For years, corporate spending on diversity initiatives and social responsibility was viewed as a nice-to-have, and still is in certain industries. But generally speaking, most companies are “past that point now,” says Hardik Sheth, leader of the Center for CFO Excellence at Boston Consulting Group.
Still, it took until 2020 for many business leaders to strongly acknowledge racial disparities in the workplace and systemic racism in the broader society, and some still perpetuate inequality and other social harms through their companies’ operations. Historically, leaders have been trained to push these issues to the side when times get tough. In the early days of the pandemic, for instance, well before the murder of George Floyd, diversity jobs were some of the first positions to get axed.
It’s no wonder that stakeholders, from consumers to employees, are apprehensive about businesses’ pivot to multi-stakeholder capitalism, one that claims to reject shareholder primacy. It’s arguably easier to champion ethics, diversity, and social impact when the market is up. But what happens when the boom times end? For the first time since the Business Roundtable’s promise of a new world order—one that acknowledges the need for businesses to take action on social issues—their fervor for a “new business mandate” will be tested by a major economic downturn.
Today’s economic turbulence brings new complexities that weren’t front of mind in previous recessions. As companies make financial adjustments, leaders must factor in elements that aren’t as apparent on the balance sheet—culture, engagement, diversity, sustainability, and social impact—and recognize their heightened importance. Few companies can afford to hurt their talent brand in a tight labor market, where younger generations of workers and consumers increasingly say they want companies to be more responsible across various metrics.
Many board leaders recognize the need to keep their foot on the throttle. “This is a topic that is either about to become really important or is already important for them,” Sheth says. He’s already hearing from directors and executive teams who express concern about their ability to advance DEI or sustainability efforts during a recession.
Plenty of resistance still exists for these initiatives, however, and some executives will be inclined to suggest cuts to social programs for short-term gains. While many like to promote the “business case” for social efforts—”doing well by doing good”—it’s easy for ESG to get placed on the backburner.
It’s fine for corporations to focus on their survival, but they must also acknowledge that a recession poses a risk for many of the most heralded social objectives, and a possible regression of the new purpose-driven business culture.
So what’s the solution here? A good first step is to check in with one crucial faction of stakeholders: employees. Companies should solicit employee feedback on which diversity, ethics, and social responsibility initiatives the company should prioritize when money is tight. Ian Cook, VP at Visier, an HR analytics platform, says it not only signals transparency, but dedication—and can engender trust in leadership, which is especially important during downturns.
“If you don’t have the trust of your employees, you can expect, especially in tougher times, that your best people are looking for a safer place to work,” Cook says.
Aman Kidwai
aman.kidwai@fortune.com
Headlines
Leading on abortion. Fortune’s Emma Hinchliffe collected stories from 14 business leaders about their experiences with abortion. Some terminated unplanned pregnancies early in life, while others ended much-wanted but medically non-viable pregnancies. The leaders candidly discussed how the decision influenced their life and career. The founder of a unicorn fintech company told Fortune there’s “zero chance" her business success would have been possible without the options she had at the time through Planned Parenthood. Fortune
Netflix culture change. A new Hollywood office marked a new era at Netflix, multiple employees say, with celebrities making appearances, and tech workers—once the stars of the company—pushed aside in favor of content. Netflix’s workplace culture, which became famous in Silicon Valley for its openness and radical transparency, seems to have crumbled in the face of successful content that offends viewers from underrepresented backgrounds. Employees say they no longer feel empowered to bring issues to light and that the company is changing to meet the demands of its Hollywood ecosystem. Vulture
First 90 days. Businesses are coalescing around a retention strategy focused on ensuring new employees stay for at least three months. They’re acting on the belief that if an employee stays for a 90-day period, they have a higher likelihood of staying long-term. This has led employers across industries to host events, offer bonuses, and revamp onboarding to make the first 90 days memorable. A manufacturing company in Oklahoma cut its turnover from 37% in January to 16% in the most recent month. Wall Street Journal
Tesla dethroned. Chinese electric vehicle company BYD, which happens to be backed by Warren Buffet’s Berkshire Hathaway, sold more cars than Tesla in the first half of this year. Tesla’s sales took a hit in China due to COVID-related shutdowns, while BYD’s were not as affected. Protocol
BOARD MOVEMENT
Janus International Group has appointed Heather Harding, former finance executive at Luxfer and Eaton, to its board, where she will also serve on the audit committee. Dave & Busters CFO Michael Quartieri is joining the board of Gambling.com, where he will be on the audit and nom-gov committees. Hamidou Dia, VP at Google Cloud, and Ravi Kumar, president at Infosys, are joining the board of information services company TransUnion. Tractor Supply Company has appointed Andre Hawaux, former COO at Dick’s Sporting Goods, to its board and audit committee. WWE board member Connor Schell has resigned from his post effective immediately.
View from the C-Suite
Brad Jacobs loves making deals. He says he’s completed over 500 M&A deals in his career and created three billion-dollar companies in the process, including XPO Logistics where he is currently CEO and working to spin a few of his business units off into new companies.
In an interview with Fortune’s Phil Wahba, Jacobs explains the state of the supply chain crisis, saying the worst is behind us, and the future of electric vehicles and self-driving trucks. He also shares his thoughts on the ideal conditions for mergers and acquisitions.
Read the full story here.
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