Episode Summary
We first discussed environmental issues, where the interests of shareholders and the broader stakeholders are often very aligned. Andrew discusses how Walmart has become a leader through both its scale and a thoughtful, detailed approach. Social issues vary quite a bit by geography and type, so Andrew offers a framework for decision-making. Finally, we discussed governance issues from a broader perspective, going beyond purely corporate governance mechanics.
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Guest-at-a-Glance
- Name: Andrew Edgecliffe-Johnson
- What he does: Andrew is the US business editor at the Financial Times.
- Company: Financial Times
- Noteworthy: As the US Business Editor, Andrew focuses on themes and concerns running through boardrooms in every industry and the people leading the debate on how business should intersect with consumers, employees, investors, policymakers, the economy, and society.
Where to find Andrew: LinkedIn｜Twitter｜FT Profile
Key Insights
🎙️How does a company’s decision to take a stand on something, or to not take one, become newsworthy? First, we must understand what is characterized as news. As Andrew explains, news is a break in the pattern; so, stories that become newsworthy are those that show a new pattern forming. […] Although large corporations’ involvement in political and social issues drives a lot of attention, it takes time to investigate the background of those actions. Otherwise, we can easily slip into a whirlpool of fabricated statements, semi-information, and misleading stories. ”At the Financial Times, we’re always quite conscious of how much substance there is to a story and how much it’s likely to affect the business. We are mostly writing about businesses in this context. There’s an awful lot of noise, a lot of people out there who are trying to create and generate noise with different agendas. It might be labor unions; it might be professional politicians; it might be employee groups starting from different points of view. So we’re always having to filter whether the reaction is confected or threatens to change the dynamic for a company.”
🎙️Corporations are active participants in society, not only in the economic and financial realm but also by influencing social debates through their advertising activities, political contributions, and hiring policies. So what should companies take into account when considering getting involved in specific social issues? ”It starts by asking what’s relevant to the business. Does this affect your business and your people? Who’s asking you to take a stand? But then, it’s also a question of process. Are you consulting with employees? Are you consulting with consumers? If that’s relevant, are you running this past the board? And are you being transparent and communicating your rationale behind this? There’s a case of being more upfront with your stakeholders about the decision-making. It’s often quite opaque, and that’s got companies into trouble in the past.”
🎙️For large corporations, governance risks fall into three buckets: what’s happening on the board, what’s happening to national governments, and what’s happening in the geopolitical arena. ”The events of the 2020 election in the US and the subsequent storming of the Capitol building on January 6, 2021, set CEOs thinking about whether they’d become complacent about political stability in the United States and about the role that democratic stability plays in enabling economic predictability and stability. So […] there is a focus there that wasn’t before. And then came 2022 and Russia’s invasion of Ukraine, and suddenly all of these US and Western companies had to pull people out of Kyiv. They’re having to close down in Russia because of the reputational risk of still operating under Putin’s regime and writing tax checks to Moscow every year. And they’re looking at the analogies of geopolitical risk elsewhere around the globe; Taiwan is probably first in the mind of most CEOs now, and they’re starting to think about governance in that sense too.”
Episode Highlights
Andrew Edgecliffe-Johnson on His Role as US Business Editor at the Financial Times
”I lead a team of excellent business reporters across the FT, mostly in New York and Chicago. And despite that editor tag, I spend most of my time writing, and I’m the corporate America correspondent. I’m mostly looking at the cross-sector trends that the boardrooms of the biggest US companies are all grappling with at the same time.
So, we have very good sector correspondents and everything from banking to tech to media and farming. I’m looking for stories that cut across those different industries. I also do deep dives into some of the most compelling corporate tales of the time: the rise and fall of WeWork or Peloton, or Howard Schultz’s labor issues at Starbucks, or Walmart’s embrace of a social and environmental agenda.”
Economic Self-Interest Is Often Aligned with Environmental Goals
”About 15–17 years ago, a former CEO of Walmart challenged his management team to say, ‘If we were burning less fuel in our trucks, if our buildings were more energy efficient, and if the stuff we sold was less wasteful and was creating less plastic and other waste, could we make money by doing that?’ And cutting prices is at the core of Walmart’s mission, which means they are constantly looking to cut costs.
And its buying power means that if it decides to adopt a particular electric vehicle technology or put solar panels on the roof of every distribution center or switch from the sort of plaster plastic blister packaging to cardboard packaging, it can ripple through the supply chain and bring down the prices of those technologies, not just for itself, but for the wider world. […]
Walmart was the bad guy in the eyes of activists 20 years ago, even ten years ago. But it’s now working with a lot of environmental activists. It’s brought them inside the tent to help advise it. And it has policies on everything from soil health in the Dakotas to tuna fishing in the Marshall Isles — trying to work out how it can be more sustainable.”
Corporate governance has been improving
”A lot of the governance changes we have seen have been focused on diversity. It’s been [focused] on changing the composition of the board and ensuring that boards look more like the wider population — more racial and ethnic minorities and more women. That is a genuine change.
But on some other issues, separation of the chairman and CEO roles and the elimination of dual class structures — which concentrate powers in the hands of family shareholders or one founder shareholder — there’s been little progress. It’s quite shocking how little has changed over the years.”
Top quotes:
[05:28] ”We’re seeing skepticism of big corporate pledges in action on both sides of the political aisle.”
[10:51] ”Companies are significant participants in our societies. They have economic power, but they also have the power to influence our social debates directly through their advertising, hiring policies, lobbying spending, and political contributions.”
[17:15] ”CEOs have started to think about governance, not just as a word that defines the management and the oversight of their own companies but also in terms of governance structures within which they operate in their countries and globally.”
Full Transcript
[00:00:00] Andrew Edgecliffe-Johnson: First of all, I’d start by saying that, like it or not, companies are significant participants in our societies. They have economic power, obviously, but they also have the power to influence our social debates directly through their advertising, through their hiring policies, through their lobbying, spending, and their political contributions. So, this isn’t new, but it is getting much more fraught and more contested.
[00:00:23] Intro: Hello, and welcome to Signals by AlphaSense, where we hear thoughtful insights from business leaders, investors, and experts.
[00:00:34] Nick Mazing: Hello, and welcome, you’re listening to Signals by AlphaSense. I’m your host, Nick Mazing. Today we’re joined by Andrew Edgecliffe-Johnson, US Business Editor at the Financial Times here in New York City. We’re going to talk about one of the difficult problems faced by large corporations and their executives. Should your corporation take a stand on anything? Andrew, welcome.
[00:00:57] Andrew Edgecliffe-Johnson: Hi, Nick. Thanks for inviting me.
[00:00:59] Nick Mazing: So, I usually ask the guests for their bio, but I’m going to add an additional request here. Can you demystify what the US Business Editor at the Financial Times actually does?
[00:01:14] Andrew Edgecliffe-Johnson: That’s a, a very good question. Well, in short, I lead a team of excellent business reporters across the FT, mostly in, uh, New York and Chicago. And despite that editor tag, I spend most of my time writing, and I’m sort of the Corporate America correspondent. I’m mostly looking at the cross-sector trends that the boardrooms of the very biggest US companies are all grappling with at the same time.
[00:01:40] So, we have very good sectoral correspondence and everything from banking to tech to media and farmer. I’m looking for the stories that cut across those different industries, and I also do sort of deep dives into some of the most compelling corporate tales of the time, like The Rise and Fall of WeWork or Peloton or Howard Schultz’s labor issues at Starbucks or Walmart’s embrace of a social and environmental agenda.
[00:02:05] A lot of what I write about is actually the, precisely this question, it’s the interplay of business, society, and politics. So, um, it’s good, good topic for us to be, to be discussing today.
[00:02:18] Nick Mazing: So, we are seeing more and more companies taking a stand on what can be described as political, social issues under pressure from employees or other stakeholders, sometimes external organizations and so on, and a lot of the stress around making that decision to go public or not to go public with a certain position or a certain issue comes from the reaction to the reaction.
[00:02:42] In other words, if a company chooses to do something or chooses to do nothing, the publicity that is generated is a little bit out of control, and it can, you know, really escalate, and I think you and your peers at other leading publications are at the nexus of that, in other words, you can really influence coverage.
[00:03:05] So, here is a very basic question, again, in the line of demystifying, you know, what an editor does. So, excluding a material event, like, let’s say, a media and entertainment company losing its special tax status in its, you know, state and so on.
[00:03:19] Andrew Edgecliffe-Johnson: I think I know which media company you have in mind.
[00:03:21] Nick Mazing: So, so, how does something like this become news?
[00:03:27] Andrew Edgecliffe-Johnson: Well, very broadly speaking, news is typically a break in the pattern, something new, something we’ve never seen before, and it’s also, you know, some stories become newsworthy be, because they’re the latest example of a new pattern forming, uh, and I think many of the examples we’re likely to discuss today fit that description of news.
[00:03:48] I mean, I think at the Financial Times, we’re always quite conscious of how much substance there is to a story like this, how much it’s likely to affect the business, we are, ’cause we are mostly writing about businesses in this context. Um, there’s an awful lot of noise, uh, a lot of people out there who are trying to create and generate noise with different agendas.
[00:04:09] It might be labor unions, it might be professional politicians, it might be employee groups, uh, of different, you know, starting from very, very different points of view. So, we’re always having to filter whether the reaction you mentioned is confected or something that really threatens to change the dynamic for a company.
[00:04:28] Nick Mazing: I don’t necessarily want this to be an ESG episode, per se, but obviously, some of the topics, you know, really do crossover. So, let’s talk about environmental issues first, I think that’s relatively straightforward. So, at a very basic level, you have very good alignment between shareholders and external stakeholders.
[00:04:48] So for, for example, if you are a shareholder in, you know, FedEx or UPS, you wanted to burn less fuel, it means more money for you as a shareholder. Society is better off when UPS and FedEx burn less fuel, so that’s pretty straightforward. Now, in some cases, you have situations where there is an environmental externality that is just at the core of all the company.
[00:05:10] So, utility company with CO2 generation, or if you look at the consumer package goods like packaging, even when they don’t use virgin plastic for packaging, even when it’s recyclable, that little it gets recycled, and even when it gets, when it gets recycled studies that you actually recycling is worse than actually using fresh packaging.
[00:05:31] And then, you have things like net zero pledges that, you know, I mean, I’ll be net zero in a hundred years, most likely, barring any sort of, you know, life extension discoveries. So, what do you see on the environmental side that works?
[00:05:46] Andrew Edgecliffe-Johnson: Well, I think one of the interesting things we’re seeing now is there’s skepticism of big corporate pledges in action on this topic from both sides of the political aisle, I think people on the left of the political debates in the US have often felt suspicious of big corporations. Now, they’ve been joined by people on the right who think that the ESG agenda and the climate agenda within that is bogus, uh, and, or that it is undermining the need for energy security in the country, which is obviously highlighted by Russia’s invasion of, of Ukraine.
[00:06:20] But I think you touch on a really interesting point, which is there is often an economic self-interest powering this agenda, and I think one of the examples that I keep in mind is in September, I went down to Bentonville, Arkansas, which is the headquarters of Walmart, which is actually the world’s largest company by revenues.
[00:06:40] So, put simply, nobody sells more stuff than Walmart. So, its environmental impact is massive, and actually, it’s impact on, on, on society is massive as well, but we can get to that later. But about 15, 17 years ago, a former CEO of Walmart challenged his management team to say, you know, could we do better, and could we actually save money by doing better?
[00:07:04] So, if we were burning less fuel in our trucks, if our buildings were more energy efficient, and if the stuff we sold had, was less wasteful and was, it was creating less plastic and other waste, could we actually make money by doing that? And remember, you know, cutting prices is at the core of Walmart’s mission, which means that they are constantly looking to cut their costs.
[00:07:26] So, it’s sheer scale, it’s buying power, means that if it decides to adopt a particular electric vehicle technology or put solar panels on the roof of every distribution center, or switch from the sort of plastic blister packaging to cardboard packaging that it can ripple through the supply chain and bring down the prices of those technologies, not just for itself, but for the wider world.
[00:07:52] And that is what I found when I went down to Bentonville, and I think one of the interesting things, by the way, is that, yeah, Walmart was really the bad guy in the eyes of a lot of activists 20 years ago, even 10 years ago. I think it’s probably been displaced now, maybe by Amazon, but it’s now working with a lot of environmental activists,
[00:08:10] it’s got, brought them inside the tent to help advise it, and it literally has policies on everything from soil health in the Dakotas to tuna fishing in the Marshall Islands, you know, trying to work out how it can be more sustainable. And I think sustainability is a very wishy-washy word, but I think the more serious companies understand that
[00:08:33] there are risks to the survivability of their business, their future profit streams if climate emergencies and extreme weather events keep disrupting their supply chains, flooding their, their stores, et cetera. So, this is an interesting mix from an environmental agenda and an economic agenda.
[00:08:55] And now, let’s talk about the hardest thing to take a stand on or to ignore since it’s very hard to win if you’re a corporation and that is social issues, and, you know, if you have, like, a strict materiality view, despite internal or external pressure on most things, like, you shouldn’t do anything, right?
[00:09:12] Nick Mazing: That’s, that’s my view. In some cases, there are external events that affect the health and well-being of employees. So, if you take, let’s say, abortion, which, so companies, adding things like travel and so. On the other, for issues that the other side of the aisle cares about, let’s say crime, there was a, you know, major financial institutions that left Chicago, specifically, because of crime, they took a stand on that.
[00:09:36] You’re seeing it now with the retail CEOs discussing the very serious retail theft crime problems in certain states and certain cities. We’ve had social issues, like the Florida Parental Rights Act, which was a big deal for a certain media company, we had the Georgia voting situation
[00:09:52] couple years ago, which was also a big deal for certain companies, certain companies. And then, during Pride Month, every year on social media you have side by side, well, why isn’t the pride flag on your Gulf State’s Twitter account and so on, right? So, like, constantly ongoing example, a US company may be speaking up on social issues in the US but says nothing about China as the spokesperson of that company, whether it’s, let’s say, a famous athlete, can be doing the exact same thing.
[00:10:22] So, like we said, this is very hard. So, how do you think companies should decide on being public on each way versus bureau being public at all?
[00:10:33] It’s a big question, I mean, first of all, I’d, I’d start by saying that, like it or not, companies are significant participants in our societies. They have economic power, obviously, but they also have the power to influence our social debates directly through their advertising, through their hiring policies, through their lobbying, spending, and their political contributions.
[00:10:54] Andrew Edgecliffe-Johnson: So, this isn’t new, but it is getting much more fraught and more contested, and I think the reason is that as companies become more powerful forces, just through their sheer size, more groups have realized that influencing corporate decision making, co-opting corporate power, if you like, is actually a highly effective way to influence society.
[00:11:18] So, the image I have in my mind is if you wanted to save the whale right now, would you stand in front of Congress with a placard saying save the whale, or would you stand in front of the Walmart annual meeting, of the JPMorgan annual meeting, or any other large company’s annual meeting?
[00:11:33] And I think this is actually quite a rational channeling of corporate power by activists, whether you like it or not. And that might be a group of employees, it might be a group of environmentalists or a group of politicians putting pressure on these companies, or it might be an individual CEO with a strong opinion such as, you know, the example you cited of leaving Chicago for, for fear of crime.
[00:11:54] How should companies actually weigh what’s right to do in these circumstances? I think it starts by asking what’s relevant to the business, you know, does this affect your business, uh, your people? Who’s asking you to take a stand? But then, I think it’s also a question of process, you know, are you consulting with employees?
[00:12:09] Andrew Edgecliffe-Johnson: Are you consulting with consumers? If that’s relevant, are you running this past the board? And are you being transparent and communicating your, your rationale behind this? I think there’s a case of being more upfront with your stakeholders about the decision-making, it’s often quite opaque, and that’s got companies into trouble in the past.
[00:12:28] Nick Mazing: Yeah, that’s a very good point, and I, and it’s interesting that your colleague, Robin Wigglesworth, commented exactly on that that the political dysfunction has meant that working through the corporate channel, and in, in his case, the big indexers, has been more effective to actually drive change rather than through the legislated
[00:12:47] and other, you know, typical political pathways just because of the paralysis and which leads us to governance, and you, you had a very interesting angle there because when I, when we first spoke about governance, and I was like, well, I mean, there’s nothing to talk about because, like, I’ve read hundreds of proxy statements and it’s like Lake Wobegon, right?
[00:13:06] Our governance is above average, including our, you know, our comfortables and so on. And everybody knows at the corporate level what is good governance, and things like, let’s say, no staggered boards splitting the CEO and chairperson at role, uh, no dual-class shares, and even, you know, if you look at the S&P 500 Index committee, they just decided, okay, recently decided, I should say, that they’re not going to be including new companies with dual-class share structures in probably is the largest equity pool in the world, pay for performance, and so on.
[00:13:39] You have a broader view of governance and the role of corporations, so can you tell us a little bit more about that?
[00:13:49] Well, I, I think I’ve been writing about corporate governance for a good 25 years or more now. And my very first splash, my first lead page, one story, when I was working in London was on a shocking news that a two-day-a-week chairman of a privatized utility company was earning 1 million pounds a year.
[00:14:06] Andrew Edgecliffe-Johnson: So, that tells you the executive pay component of governance has maybe not improved, uh, in recent decades despite these entries into the supposed ESG era in which the G stands for governance. And I think a lot of the governance changes we have seen in that era have been focused on diversity. It’s been, been on changing the composition of the board and ensuring essentially that boards look more like the wider population, more, uh, racial and ethnic minorities, more women, than they used to be.
[00:14:38] And I think that is a genuine change, but on some of the other issues you, you mention of separation of the chairman and CEO roles, the elimination of dual-class structures, which concentrate powers in the power, in the hands of maybe family shareholders or, or one founder shareholder.
[00:14:55] There’s been very, very little progress, it’s quite, quite shocking how little that has changed over the years. But one, one change I have noticed in the past two years, I’d say, is that CEOs have started to think about governance, not just in terms as a word that’s defined the management and the oversight of their own companies, but in terms of the
[00:15:18] governance structures within which they operate in their countries and globally. So, the events of around the 2020 election in the US and the subsequent, uh, storming of the Capitol building on January 6th, 2021, really set CEOs thinking about whether they’d become complacent about political stability in the United States,
[00:15:43] and about the role that democratic stability plays in enabling economic predictability and stability. So, we’ve seen a much more activist move from Corporate America to speak up for free, unfair elections, for orderly transfer of power from unprecedented to the next, for voting rights.
[00:16:06] And there have been some limits to that, they haven’t necessarily swung behind all of the legislation that might have ensured progress on those fronts, but there is a focus there that there wasn’t before. And then, come 2022 and Russia’s invasion of Ukraine, and suddenly all of these US companies and Western companies, more generally,
[00:16:27] are having to pull people out of Kyiv, they’re having to close down in Russia because of the reputational risk of still operating in, in under Putin’s regime and writing tax checks to Moscow every, every year. And they’re looking at the analogies there of geopolitical risk elsewhere around the globe,
[00:16:47] Taiwan is probably first, uh, first in the mind of most CEOs now, and they’re starting to think about governance in that sense, too, you know, what role can we, does, do corporations play in actually ensuring that the world functions in a way that is friendlier to the long-term prosperity of large corporations?
[00:17:08] Now, you may take a, a very suspiciously of that, or you may, may, you may like it, but that is, that is definitely a change in the debate that I’ve seen, and I think we need to think about governance risks for large corporations in those three buckets, you know, what’s happening on the board, what’s happening to national governments, which are gonna affect them a lot in terms of tax and regulation and just plain stability.
[00:17:33] And third, what’s happening in the geopolitical arena as democracies fumble and autocracies get bolder?
[00:17:42] Nick Mazing: This is certainly a, a much broader view of governance that I expected. Andrew, thank you for joining us today.
[00:17:48] Andrew Edgecliffe-Johnson: Thank you, Nick, it’s been a pleasure.
[00:17:50] This was Andrew Edgecliffe-Johnson, US Business Editor at the Financial Times. We have all the relevant links in the show notes. My name is Nick Mazing, this is Signals by AlphaSense, and you can subscribe to us on the major platforms. Thank you for listening.
[00:18:03] Outro: Thank you for joining us. This was another episode of Signals by AlphaSense. Keep in mind that all views presented here are the views of the guests and hosts and do not represent the views of their employers or of AlphaSense. Nothing in this podcast constitutes investing, tax, legal, or medical advice. If you enjoyed this episode, leave us a rating and review and subscribe for more.
