Coronavirus Day Twelve 😷

Will Coronavirus further the progressive movement of corporate social responsibility? 

President Trump has been on television the past few evenings, during the Coronavirus Task Force daily briefings discussing the cooperation of large American manufacturing firms stepping up to assist the US government in securing enough personal protective equipment and ventilators to allow the medical professionals to continue to effectively fight Covid-19.  During Vice President Pence’s remarks he stated while the President instituted the Defense Production Act (1950), they have not had to use these powers as firms have been voluntarily stepping up to assist in the β€œwar” of Covid-19. If true, this is a growing sentiment throughout the country that there needs to be a shift in how business leaders view their primary responsibility of serving their shareholders. 

While there is certainly economic and revenue incentives for firms like GM, Ford, 3M, and Hanes to retool factories otherwise shuttered due to the pandemic to assist in ending this outbreak as quickly as possible. There does also appear to be a changing perspective for how large corporations and their stakeholders (stakeholders, not shareholders: People impacted, not necessarily profiting from) want to see firms operate in the future. People want a firm with a stated position that not only considers profit, but communities, our country, and individuals.  

This concept has been discussed in college courses and classrooms for decades already.  Business ethics, organizational culture, and fiduciary duties have been evolving in these environments for many years. The idea that corporations and firms have responsibilities outside of simply turning a profit for shareholders is almost ingrained in their entities by definition. Corporations are their own entities and with that have an indefinite life span.  This life span only rightly assumes that they will develop their own opinions, morals and ethical values. This same type of behavior is also being demonstrated by individual investors. Many people no longer invest simply with profits in mind, but to find firms that match their value system and overall personal mission statements. 

The Washington Times recently published an article on August 19, 2019 titled, β€œGroup of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations” by Jena McGregor. The primary idea of this piece is the concept that many corporate CEOs are reckoning with the old adage that the goal of a corporate manager is to maximize profit. As stated by Tricia Griffith President and CEO of Progressive Corp, 

β€œCEOs work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value.”

This quotation is profound based on the fact that the statement itself implies that CEOs realize focusing solely on profitability, especially short term profits, may indeed be short-sighted.  Just as employers invest in people, through training, work-life balance initiatives, vacations, insurance, etc. Corporations are likely to find a tremendous amount of value in building reputations and brand images that exude trust, confidence, and respect.  The consumer is much more likely to pick a brand that he or she feels truly values them over simply making a buck or focusing on meeting their earnings per share (EPS) estimate over working with their customers.

As firms across the country begin to participate in pandemic response, whether it be organizing supply drives, assisting those who are quarantined, manufacturing products or stepping in via other capacities such as payment deferment or  loan restructuring, these corporations are going to slowly and naturally begin to see a shift in their culture. If those CEOs who signed the declaration mentioned above actually set the culture of community focused business and combine that with the sense of patriotism and involvement the employees on the front lines will experience as their work creates a direct impact on their friends, families, and communities, we could see the rise of a new corporate management philosophy begin to move through our country.

As corporate governance begins to shift from a shareholder-centric model to a stakeholder-centric model, it may be possible to see the return of a robust American middle class. One where wages begin to rise in accordance with the bull market of the last ten years. If large corporations begin to release their excessive cash reserves, CEOs re-evaluate their own compensation, and truly embrace a more holistic approach to management.  Our society may realize a higher paid front line and well compensated middle management is actually better for economic outlook and GDP growth than any previously considered quarterly metric. In the long run of course.   

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