary with the White House. She was previously the media director for the AFL CIO. Alison received her Master’s in public policy from the Harvard Kennedy School and a bachelor’s from Scripps College.

Today Alison and I talk about the origins of JUST Capital and their intersection between business finance and civil society and consumers. We talk about how JUST Capital connects social behavior and action to real-world performance and in particular how investors and consumers view companies. And then we talk a lot about the huge impact of COVID on the view of consumers and investors and how they’re looking at corporate behavior in the age of COVID. I’m very grateful to Alison for coming on the podcast and without further ado, my conversation with Alison Omens of JUST Capital. Alison. Thanks so much for coming on the podcast.

Alison Omens:

Thanks for having me, Michael.

Michael Young:

So, JUST Capital got its start after the last recession and a breakdown in trust between business and society at that point. In your view, how have the norms of acceptable corporate conduct changed since then and how are you seeing it evolve?

Alison Omens:

Yeah. So, it’s a great question and I feel like it’s the question of the day. JUST Capital was formed about six years ago. We were founded in the post-Great Recession, as you said, post-Tea Party, Occupy World recognizing that popularism was on the rise and that Americans—and across the world but we’re focused domestically—felt really disconnected and trust was breaking down between everyday people and corporate America. And we were founded to bridge that gap and to try and realign the actions of the companies with those of the values of the American people. So, over the last six years, we’ve done extensive polling on what people care about and consistently what people have said is most important is core operational issues for companies starting with how you treat your workers followed by how you treat your customers, what kinds of products are you creating.

And that trust that has been broken down, it’s really interesting to see how people feel about corporate America since we’ve started polling and it’s been sort of up and down. Two years ago, trust was going up. Last year, it went down a bit. And then we’re polling right now related to COVID and it’s about split 50/50 of people who think that companies could be doing more and then those that feel like companies are part of the solution. But obviously, the bigger question is where do we go from here and how do we take advantage or recognize this moment for what it is which is a restart of our economy. We’ve stopped it and we’re going to be starting it again at some point, returning to some version of normal. And companies and we all have an opportunity to say what was working and what wasn’t and it’s clear that if we look at how the American people feel about this, these areas, there certainly is leadership among companies on issues like paying people well and commitment to diversity and inclusion. But there’s a lot further to go. And so, we at JUST Capital see this as a real opportunity to see that restart as a reset and to be asking these questions on the front end among business leaders, are your operational choices in line with what people want them to be. And if not, why not? And this is the time to sort of think about where we go.

Michael Young:

That’s a really important point about the alignment between business models and operations and that outward-facing social impact. Could you for the benefit of our listeners just talk a bit more about how you connect consumer sentiment and investor focus at JUST Capital?

Alison Omens:

Yeah, sure. So, as you know, our co-founder is Paul Tudor Jones who’s sort of a legendary investor. And so, a lot of our DNA has that investment background. As I said, we start with polling the American people on what we think are important priorities for companies and those issues are, as I said, really core. It’s a stakeholder model—how you treat your workers, customers, environment, suppliers and shareholders—but it’s also in communities. But interestingly, it’s really aligned with the sort of evolution of ESG and where that world is from an investment prospective. So, obviously, we’ve seen a real evolution from the divestment days to thinking about integrating ESG into portfolios—that’s environmental, social and governance issues—and part of the shift we’ve seen the last couple of years and I think increasingly is that ESG issues are not just sort of externalities—how do you manage your environmental performance, diversity and inclusion, your relationship with local governments around the world—but what it really is going towards and so to answer your question is more integrating non-financial metrics into assessing corporate performance. And that’s what we at JUST Capital see our role as in gathering data and doing that assessment and it turns out the values of the American people also make good business and investment sense. Goldman Sachs has licensed our data to launch their first social impact fund which was launched a little under two years ago. That continues to outperform the benchmark. We’ve also done assessment on companies that we’ve assessed as doing particularly well for their workers. Those companies are outperforming their peers in this period of high volatility right now. So, the sort of interesting and really important point here is that the data is bearing us out, that companies that are making these types of choices everyday operationally are also outperforming their peers and investors are also taking note. So, it’s a really important sort of virtuous cycle that we’re increasingly seeing and certainly, there are some counterfactuals to that point. But generally, we are finding that that kind of performance on the social impact or sustainability or purpose lens is tied to other types of financial performance.

Michael Young:

Yeah. That is an incredible data set to be looking at and I think I’ve heard you really focus on the S in ESG, right?

Alison Omens:

Yeah, exactly.

Michael Young:

Yeah, yeah. And maybe just talk a little bit about the work you do with corporate partners at JUST Capital and how do you help them think about the S?

Alison Omens:

Sure. So, we are assessing companies in Russell 1000 so the thousand largest publicly traded companies headquartered in the U.S. Obviously, that’s a really diverse set of companies across industries. We have relationships with about 415 of those 1,000. So, we have different levels of relationships. Obviously, we have about a little over 200 reviewing the data. What we’re doing is we are gathering data from publicly available and crowdsourced sources and assessing companies on those things. So, we’re looking at 10Ks and numerous reports and CSR reports and doing our own modeling to try and figure out how companies within retail are paying their workers, what kinds of benefits are available. As you said, our focus is on the S but we are looking at environmental impact questions, carbon. We look at shareholder issues as well, long-term returns as well as board diversity and independence. So, we are really doing a holistic assessment of companies but we’re taking that data and we’re engaging companies in them.

So, as I said, we have about 200 companies that are engaging with us on their data and research, sharing their best practices, talking to us about their performance. And then we have companies that we’re talking really in-depth with about perhaps they’re outperforming their peers and we want to lift up those examples and show best practices on a specific topic and right case studies and develop that type of material. We’re really in celebrating leadership at JUST Capital. Or we’re talking to them behind the scenes. We’ve assessed them as underperforming on an issue and showing them what the data from the other companies says and where we think they can improve based on that. And we’re starting to see real success. What we’re measuring and how we’re measuring I think has really important appeal to companies because of this fundamental idea of the social license to operate and that what we’re really doing is trying to assess companies on how they’re performing on the values of their customers and workers and community members and so, that’s really resonating. And so, what we’re doing is, as I said, either engaging behind the scenes or through our media partnerships. We have a partnership with Forbes, a partnership with CNBC through a JUST quarterly call where CEOs talk about their performance on stakeholder issues on CNBC. So, there are different ways that we are working with companies but the most important thing I think is to say that there is interest. Unsurprisingly, probably for you from your perspective or where you’re sitting is that this is a topic and increasingly important to business leaders. And so, a lot of folks are just sort of looking for the playbook or looking for the benchmark or how to wrap their head around this. And so, that’s what we see our role as is sort of being guides through that and have a framework that we see as being really fundamental to how businesses sort of move through the world.

Michael Young:

Yeah. And I think the connection that you make between data and real-world performance is a significant move because there are data sets out there that demonstrate ESG in one lens but don’t always take the real-world business performance and consumer sentiment into account.

Alison Omens:

Exactly, exactly. And I think a lot of what we’re seeing, those of us who sort of live in this ESG world, there’s a proliferation of ways to measure companies in the last couple of years and to a degree, that’s great. That means that more people are paying attention or thinking about which metrics actually connect to performance and are most meaningful and that’s a debate that I expect to continue to have or that we will all sort of collectively have. But the most important thing—and so, we hear a lot from companies in saying we don’t which one to pay attention to, etc. etc. But it really will be interesting and important over the next couple of years to be deciding or sort of aware of which data sets or points are connecting to meaning and are connecting to actually understanding what companies are doing and the choices that they’re making. So, that’s part of what we see our role as is as again being that guide and also trying to derive from our perspective which ones have meaning. And so, that’s a lot of what we spend our time thinking through and talking to companies and investors and advocates and others, academics, who are also trying to solve this puzzle.

Michael Young:

And I want to come back to what we started talking about at the top especially around the pandemic. I think everywhere we've seen it's one thing to talk about stakeholder capitalism in good times and another thing over the last couple of months as the pandemic has unfolded. And I wanted to just touch on some of the research that you put out recently. It was just last week of how companies are actually being viewed during the pandemic. Could you kind of walk us through that research and those findings?

Alison Omens:

Yeah, sure. So, about five weeks ago at the beginning of the pandemic, we really did a hard pivot at JUST Capital where we recognized that if we're assessing companies on performance relative to how they're treating their stakeholders, we had to look at every single thing we were measuring them on and think is this still true right now and will this still be true after the immediate emergency but recognizing how hard hit the economy was. So, we started doing a couple of things. We started polling the American people which we sort of do regularly but wanted to make sure we got back out into the field as soon as possible to understand how people were thinking about this and that work is ongoing. And as we're seeing play out in all sorts of ways, people's views are shifting on how companies are doing, what's most important for companies to be doing. But at the top of the list are doing things like providing PPE and safe work environments for employees, protecting workers that are on the job, if there are layoffs, finding sort of just ways including supports for layoffs but also making other choices around furloughs or workshare programs which we are starting to see some companies make alternative choices to layoffs. So, we've been polling the American public. That's one.

The second is we put out a set of principles based on the polling of for leadership principles what companies should be thinking about recognizing that every company's in a really different financial and operational environment. But broadly putting workers first, engaging with government, thinking about safety, paid sick leave just as a guide for business leaders as they are making these choices. That was the second thing was the principles. And then the third was that we immediately started gathering data and information on what companies are doing. So, we've started with the top 100 largest employers in the U.S. We will be expanding that universe in the coming weeks and months but we're tracking the Walmarts, Amazons, Home Depots of the world on what they're doing across issues. So, have they made special customer accommodations, if they’re manufacturers, have they shifted sort of the priorities around shipment from essential services to non-essential services, have they implemented hazard pay if they're still open, are they taking government money, are they laying people off? So, really a holistic assessment of companies and it's really been interesting both initially to begin to track that and then more recently to also see the shifts that that are occurring and it's slowing down a little bit. But just seeing, for example, the number of executives that are taking salary cuts has quadrupled in the last couple of weeks. And so, we're seeing that trends begin to emerge. More companies are instituting hazard pay. More companies have extended paid sick leave. So, those trends I think are really important for now as we're tracking how companies are doing but obviously, it's going to be really important over the next couple of weeks and months to where we started which is what's the long-term restart look like and what choices will all business leaders be making that either creates a more just economy or a less just economy. And we see our role is as assessing that and tracking it and trying to do our best to understand it.

Michael Young:

The data show outperformance for those who are providing more support for workers, correct?

Alison Omens:

Yeah, exactly. So, we've also been starting to compare at the market level how companies who in the past according to our assessment have supported their workers as well as just the holistic assessment that we've done compared to right now and those companies, yes, continue to outperform.

Michael Young:

Any predictions/prognostications on whether the pandemic will really force change within companies? How do you think about that?

Alison Omens:

We at JUST Capital are an optimistic bunch. So, I like to be optimistic. We were founded in a world that was dealing with the backlash and what happened after the Great Recession and I think we do so much polling and talking to people across the country that there's a real risk associated with going back to normal except even worse. And simultaneously, over the last couple of years, we've really heard an increase from CEOs talking about wanting to do something different. The business roundtable which represents the largest companies in America signed a new statement of purpose last August that committed to serving all of their stakeholders. At Davos this year, the theme was stakeholder capitalism. So, I think there's a reason to believe that the CEOs who have been talking about this now see this opportunity as that reset that I was talking about. And simultaneously, there's a real risk of going the opposite direction of we're already seeing an increase in employee activism and consumer activism over the last couple of weeks and have really seen a shift in even how we talk about workers, that essential workers are not the sort of traditional workforce that we've celebrated but grocery workers and pharmacy workers and bus drivers. And so, that sort of social norm shift I think also contributes to the potential of creating something better, of sort of saying this is going to be the nail in the coffin of shareholder primacy and putting shareholders first and really creating something that is more sustainable.

Michael Young:

And I'm going to link the research that you've put out in the last couple of weeks in the show notes. And also, I would commend to anyone your weekly COVID update I think has been excellent and I've kept an eye on that. So, I'll also link out to that. Maybe just the last point about this that we're not going to go backward from here and I think one of the things that I've seen connected is the pandemic and climate and how these two things are correlated in the sense that they're planetary in scale. Do you think we'll see a similar move up the importance hierarchy for climate? It's already been top of mind for a long time. But do you think this will have an impact there as well?

Alison Omens:

I think it certainly may. I have been thinking about the choice we have in front of us and the idea of stakeholder capitalism and sort of long-termism is there are two ways to think about where we go. One is the zero-sum game and that is that you trade off climate for inequality or you trade off making money for serving your suppliers or creating a good deal for your suppliers, that one choice hurts the other choice. And the other is that in the long term, businesses are making choices that are aligned with the various interests. And certainly, this is a simplistic, black-and-white, not-totally-true view of the world but there's research that says that companies that treat their workers well and invest in them see long-term performance and that's regardless of if these are sort of low-wage frontline workers. And similarly, if a company is thinking about the long term when it comes to climate and it comes to these related structural global issues that they're evaluating and making decisions about risk and products and consumers differently because the science tells us where the globe is going, where the planet is going. And so, I think that we can—well, what we are trying to do at JUST Capital is align incentives, align expectations, align performance so that we do celebrate and create an economy that rewards that type of long term leadership on issues like climate. So, I think the issues are certainly connected and I think that again that reset has to be connected to a long-term realignment.

Michael Young:

Alison, we're going to have to leave it there. It has been a fantastic conversation and I want to have you back on so we can look back on where we are right now in sort of late April/early May in the pandemic and pick this conversation up again. So, thank you so much for coming on the podcast.

Alison Omens:

Thank you again, Michael. I look forward to checking in again.

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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