In The Resilient Investor, we noted that this is an era of volatility, uncertainty, complexity, and ambiguity. Five years after the publication of our book, which was devoted to planning for major disruptions, it turns out even we underestimated how prescient our framework would be!
Typically, volatility is described in terms of the severity of equity market price fluctuation. Severe peaks and valleys in a short period of time typically reveal the levels of investor uncertainty in the absence of dependable economic patterns.
Market uncertainty increased when Trump was nominated and elected and was generally higher than normal throughout 2018 and 2019. Although it skyrocketed in February and March, as the pandemic emerged, it has actually been decreasing the past few months.
Of course, stock market prices don’t tell the whole economic story. There is a much deeper level of uncertainty about the pace of recovery, given the extreme level of unemployment and economic dislocation. The pandemic is only part of the uncertainty; mistrust in this administration’s competence, along with its unstable relationships with the leadership of other countries, are further reasons for concern.
Many believe we will likely experience a roller-coaster of an economic recovery fraught with ambiguity. In the absence of a strong government plan to foster financial stability for Americans, socially responsible investors and businesses are focused on the pandemic’s unequal impact on longstanding economic inequities that affect people of color and low income communities.
Socially responsible investors see this crisis as an opportunity to focus economic recovery efforts on assuring that low-income people get the support they need to survive. For example, the CDFI Coalition reports more than 500 investment firms sent a letter to Congress requesting $1 billion in stimulus money for community development banks, credit unions, and loan funds that primarily serve people of color and low-income communities.
Investors are also demanding responsible corporate practices during the crisis. A recent statement—released by the Interfaith Center on Corporate Responsibility and signed by more than 300 firms managing nearly $10 trillion in assets—urges businesses receiving stimulus funds to maintain their employees and offer hazard pay, provide paid leave and childcare assistance, offer health insurance for laid off employees, protect worker health and safety, maintain the supply chain, reduce executive compensation, and prohibit share buybacks.
Similarly, responsible investors recently urged members of the Business Roundtable, a group of 180 major corporate CEOs that signed the 2019 Statement on the Purpose of a Corporation to follow through on their promise and operate in a manner that benefits all stakeholders—customers, employees, suppliers, communities and shareholders—throughout the crisis. At Bank of America, Blackrock, Citigroup, Goldman Sachs, and McKesson, shareholder proposals this year request that companies assess whether there are changes to governance, metrics, or board membership criteria that could more fully implement the statement.
This increased pressure is necessary because companies are doing a mediocre job of walking the walk thus far. Data in JUST Capital’s COVID-19 response tracker, which measures corporate responses to the coronavirus on these issues, reveals that companies are not doing enough to keep the consumer economy and communities functioning.
Amazon, FedEx, Walmart, meatpacking companies, and others have been cited for failing to protect the health and safety of employees during the pandemic, thereby contributing to increased transmission threats to their communities. This crisis offers a vital opportunity for companies to connect their resiliency and recovery to a high level of cooperation among employees, boards, customers, and suppliers. It also provides an opportunity to introduce other responsible business practices according to SRI criteria: adequate wages and health benefits, workplace safety, the addition of employees to boards of directors, the assessment of natural resource risks within the supply chain, and climate-change risks associated with the fossil-fuel portfolios of large banks like JP Morgan Chase.
Addressing these risk factors while aligning the interests of all stakeholders, as B Corporations have always done, would redefine good corporate management among mainstream companies. There’s much more work to be done, but the signs of it taking hold are encouraging.
Credit: AP Photo. New York City’s subway conductors are among the “essential workers”who have been exposed to greatly elevated risk of contracting COVID-19.
