Business has passed the Covid-19 competence test but bigger challenges lie ahead

Article by Edelman

Competence has been put to the test over the past 12 months. As the world has stared the COVID-19 pandemic in the face, people everywhere have been keeping tabs on who has been doing a good job - and holding true to their promises.

In that context, 2020 was a good year for business. As governments have floundered and flip-flopped over lockdowns and bailouts, business has been seen to be taking problems head on.

The pharmaceutical industry has discovered not just one vaccine but several; more than one third of the British population has had at least one dose already.

Pubs and restaurants have battled through cataclysmic conditions, scrambling to allow the nation to Eat Out to Help Out in a safe environment – and then mothballing operations again shortly afterwards. Online ordering has been set up and rolled out to create a whole new category of dining, in the shape of the “restaurant kit”.

Financial services firms moved to 100% remote working in a relative heartbeat, with the Covid pandemic defying all but the gloomiest of disaster scenario plans. Even the banks have looked like good guys, for now, getting bounceback loans and other aid packages pushed out to the businesses at a healthy clip.

Business has proven its competence. As a result, in spite of all the efforts of government, the general public is placing greater confidence in the business community as we emerge from the pandemic lockdowns.

The 2021 Edelman Trust Barometer showed that by February, 51% of Britons trusted business. Just 44% of our survey group trusted the UK government, by contrast.

There is something of a chicken and egg scenario here. After all, great swathes of the UK economy would no longer exist were it not for the furlough schemes, commercial rent holidays and other schemes that have kept things ticking over at huge expense to the public purse. And all this could yet change, not least because a great many corporate casualties are likely to be suffered as stimulus unwinds.

Nonetheless, in this uncertain world, the public thinks that it is business that will get us all out of the hole, rather than governments or NGOs. In particular, people are looking to the businesses closest to them as a pillar of support.

Across the globe, the most trusted institution, consistently, is “my employer” – 76% of our survey base globally (some 33,000 people) say they trust their employer, even though their trust for business as a whole is lower. And “my employer” is also expected to be a news source. Concerns about fake news and bias in the media are now so prevalent, globally, that “my employer” is also more trusted as a source of information than government spokespeople.

This creates a weight of expectation, however. Our surveys have been saying for some years now that CEOs are expected by the public to have more of a voice on social issues, to take a principled stand on policy points. That feeling is becoming more acute as millennials age their way into meaningful positions in the workforce, and become more affluent consumers.

Influenced by the pandemic, 80% of British people now feel CEOs need to speak up on societal issues.

Some 63% feel that CEOs should be accountable to more than just the board of directors and shareholders. And 59% feel that if there is a problem in society that government has failed to fix, then CEOs should be there to step up.

All this is very difficult to navigate from a boardroom perspective. The fact that people feel they want CEOs to have a broader perspective does not quite tally with the traditional view on the demarcation lines of what a company is, what it is for and to whom it is accountable.

I often recall a conversation with one FTSE 100 CEO while debating some of these issues.

“My job is to make profits,” he said. “If I make profits and create jobs and investment then I have done my bit, and it’s up to the government to decide the appropriate level at which to tax me. They can then decide how best to spend that money. But I have done my job for society by making money. It ends there.”

This is a perfectly valid view. It’s just not one that holds with the prevailing sentiment of society, or indeed investors.

Shareholder primacy – the idea that companies exist to serve shareholders - is very much a threatened concept. If not in reality, then in the way that it has been interpreted.

There is an increasing view that shareholder primacy ended in the UK with the publication of the Companies Act 2006. Section 172 of said Act makes clear that companies have an obligation to think about long-term consequences, about employees, about supply chains, about communities, about the environment – it’s all in there. The Act even asks that companies behave with a mind to their “reputation for high standards of business conduct” and that they “act fairly as between members of the company”.

For a decade and a half much of this has been brushed off and unenforced. Yet the ESG movement is now giving teeth to these strictures. And the trend is only going one way.

At Edelman, we act for investors that control in excess of $16 trillion in assets under management. We can see how seriously they are taking this shift to demand scrutiny on Environmental, Societal and Governance issues. This is not just about a desire to “do the right thing”, it’s about access to capital.

More and more of the world’s institutional investment mandates are coming with ESG strings attached. And money talks. As the underlying owners of capital place more constraints on how that capital can be deployed, corporates are going to have to jump through ever higher hurdles.

Over time, as defined benefit pension schemes wind down and individuals have to take more control of their own savings, they will have more say in how they invest. At this point in time, it seems fair to assume that this will only accelerate flows into funds that are ESG-compliant.

In that sense, business will be judged on competence again. Take climate change as an example. Our poll found that 67% of Britons believe businesses have a responsibility to tackle climate change. Yet only 27% believe business is currently doing enough.

Businesses that want a reputation for competence will have to look to more than short-term share price moves.

Iain Dey

Managing Director

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