For centuries, businesses and their workers have been the engine of economic growth in the United States, broadly sharing in the prosperity they created together.
Today, that is the exception to the rule.
Despite rising productivity and profits, many workers have been left behind. 40% of Americans can’t afford to cover an unexpected $400 expense, 6.9 million are among the “working poor,” and 1.7 million workers are making at or below the federal minimum wage of $7.25.
It’s clear the system that has consistently rewarded shareholders over all other stakeholders is broken. We need a new model that builds prosperity and financial security from the factory floor to the trading floor, that serves all stakeholders of our economy, and supports a fairer, more just capitalism in America.
The solution is stakeholder capitalism, where we expand our definition of business success. We must make sure that we’re creating value for all stakeholders – employees, customers, communities, the environment, and shareholders – rather than simply focusing on short term profit maximization. At $19 trillion, the private sector is 4x the size of government and 40x the size of private philanthropy. There have been many promising signs on movement here, from the Business Roundtable’s statement to individual corporate actions. Now, 2020 is the year to shift aspirations into action, and put the promise of stakeholder capitalism into practice.
As CEOs and boards are asking what it means to deliver on stakeholder capitalism, we at JUST (through the American people) have an answer: perform a financial distress test of your workforce to really understand what percentage of workers aren’t making enough to cover their bills each month.
That’s what we’ll be saying this week at the World Economic Forum as world leaders descend to talk about the future of stakeholder business, and that’s what we’ll be working directly with companies on throughout the year.
We know through conversations with C-Suite leaders that they are committed to creating and supporting quality jobs, yet we also know that assessments like these are rare, and that most haven’t done the analysis to know whether their workers are earning enough to support their families.
This assessment can have profound impacts on workers and the business. Earlier this year, we sat down with PayPal CEO Dan Schulman for our first Quarterly JUST Call to discuss what efforts he and his company have made to support the needs of all their stakeholders, most importantly their workers. To ensure PayPal was living its values around financial inclusion, Schulman asked for an audit of his hourly and call center employees, and found that 60% struggled to make ends meet and were living paycheck to paycheck, despite earning at or above market-level wages. Schulman took action – raising wages, reducing healthcare costs, making all employees shareholders and owners of PayPal, and driving financial wellness through education.
“If we ever aspire to be a good company, we have to have passionate employees who believe in what our company mission is, believe in our values, and — really importantly — are financially secure,” Schulman said recently.
We applaud Schulman’s exceptional leadership – and his efforts must become our social norm, not the north star. CEOs and Boards of Directors should take stock of their employees’ financial security.
Because it’s also good for business. When workers are more financially secure they are less likely to miss work and are more productive on the job. And we have years of research demonstrating that the companies that perform well in serving stakeholder needs create better returns for investors. They generate a higher return on equity (e.g. the JUST 100 have 6% higher ROE than peers), display higher net margins, higher operating margins, and higher valuation from investors.
JUST will be working through the coming year to support the C-Suite in their efforts to conduct this kind of analysis, providing guidance around what a financial stability assessment entails and what steps corporate leaders can take to ensure that their workers are able to cover their basic needs. We will also be developing tools and case studies, release ongoing research on which workers in America are earning a living wage, and build the business case for raising wages. We will work together with corporate leaders to ask better questions about the state of the stakeholders, and ultimately to build a more just economy not simply through words, but through action.