2022 was another year of unprecedented societal challenges, requiring constant adaptation to issues caused by the pandemic, rising inflation, labor shortages, the war in Ukraine, supply chain limitations, and more. While many employees, investors, consumers, and suppliers are re-evaluating what they expect from companies, one thing has stayed consistent: “my employer” remains the most trusted institution. Living up to that expectation, leading companies are reinvigorating and innovating business models to align with their purpose. Stakeholder needs are part of their core business strategy, regardless of industry or size. These companies are charting their unique path and identifying their competitive differentiators, using feedback and insights from relevant stakeholders. Leaders have gone from “command” and “control” to “trust” and “inspire”. CECP foresees a set of themes that will be at the top of the KPI scorecard for leading companies:
Despite ESG Backlash, Sustainable Business is Good Business
It’s been a year of reckoning for ESG analysis and investment, and sustainable business; criticism varies from ESG imposing “woke” values on capitalism to greenwashing by fund managers accused of misleading customers by overstating the sustainability of products and services. But despite the debate, what ESG needs most is a more mainstream dialogue about its definition and benefits. Implementation of strong ESG practices is a competitive business advantage, allowing companies to collectively work to secure a better future with breathable air, clean water, and safe jobs. It’s just good business.
Institutional investors have expressed a strong belief that certain ESG factors can have material impacts on a company’s long-term financial health, and there are no signs that investors are backing away from that stance. In fact, Harvard Law School found in its annual proxy season review, “anti-ESG” shareholder proposals fared poorly in 2022, averaging less than 3% support, with many failing to meet the 5% threshold for resubmission.
But as more companies report on impact—90% of S&P 500 companies now publish ESG reports—we’ve seen a massive convergence, making it hard to distinguish between each individual report. As companies check off the reporting boxes, what’s missing is a company’s strategic focus on a few key issues, the proposed solutions, and the overall impact on society.
>>What companies can share, front and center, is how they are incentivized, their ethics, key risks, political influence, impact, missed goals, and employee voice—namely, how is this company competitively different than any other?
>>One way leading companies are sharing this information is through CECP’s Long-Term Plan framework, which reports on nine investor-guided themes, such as risk, human capital, and corporate purpose. Join CECP in New York City on June 14th-15th for its 11th CEO Investor Forum, where companies will focus on their climate planning.
The War for Talent is Over and Talent Won
Sustainable business would not exist without employees. Between the return to the office, hybrid work, the unique needs of frontline workers, business transformation, cybersecurity, AI, automation, and more, it is easy to understand why senior leaders are laser-focused on the future of work. When CEOs were polled at this year’s CECP Board of Boards event, preparing for the future of work was seen as both their biggest concern and biggest business challenge. Yet, a recent Accenture study found only 26% of CEOs have a future-ready strategy that is holistically focused on changing how, why, and where we work.
>>Close collaborations will be vital in the new year to bring promising workforce practices to scale—such as Southern Communities Initiative, Tent Partnership for Refugees, the Business Roundtable’s cybersecurity initiative, Tear the Paper Ceiling, Unlock Potential, and many more.
>>Leading companies are reinvigorating their employee value propositions by offering more flexibility, employee assistance programs, or employee wellbeing initiatives. But the future of work involves more than offerings; it’s also about creating a culture of purpose and creating impact. The Frontline Worker Well-Being in a Time of Crisis report by CECP with support from the Ford Foundation found wage is not the only critical factor for workers; a sense of purpose and dignity also topped the list.
Inclusion Metrics—It’s All About Engagement
Two years after a national reckoning with racial injustice, corporations began making equity commitments on an unprecedented scale. And McKinsey research shows that DEI is good for business. CECP’s Giving in Numbers™: 2022 Edition found the percentage of corporate social investments designated to Social Justice and Racial Equity increased by 90% between 2020 and 2021, demonstrating a reflection of both increased investment and grants impacting that area.
Mass layoffs, non-linear careers, and employees who are loyal to themselves over their company are becoming the new norm, and “quiet quitting” may be a result. Employees who are not engaged or who are actively disengaged in their work cost the world $7.8 trillion in lost productivity. That’s equal to 11% of global GDP. These factors may pinpoint a lack of focus on the least understood—but certainly equally as impactful—letter in DEI, the “I” that stands for inclusion. On a microscale, inclusion is a practice of encouraging belonging and representation in a safe work environment by, for example, including many different voices in meetings and when making major decisions. On a macroscale, it is about pay equity, pay ratios, board representation, and more.
>>To measure inclusion at the microscale, companies may want to define it, track employee sentiment around how companies are delivering on it, and prove they are listening through timely actions. This could mean posing frequent questions to assess workers’ perception of the company’s performance on the known characteristics of inclusive environments: fair treatment, integrating different opinions, inclusive decision making, psychological safety, trust through communication, a sense of belonging, and a commitment to diversity. This model can help business leaders gain the necessary information to access and leverage the deep value of inclusion.
On the macro level, progress has been made in key areas across six specific dimensions of racial equity: pay equity, racial/ethnic diversity data, education and training programs, response to mass incarceration, community investments, and anti-discrimination policies. The greatest increases in disclosure diversity data include:
- Workforce diversity increased by 6%, from 86% to 91%.
- Board diversity increased by 13%, from 84% to 95%.
- Racial/ethnic pay equity analysis increased by 33%, from 34% to 45%.
- Pay ratios by race/ethnicity increased by 71%, from 14% to 24%.
>>Companies have more work to do on diversity and inclusion metrics including identifying risk areas, prioritizing initiatives, setting targets, assigning accountability, and measuring impact. But there is also a great opportunity to keep people interested, informed, involved, and inspired along the way.
Community Investments Are Social Innovation Incubators
In the current economy, it is important that corporations continue to stay involved and invest in the communities where they operate. Companies play a backbone role in their communities, and CECP’s Corporate Foundations: Designing for Impact report underscores that corporate foundations are vital levers within society and companies, acting as a social innovation incubator. From employee connector to change agent to relationship builder to global ambassador, corporate foundations create transformational value. Key findings of the report demonstrate that corporate foundations:
- Provide significant community investments; 80% of the world’s largest companies participating in CECP’s annual research have at least one corporate foundation.
- Engage employees more than companies without foundations—resulting in 4.5% higher average volunteer participation rate and 0.5 more volunteer hours per employee.
- Offer recession-proof budgets for a company’s societal engagement at a time when communities need it the most.
Corporate foundations play a role in employee engagement, customer satisfaction and trust, supplier treatment and diversity, community engagement and support, as well as societal stances and influence.
>>Leading companies are investing 1% of pre-tax profits in the community through their foundations and their companies. What’s your company’s number?
Taking a Stand on Social Issues
CEOs can gain trust by speaking up and out on issues of social importance to employees, customers, and suppliers. This year’s Edelman Trust Barometer found nearly 60% of consumers are buying brands based on their values and beliefs, almost 6 in 10 employees choose a workplace based on shared values and expect their CEO to take a stand on societal issues, and 64% of investors are looking to back businesses aligned with their values. But getting it right is critical: there is little room for error in the court of public opinion.
In his 2022 letter to CEOs, Larry Fink of Blackrock strikes a similar tone, saying, “It’s never been more essential for CEOs to have a consistent voice, a clear purpose, a coherent strategy, and a long-term view. Your company’s purpose is its north star in this tumultuous environment.”
<<Understanding that companies cannot be all things to all people, leading CEOs determine which issues are most material to the company and act when the company is able to make a unique impact. CECP encourages companies to identify issues that matter most to them, speak out when appropriate, and take action to make a tangible impact. Building on experience with its 220+ leading companies, CECP has developed a framework through which CEOs and their teams can assess why, when, and how to take positions on social issues by answering five questions:
- Does the issue align with your company’s strategy?
- What’s your WHY behind your strategy?
- Will your stakeholders agree with you?
- Seize opportunities to show impact
- Don’t be afraid to take bold stands
CECP stands ready to assist. How can we help you and your company live your corporate purpose in 2023?