It’s time we held our politicians to the same ESG standards as businesses
When old friends meet after a long while, conversation soon turns to the way of the world. Last week’s partial lifting of lockdown has thrown up plenty of opportunities to catch up with old friends.
“So what have you been up to?”, was my fatuous ice breaker with a former FTSE 100 CEO, now chair or member on half a dozen international boards. The answer surprised me: “Do you know what takes up most of my time in my business life? ESG”.
More interesting still, the knock-on effects of ESG preoccupation have been alienation and indifference to the activities of governments on both sides of the Atlantic. Business feels increasingly compelled to do the right thing, but our political leaders have decided the rules don’t apply to them.
When I’ve raised them with politicians in the last few days, the initials ESG have been met with blank faces, which demonstrates the chasm of probity which is opening up between MPs on one side and the worlds of finance and industry on the other.
ESG stands for Environmental Social and Corporate Governance. Fifty years ago such matters were largely ignored in pursuit of profit. Ministers, rather than managing directors, were the ones who had to resign when caught out. Nobody expected high standards from the fat cats. Then, as issues such as environmentalism and apartheid entered public consciousness, progressive companies started to produce ‘sustainability’ reports as annexes to their annual statements to shareholders. This led to CSR – Corporate Social Responsibility – something to which nearly all businesses paid lip service.
To begin with CSR was a place to sideline executives who lacked fire in their bellies. The economist Milton Friedman argued that the moral duty of a business was to make money, and that interference by “big government” stipulating ethical conduct got in the way.
This century, getting ESG right has become an existential issue for big companies. The credit crunch, demands for diversity in workforces and boards, Black Lives Matter, Me Too and the climate emergency have all put the private sector under intense global scrutiny. Investors such as Black Rock and JP Morgan are under pressure over ESG too, and now pledge not to put funds in businesses with poor ethics. ESG has become an essential consideration in all corporate decisions, consequently attracting ambitious executives to make it their career. Since losing his seat in parliament, the former MP Chuka Umunna has taken a succession of senior CSG jobs first at Edelman PR and now for the investment bank JP Morgan Chase. Morgan’s recent public relations debacle underwriting the abortive European Football Superleague, underlines how widely sensitivities over social responsibility can stretch.
Executives who get it wrong these days pay the price. There are many examples. In the past few days it has been disclosed that Bill Gates, then the richest man in the world, moved on from the board of Microsoft, in part because of claims of inappropriate behaviour. The online fashion retailer fired PwC, its “big four” auditor amidst accusations that workers’ health and rights had been abused. The CEO of Rio Tinto went after his company destroyed a site of religious importance to native Australians. The CEO of Wells Fargo was banned from the banking industry altogether after his staff created fake accounts. The boss of McDonald’s was sacked for a consensual relationship with an employee.
Given the rising number of career corpses strewn across the corporate minefield, it is not surprising that executives look askance at the apparently consequence-free behaviour of politicians.
Priti Patel and Gavin Williamson were both dismissed in disgrace from the Cabinet by the last CEO of UK, PLC Theresa May. In the corporate world, according to my friend the Chairman, that alone would mean that they would never be considered for another board, let alone promoted to higher ranking posts. Similarly, a man with Boris Johnson’s chequered track record would never have got beyond the first selection cull of trainee recruits.
The politicians may claim that their records have been washed clean by success at the ballot box, but an election is not the same as winning a majority on a show of hands when a board is forced to a vote. Besides, many MPs are elected with less than 50 per cent of votes cast, while promotion to ministerial rank is a matter of personal patronage, not being elected.
A businessman and former prospective parliamentary candidate pointed out to me that there are now far fewer politicians active in business at board level than there used to be. Intense scrutiny of members’ outside interests is a major factor behind this estrangement. Ironically, he believes that the low ethical standards at Westminster have also made MPs, as a class, less appealing for businesses to recruit. Even preliminary background checks are likely to throw up reasons to blackball them on ESG grounds.
Chafing, or at the very least straining, under the strictures placed on them by the non-money-making “externalities” of CSG, business people are losing respect for governments which ignore such constraints. Donald Trump and Boris Johnson are both viewed as leaders who have “got away with it” by appealing to mass opinion. Trump said as much in his notorious boast: “I could stand in the middle of Fifth Avenue and shoot someone and I wouldn’t lose votes.” For corporate onlookers the nadir of the Prime Minister’s governance came with the resignation of Sir Alex Allan, the watchdog of ministerial interests, after the Prime Minister rejected his finding that the Home Secretary had broken the code.
The political victor’s justice – the view that the winner takes all regardless – is leading to a style of government which could not be mirrored in the corporate world – whatever the perceived political merits. For example, the trade “deal” with Australia which the government is pursuing would not conform to ESG standards. On the Environment, promoting trade with a country on the other side of the world at the expense of neighbours in Europe mandates more food miles and undermines the commitment to carbon net zero. On social grounds, Scottish, Welsh and English farmers say it will destroy their communities and open the UK population to lower standards in food production. As for governance, Liz Truss is striking deals in private, avoiding consultation with those directly concerned. Having dismissed business with a four-letter oath, many farmers feel Johnson is now doing the same to them.
A market driven democracy is unlikely to thrive when its capitalists have a more stringent moral code than the lawmakers. ESG has become so important because corporations are sensitive to the nuanced and developing external demands of their customers and workers.
The politicians seem oblivious to these pressures and bulldoze their way through. Edelman PR has been conducting a Trust Barometer for more than twenty years. In that time its owner Richard Edelman has found that corporations have overtaken politicians in the public’s trust. (Full disclosure: my wife is an advisor to Edelman.)
Far from sharing a constructive partnership in the national interest, the business leaders I know increasingly look on the UK government as an institution to be avoided, ignored or failing that “worked around” for sound economic, social and governmental reasons.