What about the workers?

Anyone who has been reading the Financial Times over the past year or two will have noticed thatthe Pink ’Un has started to get the jitters about the future of capitalism. The rise of populists on Left and Right, political shocks likes Brexit and Trump’s election, and public antipathy towards business have led to many a hand-wringing opinion piece.
For us, hands down the most interesting and significant intervention has come from Leo Strine, outgoing Chief Justice of the Delaware Supreme Court. Noting that in recent decades workers have failed to benefit relative to investors from the increasing wealth generated by companies, in largepart as a result of increased productivity, Strineargues that therefore interventions are needed to redress the balance:
“Companies should have board-level committees that ensure quality wages and fair worker treatment. Labour law reforms should make it easier for employees to join aunion and bargain over wages. Likewise, to hold companies accountable for how they treat their workers, how they treat their consumers, and whether they operate in an ethical, sustainable, environmentally responsible manner, the public and investors deserve better information from companies about their performance on these critical dimensions.”
While he stops short of advocating worker representation on boards – a policy supported by a number of Democrat candidates for the Presidency, and something that PIRC has advocated for many years – his call for board-level committees is welcome. But it is thegeneral thrust of the piece that is most important. A significant figure within mainstream corporate governance is calling for a greater recognition ofthe role of employees. It is a message we have been waiting a long time to hear.
Strine is also absolutely on-target about the general lack ofinterest on the part of too many investors in thepeople who actually work for companies:
“You can go to entire conferences where people will talk aboutsustainability, everything, and they will not mention how the company treats its workers.”
Certainly theESG industry as it exists today has an enormous class bias. The issues it prioritises are those that appeal to progressive, upwardly mobile middle class professionals. There are a vanishingly small number of working class voices in the industry, labour issues are very low down the agenda for most investors, and workers and their representative are hardly ever invited to speak at ESG events – even when workforce-related issues are on the agenda.
We hope Strine’s intervention will help begin to turn attitudes around. And we should not underestimatethe stakes. Responsible Investment will lack any legitimacy – and won’t function effectively – if it is allowed to degenerate into an asset management product offering. Meanwhile, the ‘engagement’ risks being turned into high-level deal-making between highly-remunerated corporate staff one side and finance professionals on the other. It is a very, very long way from the vision of Responsible Investment that attracted many of us into this field in the first place.
Once upon a time we thought that the ownership of companies via pension funds was a democratising force, enabling ordinary people to gain power relative to corporations. However, the current direction of the RI industry sees more power flowing away from those whose money is being invested. Instead, it is being accumulated by asubset of those same corporations, the giant asset gatherers of the finance sector. Power over critical ESG issues has not been passed down the chain to beneficiaries, but up it to giant global financial corporations. It is hardly a surprise that the interests of workers get so little support.
Therefore, Strine’s article should give us all pause for thought. The bulk of the assets that power Responsible Investment, all those pension funds worldwide, were generated by millions of ordinary working people. Those pension funds were negotiated by those workers via their trade unions. It is time Responsible Investment was re-envisioned, with a much stronger emphasis on the interests of those whose capital is being invested.

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