CEOs are frequently being asked to make a statement and to take a position regarding a myriad of political and social issues. As they increasingly embrace the needs and concerns of a multitude of stakeholders, they are asserting that their companies can “do well by doing good.” Some recent studies support this claim with evidence that employees, customers, suppliers and society at large are more willing to work for, buy from, do business with and offer support for socially responsible companies. Moreover, the investor community has been backing this view by building up their “sustainability” portfolios.
Taking ESG positions and making the necessary commitments are increasingly becoming an imperative for CEOs and their boards. To do so takes courage and conviction, but these virtues may not be enough; tolerance and forbearance may also be needed. CEOs are being pressured to take “woke” positions dictated by progressive activists, some of whom reject the fundamental tenets of free-market capitalism, including the profit motive. If CEOs resist, they will be shunned and shamed.
In their decades-long fight against racism, Black Americans have used the term “woke” to mean being alert to racial inequities and social injustices. Woke has evolved to mean awareness of systemic discrimination against all marginalized people, endemic in the organizational hierarchies of many powerful institutions such as the criminal justice system. Woke demands equal access to these institutions as well as equal outcomes from them. Today, the left uses the term to call out systemic racism, while the right uses it to mock “social justice warriors.”
Some believe the term’s original grounding in Black consciousness has become obscured by morphing into a broad connotation of cultural cognizance and social righteousness. For corporations, “woke capitalism” signals support for a broad array of progressive causes centered on social justice, climate change and wealth inequality. Some CEOs believe that statements expressing common concern and general solidarity with woke positions will deflect activists’ contempt and condemnation, but such news releases are often seen as insufficiently affirmational.
Corporate leaders need to identify ESG issues that they and their board care deeply about, that have direct and measurable impact on their stakeholders, and that they are prepared to follow up with long-term commitments, progress assessments and full disclosure. For example, JPMorgan Chase’s five-year, $30 billion “Our Path Forward” aims to help close the wealth gap for Black and Latinx people. A sustained commitment over many years, clear and measurable performance metrics, well-defined and explicitly assigned accountabilities and complete transparency enhance this program’s likelihood of not only achieving its social purpose, but also creating long-term shareholder value.
CEOs should only take on ESG initiatives directly relevant to their companies, namely those where they can make a meaningful and sustainable difference for the benefit of their stakeholders. Importantly, for each ESG initiative, the board should insist on thorough documentation, specific accountability, hard metrics, external benchmarking, ongoing monitoring, annual audits and full disclosure.
Corporate leaders need to stay focused on building their businesses, but good corporate citizenship in the form of ESG bona fides is no longer optional for them. This point was hammered home by the recent election of three directors nominated by an upstart activist hedge fund unhappy with ExxonMobil’s climate policies.
Investors including BlackRock and Vanguard are disappointed not only with the giant oil company’s doubling down on fossil fuels but also with its lackluster financial performance, weak engagement with the investor community and lack of directors with successful track records in energy. As a result, activist investment firm Engine No. 1 was able to win board seats despite owning a minuscule fraction of stock and facing vigorous opposition from Exxon management. These big money managers, allied with other funds such as TIAA-CREF, agree with Engine No.1’s contention that big oil will drop in value unless it aggressively transitions to renewable energy.
This watershed moment will further accelerate the movement toward ESG principles and initiatives, propelled by socially responsible investors taking into account a company’s overall impact beyond its short-term financial returns. With stock prices at all-time highs, investors can be supportive of ESG investments; however, when business is not as good, they may not be as interested nor as tolerant. In tough times, how long can a CEO forgo profits for social good? By imposing focus, ensuring discipline and assigning accountability for its ESG initiatives, the board can help the company go for woke, without going broke.