A corporation's stated commitment to being purpose-driven, rather than profit-driven, is no indication of its future performance with respect to social and human capital issues, a report from KKS Advisors and Test of Corporate Purpose— an initiative launched earlier this year to assess how purpose-driven companies have responded to the COVID-19 pandemic and racial injustice — finds.
Funded by the Ford Foundation, the report, COVID-19 and Inequality: A Test of Corporate Purpose (98 pages, PDF), analyzed a sample of publicly traded S&P 500 and FTSEEurofirst 300 companies to assess their responses to the overlapping crises, assigning each corporation a "COVID-19 score" and an "inequality score" based on Truvalue Labs data in areas such as employee health and safety, labor practices, access and affordability, customer privacy, human rights and community relations, and employee engagement, diversity, and inclusion. According to the study, U.S. companies that signed on to the Business Roundtable's 2019 Statement on the Purpose of a Corporation — which declares that companies should serve not only shareholders but deliver value to their customers, invest in employees, deal fairly with suppliers, and support the communities in which they operate — performed no better than non-signatory companies. Indeed, being a Business Roundtable signatory had a small but negative effect on a company's response to COVID-19 (average -0.82 score points), while it had a small but positive effect on its inequality score (average +2.38 score points).
The study also found that companies across the U.S. and Europe with a consistent and positive track record of effectively managing employee health- and safety-related issues over the past five years scored 11.34 points higher on their COVID-19 response, while companies that proactively addressed inequality issues scored 20.93 points higher on their response to the inequality crisis. Companies that responded quickly to the COVID-19 crisis in the spring continued to perform better (+21.22 points) than late responders over subsequent months.
The report calls on companies to translate their purpose commitments into action by, among other things, developing and publishing an implementation plan that includes metrics and measurable targets; conducting an audit of the workforce that includes diversity characteristics and total compensation and benefits, and developing a remediation plan to address any inequities; and developing a capital allocation and executive compensation plans for the long-term benefit of key stakeholders.
"During this time of great social need, companies must quickly adapt, respond, and innovate to strengthen corporate resilience and deliver value for society and shareholders," the report's authors write. "We encourage the investor community to pay attention to company track records on social issues that are likely to become more important as a result of emerging trends, and to identify companies that respond quickly to events as a signal of superior future performance."