About this Episode
Who matters? Whose voice is heard? Whose interests are represented? These are the fundamental questions that advocates of stakeholder capitalism are asking. Martin Whittaker, CEO of JUST Capital, an organization considered by many to be the driving force behind the stakeholder capitalism movement, and Doug Peterson, CEO of S&P Global and one of the original signatories of the Business Roundtable’s Purpose of a Corporation, join the Essential Podcast to discuss companies’ shift to leading for the benefit of all stakeholders, customers, employees, suppliers, communities, and shareholders.
The Essential Podcast from S&P Global is dedicated to sharing essential intelligence with those working in and affected by financial markets. Host Nathan Hunt focuses on those issues of immediate importance to global financial markets – macroeconomic trends, the credit cycle, climate risk, energy transition, and global trade – in interviews with subject matter experts from around the world.
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- Doug Peterson has served as President, Chief Executive Officer and a member of the Board of Directors of S&P Global since 2013. He joined the Company in 2011 as President of Standard & Poor’s Ratings Services. As a member of the Boards of Directors of Business Roundtable, Mr. Peterson was a signatory of a new statement of the purpose of a corporation in August 2019 focused not only on shareholder value, but on value for all key stakeholders. The declaration emphasizes people—employees, customers, and communities—in which employers know they must invest to ensure long-term growth and success.
- JUST Capital aims to build an economy that works for all Americans by helping companies improve how they serve all their stakeholders. JUST Capital believes that business and markets can and must be a greater force for good, and that by shifting the resources of the $19 trillion private sector, companies can address systemic issues at scale, including income inequality and lack of opportunity. JUST Capital measures and ranks companies on the issues Americans care about most so induviduals can then act on that knowledge. Martin Whittaker is the founding CEO of JUST Capital and is responsible for the overall leadership of the organization.
Nathan Hunt: This is the Essential Podcast from S&P Global. My name is Nathan Hunt.
Who matters, whose voice is heard and whose interests are represented? These are the fundamental questions that advocates of stakeholder capitalism are asking.
Martin Whittaker: Society's expectations of companies right now are really changing, defining the past forward. But this idea of stakeholder capitalism or some upgraded form of capitalism is probably the defining issue of our generation.
Doug Peterson: Inside of a company, our employees want to see the CEO and they also want to see the company take a stand on issues that are important to them that advance social change or advance things in the communities around us. People realize that for true change to occur, they can't just rely on the government. The change also must come from the private sector and its leaders.
Nathan Hunt: Shareholder primacy has been an article of faith in the markets since at least the 1970s, yet in August of 2019, the Business Roundtable redefined the purpose of a corporation in order to promote an economy that serves all Americans. CEOs from many of America's largest corporations committed to leading their company for the benefit of all stakeholders, customers, employees, suppliers, communities, and shareholders. This updated purpose, attracted his fair share of criticism. Many objected to the departure from economic orthodoxy, others dismissed it as largely cosmetic. Today, I am fortunate to be joined by two CEOs. Martin Whittaker of JUST Capital and organization considered by many to be the driving force behind the stakeholder capitalism movement.
Martin Whittaker: Well, thanks, Nathan. And it's great to be here. Thank you for having me on the podcast.
Nathan Hunt: And second Doug Peterson, the CEO of S&P Global, and one of the original signatories of the business round tables, purpose of a corporation.
Doug Peterson: Thank you for inviting me. I also. I want to congratulate Martin for a fantastic track record. Having built a preeminent organization for looking at JUST Capitalism.
Nathan Hunt: Martin, Doug, thank you for joining me on the podcast. Martin JUST Capital does a lot of polling just after the election. You released some intriguing results. 62% of Americans agree. That CEOs have a responsibility to advocate for a peaceful post-election period, even without a clear winner on election day. Do you think that the general public has always looked to CEOs for broad leadership within the society? Or is this a new phenomenon?
Martin Whittaker: It is a defining topic that we're discussing and it's one that I think is relevant across society. You mentioned our polling and I'll talk a little bit about what the American people have said to us over the last year and over the last six years, it's also obviously very relevant to corporations, boardrooms C-suites as well as investment committees today. And it's increasingly relevant, I would say, across civil society and now in public policy. And I think defining the path forward. But this idea of stakeholder capitalism or some upgraded form of capitalism is probably the defining issue of our generation for reasons we can talk about. The polling is interesting. You know, we pulled over the course of the summer on many different issues. This issue of democracy, you mentioned was very much on our minds and it was very much on the public's minds. You know, what role should companies take? We're constantly asking what society expects of companies. And it's changing. I think if you look back, you know, from the 1920s a hundred years ago, you've seen companies take on very different roles in society. And I don't think this is the first time that CEOs have been looked to full broad leadership within society. But I do think it's a moment where society's expectations of companies right now are really changing and really intensifying across the board. One of the other things we've learned this year is that 92% of Americans, and this is across all political stripe’s backgrounds, geographic locations, 92% believe that large corporations should be promoting an economy that serves all Americans. And yet only 50% believe that large companies are actually delivering on that goal. So, I think that's the opportunity. And I think CEOs know that. Understand that creating value for all stakeholders is really the path now to business success. Long-term competitive success. And when you have society's expectations increasing on that level. And I'm thinking about racial equity the summer after the killing of George Floyd and how CEOs and companies are expected to step up and do more on racial equity and still are, we've seen it around COVID-19, companies stepping up to do more to protect their workers and their customers. And you referenced the business round table. So, so I think this is a bit of a push pull strategy. You're seeing society one more. And business recognizing that it needs to give more. And the real question is how do you measure that? What happens now? How do we actually do this? You know, where does the rubber hit the road delegate?
Nathan Hunt: Doug, it has been seven years. Since you assumed your role as CEO of S&P Global. During this time, the role of the CEO has shifted dramatically. Do you view this change as a shift to something fundamentally new? Or return to a more traditional way of thinking about the private sector's role in society.
Doug Peterson: The role of a CEO has changed over time and it's new, especially if you think about what's happened in the world of communications of media, of digitization, of our economy, which means that things are moving fast. Organizations need to stay up with the pace of change that we're seeing in the business world and in the media world. And the expectations as we just heard, they're also changing. They're greater than ever. Inside of a company our employees want to see the CEO and they also want to see the company take a stand on issues that are important to them that advance social change or advance things in the communities around us. People realize that for true change to occur, they can't just rely on the government. That change also must come from the private sector and its leaders. And two examples; during COVID, it was critical that CEOs turn their attention to their employees and putting their people first and we did that at S&P Global. We put in place immediately a steering committee. When we saw that the pandemic was going to be something that was going to impact economies and impact our people. We then saw, how could we find ways to support our people by enhancing benefits, by creating support systems, by thinking about how our employees could be effective from a home office. And we also thought carefully about, well, what about our employees’ health? Including their mental health. And at the same time during this, we saw the, the incredible murder of George Floyd, something that was unbelievable and horrific right in front of our eyes. And we were also expected to do something about it in our case, we decided not to just talk about it, which we have through courageous conversations. We also decided we needed to take action. And look inside of our own company and how could we improve our diversity inclusion? Are we measuring the right things? Do we have the right results? Are we fair in the way we think about promoting our employees and transparency around jobs, are we hiring appropriately? And we're also thinking about the community around us or are we finding areas where we could invest, and we could build partnerships out in the community. And so, CEOs are expected to be involved in their communities where they work and live, and also in the broader society. One of the things that we've done at S&P Global is also do special research around topics that the society's interested in around women around infrastructure recently around COVID. And so this is an opportunity for CEOs to reset their approach, to think about their people, to think about their suppliers, to think about their communities and this has been an opportunity for all of us to take a step back, to be thoughtful and find new ways to really embrace our growth in what you'd call stakeholder capitalism.
Nathan Hunt: Over a year ago, you were one of the signatories of the business round table statement on the purpose of a corporation. That statement, as I mentioned, has received a fair share of criticism with some calling it "window dressing." How do you think about the BRTs revised purpose of the corporation and how is S&P Global serving all of its stakeholders?
Doug Peterson: Companies have been increasingly focused on long-term sustainable growth for a while. There's not like a bright line before the business round table statement on a purpose. And after that statement, before that companies were already thinking about how they could create sustainable business models. And there's really hundreds of examples of how the BRT companies have been living on those commitments for a long time, but it really became important that we did take a step back and think about the purpose of a corporation because we really had changed. If you think about the way that we've been providing benefits to our employees in completely new ways. We think about investments in technology. We think about how we're training and upskilling our employees. And this is something across the board and there's the ESG movement that's been going on and across the different companies, they were all thinking about, well, the investors in our companies, they're interested in the position that we take on climate change on social and how we're thinking about our supply chains. Do we have high quality governance? If you look at the business round table, the companies were already involved in doing many new things. It was a natural evolution to change the definition of a purpose of a corporation, because we were all starting to head in that direction and with getting all the companies together to change the purpose of a corporation, it allowed us to then start talking about it much more openly, and also in a way that there's alignment across the corporate world. That doesn't mean that you're not going to continue to support your shareholders. It's not an either or it's an end. And it provides us with a framework that we can support all of the different stakeholders that are going to benefit from a prosperous, sustainable corporation in the private sector.
Nathan Hunt: Martin, back in April, you suggested that COVID-19 might be killing shareholder primacy. What is it about this difficult, challenging, unpredictable year that gives you occasion for optimism about the adoption of stakeholder capitalist?
Martin Whittaker: Sure. I actually, I just want to reference a point that you made on the previous question and that Doug was talking about with regards to the beer tea companies. We actually analyzed beer tea signatories over the last year to see. How have they done relative to our universe? And we actually found that those over representation of BRT companies in our just 100, our list of our best companies that BRT signatories paid that typical worker 5% higher, they had 22% less direct and indirect greenhouse gas emissions. They gave three times more to charity. Lots of indicators around companies, BRT, signatories, being more likely to have disclosed, for example, paper rental, leave policies, or have subsidies for childcare. So, I feel like that's important to say because I've been a real defender of the BRT action and embracing a new statement of the purpose of corporation and I think it's important that that data sort of underpins that it's easy to criticize companies. For just, you know, sort of saying the right thing and it being "window dressing," but the data that we've gathered doesn't really support that. And it actually makes my point on the question you asked me, you know, I sort of felt that this year, what we were experiencing was opening our eyes to how important frontline workers really were. It was really changing the way we thought about how companies interact with the communities, where they operate, how they dealt with their customers. And that was sort of forced upon us. And so, the value creation for those stakeholders, the three that I just mentioned, workers, communities, customers were now front and center. And in fact, we, and those have shown that companies that were leading on stakeholder performance proved to be much more resilient. Going through the crisis. And I think that the history will show that those companies are actually performed better, and we'll come out of this in a position to be more influential, to reframe what makes a company successful. And that's sort of what I meant when I said it was killing shareholder primacy. It was sort of uplifting this idea that creating value for all stakeholders. It wasn't just something you did when the sun was out, and it was nice and warm, and everything was great, and you are a wealthy company. No, no. These are things you do to make yourself better so that when things like COVID comes along, you're in a much better position and your shareholders will recognize that that's really what I meant. And I felt that one thing that's happened this year certainly has happened to me, I'm sure it's happened to Doug is that it's forced you to think about things differently. You know, you've had to change the way you think and act as a CEO and it's really brought out the human element of business. And that's really what this is all about. We need a form of capitalism where more people feel like they have a stake. That's just good economics. That is how we drive forward as a nation. And I think that when you have more people believing in the system, That's healthier for everybody.
Nathan Hunt: Doug business round table, and other organizations this year have said, companies have to do more on sustainability. How are you thinking about sustainability as a CEO and what is S&P Global doing inside its own walls to advance meaningful change?
Doug Peterson: Well, first of all, to follow up on what Martin was just talking about, we think at S&P Global, that, that we need to be a credible provider of ESG and sustainability data and analytics and benchmarks. And if we're going to do that, we also have to look at our own house and see how we are developing our own programs. And, and I think of this IQ, EQ, and I add something else called RQ. It's a respect quotient. And are we respecting the environment? Are we respecting our communities are respecting our people? And so, what are some of the things we're doing you might've heard before about the TCFD, the task force for climate related financial disclosure? We were one of the members of the group that developed this framework that they use for climate reporting. And we're one of the first companies that is actually published now two years in a row, our report for climate related financial disclosure, and it provides transparency around our own governance, our own risk, a way that we're measuring climate targets. And for those climate targets, we're looking at ways that we can reshape our operational programs to reduce our carbon footprint that has to do with plastics, it has to do with how we operate our buildings, how much we travel, how we offset that and travel, we've also decreased our greenhouse gas emissions. As we've looked at this by 31%, our energy usage is down 37%. But obviously this year we're working from home. It's something we have to look at how we're going to measure again in the future, but we're learning a lot from working at home. Then we'll be able to apply when we get back to even lower those targets even more than they are. In our communities we've thought about, about how in order to be a good and respectful member of our communities. Not only are we going to write checks and provide service into organizations, when we agreed to work with different foundations at different organizations, we like to think of it as a partnership and we write a check, but we also put somebody on their board. We provide volunteers to help with those organizations and an example in India, in our crystal business, we provided over 10,000 meals per day, and the most vulnerable people in Mumbai during the lockdown. In the organization we've also provided medical information through our company called Penn Jeeva about the supply chain of medical data. We donated over a hundred thousand medical grade face masks to different hospitals around the world. And during this time, we've also put our people first because a real sustainability model, isn't just about the climate. It's also about our people. And we thought about how we can support our people with new programs on parental leave, through birth adoption, surrogacy, or foster care. We have a new approach to sick care leave, which is, would be six weeks paid annually. We've changed the way we think about what we call compassionate leave. And we've really changed the way we think about how we can support our employees in a, in a much more friendly way, respectful way. We know that our employees are going to work hard. They're going to give back to the company and we want them to be able to understand how they can support their families and support themselves. And along with that, we've also provided whole new programs for people to improve and upgrade their skills. We have a program called essential tech. Which allows our employees to learn about the latest technology in areas like machine learning and automation and people can imply that into their roles. We have a data sciences Academy. So, we have a group of people who are learning at a master's level about data sciences and applying that to their jobs. And we thought about our people. So, it's not just supporting them at home and in their personal lives. It's also finding ways that they can advance their learning and advance in their careers and all of these together, or what, the way we think about sustainability inside our own company.
Nathan Hunt: Martin in many ways, your organization JUST capital exists in opposition to the ideas of Milton Friedman, the economist who famously insisted that corporations existed solely to maximize shareholder value. If Milton were here, what would you tell him he had gotten wrong?
Martin Whittaker: Well, far, be it from me to tell a Nobel prize winner, what he's got wrong. I think that if Milton was here, he would agree that what drives value creation today for a corporation is very different than what drove value creation in 1970. I actually don't see us as being anticapitalism on the contrary. I think we care a great deal about capitalism, and we want it to have a rosy future, but for that to happen, it's got to change. I do believe that the center of gravity of capitalism is shifting. And I like to think Friedman would have recognized that, you know, when I look at Microsoft, which is our number one company and our number one company now for three years, you know, and to Satya and Adele is leadership's really reinvented itself from becoming a legacy tech company into one of only a handful of a trillion dollar companies. And on the way it's been a true corporate leader in terms of how it treats its employees and its suppliers and creates value for them and what it's doing to address climate change, how it's shifting its whole business onto more sustainable. It's obviously done quite well for its shareholders too. So, I, I really don't believe that this is a sort of a zero-sum game. I think that's, what's changing this notion. That somehow a dollar invested in my workforce, lifting wages, for example, or dollar invested in, I don't know, a local supply chain strategy where I'm really targeting minority owned businesses as my suppliers. Or addressing internal issues around pay equity or dependent care or any of my benefits or addressing climate needs. I don’t really think those things are antithetical to shareholder value creation and to the successful sustenance of a corporation. So, I'm not sure that Milton Friedman would have seen what's happening today. And concluded the same things that he did back in 1970.
Nathan Hunt: JUST Capital is overtly, proudly capitalist in its orientation. Chicago school purists might call stakeholder capitalism, socialism in a different guise. Do you think this now century old argument between socialism and capitalism is useful and productive?
Martin Whittaker: You're asking the big questions. It's a debate that I have with my 20-year-old who's at St. Andrews university in Scotland, who is on the socialism side as probably many of his generation are. And that's a fact when you look at the polling, how faith in capitalism is eroded. You know, I look at this from a very different background. When I, I was growing up, I was born in the UK and in the 1970s and the 1980s, I remember the very stark contrast between those ideologies when Margaret Thatcher took power and what happened in the country. And I'm also a Canadian citizen, thanks to my wife. And, you know, there are people in the U.S. That think Canada is a socialist country. So, I sort of, if you could see my face, I I'd have a sort of an ironic smile. Cause I actually think that this argument between socialism and capitalism that we have today, most people really don't know what socialism is and they don't really at all have the same view of what socialism actually is. And so, it was very difficult to have an argument about whether something is or is not useful and productive, unless you're actually understanding that thing the same way. Now, all of that said, I think stakeholder capitalism to me is a good juxtaposition for capitalism itself and carrying that forward. It's all about, as I said, recognizing that investing in creating value for a wider set of corporate stakeholders is just a better path to long-term value creation and economic growth. It's all about growing the pie, not well. Three distributions, Chicago purists might argue that. We do that well enough today, but I would argue that if you were to sit down with the tens of millions of employees at large corporations are full-time hardworking Americans today who still rely on food stamps to feed their families, that you get a different picture, whether or not that model of shareholder primacy in the shareholder capitalism we have today. Whether that's actually working. I mean, there's a lot of people in America today who have a PhD and just making ends meet. I think that's what this is about. This is about real lives, real livelihoods. And as I said earlier, getting an economy where everybody feels like it's working for them and where we are today, you know, the reality of the economic dislocation that we've been through in 2020 and the stimulus that's still about to happen. Only by creating that, that kind of an economy where you can generate the horsepower, the kind of growth that we're going to need over the next generation. This is a post-World war II Marshall plan type situation we're in here. You've got to have a just inclusive stakeholder-based economy to really drive us out of this. That would be my argument to a Chicago school purist.
Nathan Hunt: Doug S&P Global has recently been named as one of America's most just companies by Forbes and by JUST capital. What does this recognition mean to you?
Doug Peterson: Well, we're honored to have this ranking among America's most just companies once again. And, and we're, we're proud of that because of our focus on people, our customer orientation, the dedication we have to our communities around us, what we're thinking about are for suppliers. And it's even more important that this is the year of a very unusual pandemic that has changed the way that we work. And it's changed the way that we think about the stakeholders around us. But this is really for me a recognition about our people, because it's our people that drive our company. They're the ones that are passionate about what they do. They're inspired by our company values and they see that, especially this year in the pandemic, that what we do is relevant. It has more meaning than ever. When we produce research about economic growth, about credit markets, about equity markets, about risk that people are using to make decisions when there's so much uncertainty around them. And so, when we can keep markets informed and we can keep them moving and we can do it from home in a way that's helping create a sustainable economy, a sustainable business for ourselves. It's actually feels great to be recognized at this point in time. And we appreciate that. What's made us stronger during this period is not going unnoticed. And so, I think Martin, I think just capital for this recognition, but most importantly, I really think our people.
Nathan Hunt: A little over a year ago, S&P Global launched its change pays campaign, which seeks to advance the discussion around the benefits of more inclusive economies. Most recently, we have seen America elect its first woman, first black person, and first person of Asian descent as Vice President of the United States. What are the benefits of more inclusive economies? And where do we go from here?
Doug Peterson: Change Pays was some special research that we did with some of the experts we have across the company. In fact, it was women that did this work for us, and it was to understand the ability of economies to become more inclusive by having more participation of women in the workforce. And just an aside, based on the discussion, we were just having what Martin talked about. It's been women and in particular, black women have been the most impacted negatively during this COVID crisis. And what our data showed when we did this special research is that women's participation in the workplace in the economy, leads to a stronger, healthier, and more advanced economy. Women contribute to the workplace in so many different ways. And many times it's undervalued or it's under-representative when we saw in the research that because of the pay gap between men and women, Because of other aspects that keep women out of the workforce, that the global market cap of different stock markets could be up to $6 trillion larger if women were in the workforce, the way they are in Norway. In addition, in the U.S. Using that same standard, if women were in the workforce in the U.S. Like they are in Norway, our economy would be $1.6 trillion larger than it is today. Now the second part of your question on the election of Kamala Harris. This is a fantastic milestone for our country. And there's also a much more inclusive and diverse Congress this time across both parties, but there's so much more that needs to happen. We as the private sector need to help drive that we need to ensure that we're committed to accelerating progress. We can't let moments like this pass and use the research that we do about women's voices in the economy, in the marketplace and help unlock that potential. So together with the public sector and the private sector, we can do much more, but it's still going to come down to us at an individual level to make a difference.
Nathan Hunt: Speaking of politics. Partisanship has largely stymied the ability of governments to respond to some of our biggest challenges. I'm thinking specifically of climate change, systemic racism, income, inequality. Do you think that paralysis in Washington is leading people to look to the private sector for broader leadership?
Martin Whittaker: I do Nathan. Yes. I think that's been a shift that's been happening not just over the last, you know, several years. I began my career in the sustainable finance world in the mid 1990s when there was a major initiative that happens focused on the financial sector to do more on global sustainability pressures, particularly around climate and environment. So, I think this is a continuation of that trend, but partisanship. Isn't going to go away after this election. There are some out there that might think that there will be a shift back at some point towards a more centrist bi-partisan mentality. I hope that happens. You know, we're so divided politically that one can only imagine that the partisanship that you referenced is going to continue. Interestingly, in our polling, I mentioned this earlier, we do see a lot of agreement across political ideological lines. Around expectations for business performance and the issues that matter, that we've touched on today. When you think about the economy and you think about business leadership in the private sector, it's perhaps an area where there's a lot more center ground, and it might be a place where we can create that spirit of bipartisanship more effectively. I really think that's something that should give us hope. I do think now is a moment also with the new incoming Biden Harris administration, to really rethink how the private and public sectors can work together. When I look across the set of policy objectives for the Biden campaign, the vast majority of them had some relevance to the private sector where business can do more to help address those problems. You mentioned climate racism, inequality. Those are all things where a business can and must play a leading role. So, I expect that to continue. I really hope that this is a moment where we can rethink how the public sector can incentivize business to do more. The private sector is four times the size of the public sector. It's 40 times the size of the philanthropic sector. We have to get business doing more, to take the lead on solving. These more intractable, systemic problems. And part of that is rethinking how the public and the private sectors work together.
The Essential Podcast is edited and produced by Molly Mintz.