Alphonso David, President, Chief Executive Officer, Global Black Economic Forum Richard Edelman, Chief Executive Officer, Edelman Tensie Whelan, Distinguished Professor of Practice, NYU Stern School of Business Moderator: Phil Wahba, Fortune
Category
🤖
TechTranscript
00:00Well, hi, Richard.
00:01Thank you for joining us.
00:03And Tansi, Alfredo, I love this topic
00:08because earlier this year, we saw
00:12one company after another pushing back
00:15on their DEI and ESG initiatives and abandoning them.
00:19I'm the journalist here, so I can name names.
00:21You don't have to be as polite.
00:22But Tractor Supply, Harley-Davidson, Lowe's,
00:26Toyota North America, Ford.
00:28And let's just start with why has there been pushback,
00:35do you think, among a big part of corporate America?
00:41What's behind all this pushback?
00:43Is it just political stuff, or are there
00:45other factors at play?
00:47So why don't I start with Richard.
00:52So I think that companies have been
00:56nervous about the politics.
00:58I think they took a look at what happened to a certain beer
01:01company last summer.
01:03And I think they've taken a cue from the idea
01:09that they have to be strong with their core customers.
01:14And what that ignores is the impact on employees
01:18and on the other half of the customers.
01:20And the reality is that companies
01:24are easily picked off if they're going one by one.
01:28There's power in numbers.
01:30You'll remember this from the Disney case
01:31a couple of years ago in Florida,
01:34where people were opposing a piece of DeSantis legislation
01:39as a group.
01:40Disney decided they weren't going to do politics.
01:43And then they waded into it late.
01:46And then they were picked off by DeSantis
01:47because they were the lumbering.
01:49So my request to companies is operate collectively,
01:53agree generally on a set of principles,
01:56and fight for those.
01:59Any perspectives here?
02:02I would say I agree with Richard.
02:05I think this is a combination of lack of commitment, fear,
02:10and misinformation.
02:12And what I mean by that is we all
02:14know that corporations are in the business
02:16And if we look at the concepts of D&I and ESG,
02:20and we tie them to the core principles that
02:23support ESG and D&I, revenue generation, talent pipeline,
02:28innovation, for me, it's difficult to see
02:32why companies are taking a step back
02:34if they actually understand the data
02:36and understand the relationship between ESG, D&I, talent
02:41pipeline, innovation, and talent pipeline.
02:45If they don't understand those connections,
02:47then to Richard's point, they're going
02:49to kowtow to political pressure.
02:51But there's a lot of misinformation out there
02:54because the majority of companies
02:55are actually supporting ESG and D&I.
02:58But we have a few companies that are taking steps backwards
03:01and relying on the misinformation that I think
03:03is going to hinder them moving forward.
03:07And I would just add to both of these comments
03:09that I think there's a lot of misinformation
03:12in both of these comments that I think quite a few companies
03:17have misunderstood the materiality of these issues.
03:21And think of it as a nice to have rather than a must have,
03:25and something that obviously can be jettisoned at any moment.
03:28But the reality is that when these issues are
03:31material for a given company, if you're a property and casualty
03:35insurance company and you're not paying attention to climate
03:37change, you're not going to be in business.
03:39If you are a company that is focused
03:42on providing services and you need
03:43to hire the best and the brightest
03:45and you're not paying attention to what the younger
03:47generations want and also to diversifying your employees
03:52so they actually represent the people
03:54that they're selling services to,
03:56again, to build on your point about business case,
03:58you're not going to be effective as a company.
04:01So really understanding the business case behind these,
04:04I think, is critical.
04:06And then finally, I would say there's a lot of noise.
04:11But when you look at the research,
04:13and we've done a lot of research around consumer
04:15purchasing of sustainable products
04:17and messaging around with Edelman,
04:19actually, and messaging around environmental sustainability
04:22issues, we now have in the field something
04:24on social sustainability issues.
04:26So I'll be glad to share that.
04:28But basically, what we see is that consumers, red state,
04:31blue state, young, old, rich, poor, educated, less educated,
04:36care about these issues and are purchasing products
04:40and services that embed sustainability
04:44core to those products.
04:4628% premium on average in CPG, growing twice as fast
04:51as conventional products, for example.
04:54Is some of the pushback justified?
04:58Just to play the devil's advocate,
05:00I feel like in 2020, companies were falling all over
05:04themselves to quickly adapt, to say, well,
05:09we have a chief diversity officer.
05:11We have this.
05:12We have that.
05:13It felt like there was a bit of peer pressure going on.
05:15So maybe some of these programs implemented weren't so solid.
05:19So is there a case for why some of the pushback
05:24might be justified in your eyes?
05:26Well, let's start with you, Richard.
05:29So Phil, I think what you observe through data
05:33from the trust barometer is by two to one,
05:37employees say I'm more likely to work for, recommend,
05:43advocate for on social media companies
05:46that stand up on business and racial justice, as an example.
05:51So if you're simply looking through the lens
05:54of satisfying your employees, this is a must do.
05:59Similarly, we see a very substantial percentage
06:03of consumers by two to one who prefer
06:07to buy brands that make a case for sustainability.
06:12And they want the brands to be equally priced.
06:15They want it to be about them, meaning
06:17it's better for my life as opposed
06:19to just good for society.
06:21But you give them those products,
06:22and you show that you're sourcing sustainably,
06:24they will buy your products.
06:26So I think the arguments are very compelling
06:29and that there's a lot of evidence to go to the CEO
06:31and say, stand up to the politicians.
06:34Don't allow them to push you around.
06:36This is about business.
06:37This is not about purpose.
06:39Although we saw in recent cases, this
06:41was activist investors as well.
06:43So to some degree, they probably reflect
06:45a bit of a constituency.
06:48I mean, is some of this just a correction
06:50we're seeing where maybe brands and companies want
06:53to go back to where they didn't really have to talk about social
06:55issues and politics?
06:58Or has that horse left the barn, and it's just
07:02a reality now for companies?
07:04I think that there are certain issues which you must
07:07talk to your employees about.
07:10And there are other issues you should talk more broadly about.
07:12So the ones to your employees only
07:14should be gun rights, or election rights,
07:18or abortion rights, or things that
07:21are inherently more political.
07:23But things that have to do with your company,
07:26whether it's who you hire, what you pay them, where you source,
07:30things like this, that's every bit the company's business.
07:33And the key part of this is that business
07:36is two to one more trusted than government to get stuff done.
07:40And that's why there's such an emphasis on business
07:45as the lead in this.
07:46And of course, business doesn't want
07:48to be politicized and jumped on by politicians as activists.
07:52But you're not being activists.
07:54You're actually helping to make change.
07:58And change is what's going to enable society to succeed.
08:02Yeah, we're in a weird moment.
08:03Because I remember in both 2016 and 2020
08:07getting countless PR emails from companies saying,
08:10we're going to give our employees half the day off
08:13to go vote.
08:14And we're going to encourage them to go do canvassing,
08:16et cetera.
08:17I haven't gotten a single email about that this time.
08:20And I'm just wondering if companies are like, yeah,
08:23y'all know how to go vote.
08:25We're going to stay out of this one.
08:27But a quick follow up for Richard,
08:30and y'all can jump in too, is the reputational risk
08:34to companies that back off.
08:35Because I can't help but think, if you're
08:38an employee, or an investor, or a customer,
08:40and you've heard a brand saying certain things
08:43for a number of years now, then all of a sudden they say,
08:45yeah, we're done with all that.
08:47We're just going to focus on our core business.
08:51Does that hurt their credibility long term
08:54with those constituencies?
08:55And what's the risk to the company?
08:57Well, I think you see in the Disney case,
08:59that's exactly what happened.
09:01I mean, you saw the company, we're not going to do politics.
09:05Then they go into the case.
09:07Then they're whipsawed by the governor.
09:09Then they react by saying, oh, we'll reconsider.
09:13I mean, companies need to have a certain set of values
09:16that they stand for and stand with.
09:19And it's an urgent matter of delivering on what you promise.
09:24Trust drives growth, and action earns trust.
09:27You've got to do things in order to get trust.
09:31A question for specifically, well,
09:33more directed for Alfonso, is the Fearless Fund.
09:35Maybe you can just tell people what happened there,
09:37and what are the repercussions, do you think?
09:41Sure, and I want to follow up on what Richard said as well.
09:45I think that often we're asking the wrong questions.
09:49What I mean by that is, why aren't we
09:51asking why the majority of people in the C-suite
09:54happen to be white men?
09:56Why is that not the right question to be asking?
09:59Why aren't we asking why companies
10:01decided to adopt ESG and D&I without actually
10:05tying it to performance?
10:07Those should be the questions we should be asking,
10:10as opposed to, why is a company taking a step back from D&I?
10:14Because the reason why D&I and ESG exists
10:18is because people of color and women
10:21have been shut off from opportunities
10:24that they're qualified for.
10:25And I think we have to sort of shift and change
10:28the narrative as we talk about these issues,
10:31because it still is a problem that women are not
10:35leading most of the Fortune 500 companies.
10:3710%.
10:39And in fact, we only have two black women.
10:42Think about that.
10:43Why is that not the right question in this moment?
10:46And that's what I think we should
10:47be talking about, which leads me to the Fairless Fund.
10:51Fairless Fund was started by two black women.
10:54And they were looking to get investments for their company.
11:00And they couldn't find any investors.
11:02Many people know about venture capitalism.
11:05So there's $288 billion that's allocated each year
11:08in the venture capital space.
11:10And of the $288 billion, only 0.036% goes to black women.
11:17Less than 1% to all black people.
11:20So they decided to start their own company.
11:22They created a venture capital firm,
11:25as well as a charitable organization.
11:27And they started investing in black-owned and women-owned
11:31and minority-owned companies.
11:33And they also created a charitable organization
11:35to provide grants.
11:37They were sued last year, right here in the 11th Circuit,
11:43in the district court at first.
11:45And the argument is that by providing grants
11:48to women of color, you violate federal law, which is absurd
11:52when you think about the disparity that exists.
11:55But that was the argument.
11:57So we litigated the case.
11:59And we won at the district court,
12:01arguing, one, that charitable organizations have
12:05a First Amendment right to issue grants
12:08consistent with their missions.
12:09Think of the United Way.
12:11Or think of Ford Foundation.
12:13Any of the foundations that exist.
12:15And we won.
12:16The case was appealed to the 11th Circuit.
12:18And two of three judges concluded
12:20that the plaintiffs had a likelihood of success
12:23on the merits.
12:24So the case went back to the district court.
12:27And we had an opportunity to either litigate the case
12:29or resolve it.
12:30And we recently resolved the case.
12:33I think to the benefit not only of the Fairless Fund,
12:35but to every other charitable organization out there,
12:38or every organization that wants to invest in black and brown
12:42entrepreneurs.
12:43And the settlement essentially says
12:45that the program that they sued under was ending anyway.
12:49So they wouldn't continue that program.
12:51But the settlement doesn't apply to any of their grants,
12:54any of their programs, any of their mentorship programs.
12:58It doesn't apply to anything that they do.
13:00And we were strategically, and I think mindful,
13:04that if we litigated this case all the way up
13:06to the US Supreme Court, it may be a different result,
13:09given the current composition of the court.
13:12So ultimately, I think this is a great result for them
13:15and a great result for anyone who
13:18is interested in equity investments moving forward.
13:23Sorry.
13:24Go ahead, Richard.
13:26Can I just pile on a little?
13:28One thing we found in a very recent study
13:30we did in September about employees in relationship
13:34to corporations is a huge mass class
13:37divide within the corporation.
13:39In other words, the people who work in the factories
13:42have a fundamentally different view of trust in institutions
13:45than the top quartile.
13:47And it's twice as large a gap in trust in institutions
13:51as in the general population.
13:54So it's 32 points versus 18 points.
13:57And it's all to do with a lack of economic optimism,
14:03a lack of belief in the system, a lack of sense
14:05of hope for the future.
14:07That's our job.
14:08We've got to show people a way forward
14:11that capitalism is working for them and not just for shareholders.
14:15And key to this is sustainability, making sure
14:18that they're re-skilled and up-skilled,
14:20and that they don't have to be worried about AI killing their jobs.
14:24They've seen this play before on globalization,
14:27and they don't want it to repeat itself.
14:29So go ahead, Tansi.
14:30I was going to.
14:31Yeah.
14:32So I just want to add to a couple of points here.
14:34You asked earlier, why has this gone off the rails?
14:38How can companies bring this back?
14:39How can they stand up on this?
14:41So I think one big mistake that companies have made
14:45is to focus on ESG as a strategy.
14:48ESG was always just meant to be a system of metrics
14:51to measure performance against sustainability.
14:53It does not include profitability.
14:55Sustainability does, to your point about performance.
14:58So it's just an acronym, and it doesn't actually mean anything.
15:01And yet, it became a performative approach by a lot of companies
15:06to say, yes, I'm reporting on ESG.
15:08Here's a bunch of metrics.
15:10What you should also know is that the ESG reporting metrics
15:12are all process and output-based metrics.
15:15In other words, do you have a DEI policy?
15:18Oh, good for you.
15:19You have a DEI policy.
15:20What does that actually result in?
15:22What is the outcome of that DEI policy?
15:24No idea.
15:24That's not what the reporting standard tracks.
15:27What we're hearing right now from a lot of companies
15:30is that they're saying we need to invest
15:31in all this reporting and disclosure, which
15:33they are required to do.
15:35But they're also saying, and that means
15:37we're no longer going to execute.
15:39In what world can you execute?
15:41I mean, can you not execute and report on something?
15:44Only on a world where the reporting metrics are not real
15:47and where you're not actually driving change.
15:50So the reason why this is all really important and material
15:53to companies, they need to be focusing in on those issues.
15:56And let's just talk about the business case
15:58from an environmental perspective,
15:59since we've heard about it from the DEI perspective.
16:03Operational efficiency, holy grail of many companies
16:06in manufacturing, et cetera.
16:08Think about how companies think about pollution and waste.
16:10They think about it as a compliance issue.
16:12Actually, you're buying more than you
16:14need to pay to dispose of what's left over.
16:16That is an operational inefficiency.
16:18We saw for one automotive company, $235 million
16:21net annually as a result of their waste management
16:24strategies, which they did not know because they were not
16:26tracking it.
16:27And because finance does not track avoided cost,
16:29which is a huge part of benefits coming from sustainability.
16:35So my key takeaway here is that companies
16:38need to get a lot better at embedding sustainability, DEI,
16:42social and environmental sustainability into their core
16:44business strategy, tied to those issues that
16:46are really material, and build out that business case
16:49so they can persuade activists, investors, regulators,
16:53crazy people that this all makes sense, right?
16:58Because it does.
16:59And because, as we've heard from both Richard, Alfonso,
17:02and Phil, this is where this generation is going.
17:05My daughter would never go work for a company
17:08where there wasn't a strong DEI focus.
17:09And I think that that is really true for a lot
17:12of this younger generation.
17:13So anyway.
17:15So in our remaining time, a question,
17:18will we see more corporations drop out?
17:21Or was this a little fad?
17:23And basically, deep down the way forward,
17:25is maybe just they will maintain and refine
17:31their ESG and DEI approaches, because that's just
17:34where reality is going.
17:35I mean, should we expect more in the exodus, or are we done?
17:38I mean, so my two cents on this is,
17:40these issues are not going away.
17:42So Florida can pretend there's no such thing as climate change,
17:45but in fact, there is, right?
17:48People can pretend that they don't
17:49need a diverse employee base, but in fact, they do.
17:52So this is where I think that companies
17:55will need to take on these topics
17:57and build them into their business strategy.
17:59I agree.
17:59I think this is not going away, and I
18:01think we will see more companies potentially take a step back.
18:04But let's remember that more than 83% of the companies,
18:08based on a recent study, are still supporting DEI and ESG.
18:12And let's make sure that the narrative of the minority
18:16is not driving the narrative for the majority.
18:19And the last word for you, Richard.
18:21What do you think?
18:22More to come?
18:23Phil, I think the smart company will
18:27set goals that can be achieved and be
18:30very tangible in the benefits to the corporation and to society.
18:35Because by not doing what they say they're going to do,
18:38they're all hat and no cattle.
18:39And that's exactly the worst place
18:42that companies can be in, because they're so
18:45easy to pick off for politicians.
18:47Do your job, make it work, and make it
18:50a positive for your business.
18:53So on that note, please join me in thanking our three panelists
18:56and Richard for joining us from New York.