IN August last year, the US-based Business Roundtable created waves when it announced its “Statement on the Purpose of a Corporation” that formally pushed for stakeholder capitalism. Led by Jamie Dimon of JPMorgan Chase, 187 chief executive officers (CEOs) of the top American companies turned away from its decades-long belief that the main goal of a business corporation is to service its shareholders. In its statement, the Roundtable declared that “each of our stakeholders is essential [and] we commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
More than a year since this declaration was made, the global pandemic has caused massive job losses in the US amid the highest number of coronavirus disease 2019 (Covid-19) cases and deaths in the world. The Washington Post reported that “the economic collapse sparked by the pandemic is triggering the most unequal recession in modern US history, delivering a mild setback for those at or near the top and a Depression-like blow for those at the bottom.” Ironically, the state of stakeholder capitalism in the US is much worse today than it was before the Roundtable released its statement. Tremendous profits have been made in the stock market while millions have suffered the worst economic setback since the Global Financial Crisis.
This led professor Lucian Bebchuk of the Harvard Law School to remark that “stakeholder capitalism seems mostly for show.” He contacted the companies whose CEOs signed the statement and asked who was the highest-level decision maker to approve the decision. Only one of the 48 companies who responded had board approval to sign the statement. Bebchuk further observed that the corporate governance guidelines of JPMorgan Chase stated that “the board as a whole is responsible for the oversight of management on behalf of the firm’s shareholders.”
In the Philippines, the Securities and Exchange Commission (SEC) has pushed for stakeholder capitalism in the Code of Corporate Governance that took effect in 2017. It followed up by mandating sustainability reports from publicly-listed corporations (PLCs) that fell due last month. Sustainability reports are actually stakeholder benefit reports that are expected to disclose to the public how the PLCs positively contributed to building a better and more sustainable society in 2019. Under the SEC’s rules, PLCs may adopt any of the recognized reporting standards and metrics they deem fit such as GRI (Global Reporting Initiative), IIRC (International Integrated Reporting Council) or the SASB (Sustainability Accounting Standards Board). While a welcome flexibility for the reporting companies, such diverse reports can be seen by the public as confusing and lacking seriousness. Worse, it could lead to an uneven playing field as companies cherry-pick which sustainability measure they report on.
To promote consistent and comparable reporting on stakeholder capitalism in line with the United Nations Sustainable Development Goals (SDGs), the World Economic Forum (WEF) and the International Business Council (IBC) released their white paper on “Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation” last September. The WEF looked at the leading metrics and, over one year, consulted with over 120 global CEOs, regulators and standard setters. The result is a consolidated set of 21 common core metrics which stakeholder-oriented companies can adopt. The metrics are grouped under governance, planet, people and prosperity and cover the whole gamut of the Sustainable Development Goals.
The WEF explains that the recommended metrics are intended to “help companies align their annual financial reports and annual sustainability reports in order to provide investors and other stakeholders with clear and coherent performance metrics, along with analysis of risks and future goals.”
The Big Four accounting firms ― namely, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers ― helped identify the WEF’s common metrics for stakeholder capitalism. This is evidence that the metrics are doable and practical ― not merely theoretical ideals.
I believe that these metrics will help Philippine companies to seriously implement stakeholder capitalism and to report progress on their efforts. About 130 publicly-listed companies were already submitting sustainability reports in 2018, prior to the SEC’s mandate. However, without a common set of metrics it will be nearly impossible moving forward to assess concrete progress in stakeholder capitalism in the country.
Bill Thomas of KPMG explained the benefits to companies of adopting a common set of stakeholder metrics. It would allow companies to report in a consistent way and be confident that there is a level playing field. It would help companies attract and retain the best and the brightest people. Such individuals tend to want to work for a company that has a purpose beyond simply profit ― that knows that business has to play role to build a better and more sustainable society. Punit Renjen of Deloitte argued that “this is not only the right thing to do. It is the right business thing to do.”
As the Covid-19 pandemic ravages our economy and wreaks misery on the most vulnerable, it is time for businesses to step up and take stakeholder capitalism seriously. The time for PR and motherhood statements is over. Adopting the WEF’s common metrics is a step towards concrete action.
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