Here's how stakeholders can engage effectively to build a new corporate model
3/2/20 - Delilah Rothenberg, Founder and Executive Director, Predistribution Initiative
Stakeholder capitalism will require investors and civil society working together, writes the Predistribution Initiative's Delilah Rothenberg
This article is part of our Rethinking Corporate Governance blog series
Are investors well-positioned to represent human rights interests? This is core to a debate about new models of ‘stakeholder capitalism,’ particularly given last year's Business Roundtable’s statement on corporate purpose.
As Paul Rissman points out in a prior blog in this series, “One quarter of US assets are now managed by shareholders who claim to be interested in returns driven by social and environmental considerations”, and they are pushing companies to act more responsibly.
In this regard, institutional investors may believe they are well-positioned to act as stewards of other stakeholders’ interests. Investors have made noteworthy progress on developing metrics, frameworks, and guidance to assess their investees’ activities through environmental, social, and governance (ESG) and impact investing lenses.
To some degree, this guidance has been developed with the input of a diverse array of stakeholder groups. However, in interactions with many labour and civil society organizations, I have been greeted with somewhat surprised and inquisitive looks when suggesting engagement with impact and ESG investors. Many haven’t heard about such investment practices before.
After some discussion and explanation, the people I’m speaking to often walk away with guarded and cautious optimism about investors’ interest in acting more responsibly. I walk away wondering whether our ESG and impact frameworks are adequately representing these stakeholders’ interests if they didn’t even know about them.
Sometimes other labour and civil society groups may be aware of the common investor ESG and impact frameworks but feel they are too investor-led, and that they do not adequately address their concerns.
As Bama Athreya notes in this blog series, investors may have “blind spots” when trying to act on behalf of other stakeholders, or even in identifying issues that are financially material. As such, what might we be missing if these stakeholders are not engaged?
After spending time with labour and civil society advocates, it is easy to identify a number of their concerns that are not captured by ESG and impact frameworks, such as whether the amount of debt used by private equity investors is appropriate or pushing risk down to workers.
And what tools might these stakeholders be missing out on if they don’t know about the support they could receive from this growing part of the investor market – or if they feel alienated?
Responsible investors and their stakeholders should join forces and learn more about one another to advance common interests. This is easier said than done given a significant trust gap between activists and investors.
While my activist friends have convinced me that an “inside-outside” strategy is constructive in advancing change, (with folks like me on the inside, and them on the outside), we also need more collaboration between activists and investors.
Examples of actions I’ve learned to take as someone from the investment community include:
1. Conduct stakeholder mapping and welcome more stakeholders into developing ESG and impact best practices, including field-building conferences and events.
2. Try to imagine being in the shoes of the stakeholders whose lived experience may be very different than yours to understand why they might feel so strongly about certain issues.
3. Be open with labour and civil society advocates about constraints you see in working with them to advance their goals. Helping them understand finance can support identifying common ground. In doing so, be mindful to explain certain concepts and jargon, and be humble and open to criticism as opposed to responding defensively.
4. Recognize that sometimes activists don’t make concessions because they feel it would impact them negatively in ways that are not directly related to the matter at hand; for example, creating a precedent that harms another strategy.
Examples of actions labour and civil society advocates may consider include:
1. Learn more about investing and what influences the behavior of investors in order to use more tools and fine-tune strategies.
2. Consider engaging investors with a level of empathy and faith that, most of the time, investors are not bad people, but rather are acting within a paradigm and system that taught them to do their jobs a certain way; they may simply be responding to incentives and constraints as they see them.
Given how alienated and compartmentalized society has become, it can be difficult for investors to comprehend the suffering other stakeholders may be experiencing as a result of their actions.
3. Recognize that sometimes investors are not attending to a stakeholder's demands because of a conflict with another stakeholder’s. An environmental activist might think a company should shut down an operation; a trade union might be concerned about jobs.
In general, it might be easier to find points of intersection and achieve consensus if each side of the discussion found a way to be more open and respectful about each other’s concerns and limitations.
These discussions can benefit from facilitators specializing in non-violent communication, conflict resolution, and consensus-building. Rights CoLab is one organization arranging such dialogue between investors and activists, and at the Predistribution Initiative we are doing the same, with an initial focus on private equity.
Ideally we will eventually have a new type of corporate governance that empowers communities, workers and other affected stakeholders as advocated for by Amelia Evans in this series. In pursuit of that goal, engagement and ‘co-creation’ by various stakeholders is an important step in the right direction.