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The Chairman's Blog
Does Capitalism Need a Soul Transplant?
The Chairman's Blog

Does Capitalism Need a Soul Transplant?

"ESG" reporting standards have been traveling toward us for many years -- and they have now arrived.

Environmental, social and governance (ESG) refer to new reporting standards for a company's impact that goes beyond its shareholders.

Think of ESG as a Big Four audit of your company's overall impact on the world. Its impact on people as well as on the earth.

"How are they going to measure that?" We wondered the same thing.

ESG standards are being driven by new demands of investors who still want booming profits and returns -- but now want them exclusively from high-purpose companies that make the world a better place vs. a worse place.

If there are two companies with equal shareholder return, but one makes people and the planet sick and the other makes them better -- investors will pick the latter. The whole ESG movement is based on that investor demand -- "I don't want those companies in my portfolio."

Thousands of caring global thought leaders are driving ESG too -- but at the core is the conscious investor.

They want metrics -- like ESG -- that include evidence of a positive and beneficial impact on the environment. They want new standardized official statistics that include the company's impact on all stakeholders -- employees, customers, citizens and communities -- and on their overall wellbeing.

Nobel Prize-winning economist Milton Friedman famously believed the sole mission of a corporation is to maximize shareholder value. This was known as the Friedman Doctrine. With new Gallup data, I think we could prove the Friedman Doctrine isn't enough anymore -- simply because a new will of the world has emerged.

Friedman could not have foreseen the coming impact of climate change, let alone a new concern for human wellbeing.

This is a historic moment for capitalism.

If there are two companies with equal shareholder return, but one makes people and the planet sick and the other makes them better -- investors will pick the latter.

As of this writing, ESG isn't mandated by the government. It is a movement led by an alliance of important thought leaders and various institutions, highest-level academics and scientists, Chief Executives for Corporate Purpose, the World Economic Forum, Business Roundtable, and thousands of committed researchers.

The Big Four accounting firms will eventually play a key role, as they are creating new ESG standards for annual reports. Sometime soon when you are studying an annual report, there will be new pages with new points of measurement ranging from waste handling to measures of diversity and equity to employee and community wellbeing -- all created from infinite sets and combinations of mostly existing secondary data.

Regardless of their current state of ESG, a CEO's job is to get their organization headed in the right direction -- it doesn't have to turn around overnight. The shareholders and institutional investors will love the new overall corporate commitment to the continuous improvement of people and the planet.

Gallup is making a significant contribution to this movement. The world's workplace is what we know best. We have created what we believe are the best official statistics to start your journey. The success of your journey begins with your employees.

From Gallup's global workplace data pool of 100 million employees, across 140 countries -- the biggest workplace data pool in the world -- and through meta-analytics, Gallup scientists found a handful of metrics that benchmark a company's current state of ESG from the perspective of the employees.

The ESG journey's success requires an extraordinary employee commitment.

The commitment from the CEO's office matters most. Whether or not that higher purpose is part of the organization's soul originates there and in the boardroom. That 100% commitment cascades to the rest of the organization through communications and messaging but primarily through the managers.

We identified five items that map to environmental, social and governance reporting standards:

ENVIRONMENTAL

"My organization makes a positive impact on people and the planet." (1-5)

Humans and the earth overlap and are hard to pull apart because the two are so interconnected. So we combined them in this one item. Employees know better than anyone if their company makes the world a little better or a little worse.

SOCIAL

"At work, I am treated with respect." (1-5)

It gets very complicated to pull apart diversity, equity and inclusion. Gallup found the solution lies within treating each employee with 100% respect. Disrespect is toxic. Fully 90% of those who say they are not treated with respect report they have experienced some form of discrimination or harassment at work.

"My organization cares about my overall wellbeing." (1-5)

In many companies, only 30% or less of the workforce feels this way. This links to rising employee mental health problems, stress, anxiety and burnout.

"There is someone at work who encourages my development." (1-5)

The world's full-time workforce of 1.3 billion employees reports wanting development more than anything else from their jobs. Gallup finds humans really do want to learn and grow.

Only 40% of the global workforce experiences human development at work.

GOVERNANCE

"If I raised a concern about ethics and integrity, I am confident my employer would do what is right." (1-5)

The employees always know.

They know when there is widespread malfeasance and cheating of customers. They know when there is a culture of sexual harassment, discrimination and unfairness. They know when rules and laws are being broken in manufacturing.

Employees know what the board and investors don't.

Gallup's recommendations to clients and friends:

  1. Begin the journey now.
  2. Start with what you can measure.
  3. Keep it simple. Benchmark employees first.
  4. Build a higher purpose around people and the planet.

Gallup's contribution, in partnership with Chief Executives for a Corporate Purpose (CECP), is to offer these five highly researched ESG question items for everyone to use on any platform. We will maintain a global composite for benchmarking and offer ESG analytics and advice to interested Gallup clients and CECP members.

The sole purpose of this partnership between Gallup and CECP is to get you launched and headed in the right direction on your ESG journey -- now.

CECP is dedicated to helping companies transform their social strategy by providing customized connections and networking, counsel and support, benchmarking and trends, and awareness building and recognition. CECP is headquartered in New York City.

Gallup combines analytics and advice to help leaders and organizations make discoveries and create meaningful change. Gallup is headquartered in Washington, D.C.

Learn more about the Gallup Sustainability 5 (GS5) index.

Author(s)

Jim Clifton is Chairman and CEO at Gallup.


Gallup https://www.gallup.com/workplace/347156/capitalism-need-soul-transplant.aspx
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