Alan Murray, CEO of Fortune Media and author of Tomorrow's Capitalist, argues that ESG is moving from a function to the fabric of organizations—not for feel-good reasons, but because it's the best way to create long-term value for a company.
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Over the past few years of cultural and political extremism, America's corporate leaders have emerged as the pragmatic center of a movement for social and economic progress. This is leading to a revolution in the way corporations are run. Responding to demands by their customers and employees, companies are tackling the fundamental issues of our time, including the climate, diversity and inequality. But is this just a moment in time or a true movement? And how should business leaders handle the backlash against so-called "woke capitalism"?
David Reimer, the executive editor of People + Strategy, and Adam Bryant, articles editor, sat down to discuss these issues with Alan Murray, the author of the new book, Tomorrow's Capitalist: My Search for the Soul of Business. Murray is the CEO of Fortune Media, author of popular Fortune CEO Daily newsletter and a former deputy managing editor at The Wall Street Journal.
People + Strategy: Let's start with the big question about the heightened focus on ESG and companies rethinking and refashioning capitalism: Is this a moment or a movement?
Alan Murray: I think it's a movement, and that's why I wrote the book. I came at this not as an evangelist but as a journalist. I've been working at the intersection of business and society as a journalist for four decades. And in the positions that I've held as editor of Fortune, CEO of Fortune and deputy editor of The Wall Street Journal, where I was organizing conferences and writing columns, I've had the opportunity to spend a lot of time talking to CEOs. Over the last decade, I started hearing very different things from them about how they were thinking about their role in society and their obligations to society. That intrigued me and I started talking to more and more people about it. And I asked myself the question you asked me—is this a moment or a movement?
When I really became convinced that it was a lasting movement was when the pandemic hit. My initial response, when we saw that we were going to head into a recession, was that I've seen this movie before. We went through it during the Great Recession. I assumed that all this talk about stakeholders and social good was going to get put on the backburner because the bottom line was deteriorating, and companies were going to have to focus on the bottom line. To my surprise, what I found in the early months of 2020 was that the exact opposite happened. Because of the nature of the pandemic crisis, companies stepped up their focus on their social contribution—initially by paying particular attention to employee wellbeing—but also customer wellbeing.
Then we saw a huge explosion in climate commitments because of the collective sense of vulnerability that came out of the pandemic. That convinced me we were dealing with something that was more fundamental than just a fad and why I wanted to understand and then explain the forces driving this change in business.
P+S: There is a lot of talk from companies that doesn't match the walk. So many companies are proclaiming that they are mission-driven and purpose-driven, and some of it seems forced.
Murray: I had, and still have, a lot of skepticism. No question that it's become window dressing for some companies. No question there's a lot of "green-washing" going on. But what strikes me on a regular basis in my conversations and reporting is how much serious action there is.
For example, when Mary Barra, the CEO of General Motors, said last year that the company was going to move to 100 percent electric vehicles by 2035, that changed everything within that company. Because the automotive industry operates on long-term investments, hundreds of daily decisions at that company are now filtered through the commitment to shift to producing only electric vehicles.
When Doug McMillon, the CEO of Walmart, said, "We're going to be a regenerative company," that meant having discussions with all of Walmart's suppliers to reduce their carbon emissions. Think of all the companies that want to sell through Walmart. The message to them is that you've got to take this seriously or you're not going to be selling at Walmart in the future.
A third example came from Søren Skou, the CEO of Moller-Maersk, the giant shipping company. It recently made a massive investment in hydrogen fuel production in the North Sea by partnering with a Danish power company to build wind farms to create the hydrogen fuel. It is not economic right now to do that, given the cost. I asked him, "Why are you doing this?" He said, "I'm doing this because every week I get a call from one of my biggest customers saying they have made a commitment to get to net zero by a certain date, and they can only get there if we also get all the carbon emissions out of our shipping business."
I keep hearing stories of very real impact. You can find similar things happening in diversity, equity and inclusion, as well as in the increased focus on wellbeing and the way companies are treating their most valuable workers.
P+S: How do you think about the line that some people see between pursing "an agenda" and being a capitalist?
Murray: That was a richer debate a few years ago than it is today. For so many CEOs, it's no longer a question. This is no longer about doing good. This is about how you create value as a company.
One of the facts I stumbled across in doing research for the book helps explain what's going on. If you looked at the balance sheets of Fortune 500 companies in the 1970's, you would find that more than 80 percent of the value on those balance sheets came from physical things. It was about which companies had the big plants, the equipment, the inventory on the shelves. If you had that physical stuff, which required financial capital to accumulate and support, you were more likely to win. That's where the value was.
Today, more than 85 percent of the value on balance sheets is intangibles. It's intellectual property. It's the emotional connection that the brand has with customers. Those are all things that are much more closely tied to human beings. The role of people in the business-value equation is so much greater today than it was 50 years ago, and so you have to think differently about how you run the company. That's really a big part of what's going on. There's much more of a focus on the wants and needs and desires of your employees and your customers. I think the result is that companies are becoming more human-centric.
A colleague of mine at Fortune, Geoff Colvin, has written about how we spent most of the 20th century trying to get people to be, in effect, better machines. That's what scientific management really was — you create a big production line and figure out how to get people to effectively plug into the production line. In the 21st century, it's increasingly clear that the machines are going to take care of themselves, and we need people to be better people. That requires a complete change in management techniques. That's what is driving a lot of these things that we're talking about.
P+S: How are CEOs supposed to navigate the politically charged environment we are in?
Murray: It's a struggle. It may be the biggest question facing these CEOs now. I find almost universally, in the conversations I am having with big company CEOs, is that, on the one hand, they have no doubt that the world has changed and requires them to take their social responsibilities much more seriously and raise them up to a different level. And to attract the best people and attract customers, they have to be clear about their values and to be willing to stand up for them. But at the same time, they'll tell me that they want to stay out of politics. "Politics is incredibly destructive and polarizing," they will say. "Part of the reason that we as companies are doing these things is because the political system has failed so badly, and if you put us in that environment, we'll fail, too."
That raises two big questions that I think are unanswered. One is that I don't know how you have values and not be involved in politics, because that's what politics is about—social values. So that struggle is very real and very difficult.
The second thing is that these CEOs are saying that we can't be a successful company in the long-term if the planet is burning. We can't be a successful company in the long term if massive inequality has made society unstable. We can't be successful in the long term if we don't make the best use of the human resources available to us, regardless of race, gender, sexual orientation, etc.
What I don't hear anybody saying, but what is equally true, is that we can't be successful in the long run if our political system is failing. That's the question that most of them have yet to come to terms with. Our political dysfunction is a big problem for business. It's a big problem for everyone. It's a complex problem. If we don't figure out how to solve it, you're not going to be able to run a successful business in the long-term.
There's a whole set of questions about how businesses and politics engage that is being avoided right now. For the most part, the CEOs I talk to want to stay as far away from politics as they can but do the right thing. There is some pulling back about speaking out and being more judicious and careful about speaking out. But I don't think that reflects any change in the underlying trend of how companies are acting on issues like climate, diversity and inclusion or care for their employees.
P+S: What do you make of the backlash against what many on the right wing are calling "woke capitalism?"
Murray: It's really disturbing and misguided. We have a political system that tries to politicize everything. But as I've been saying, this isn't driven by companies trying to play politics. Doug McMillon, the CEO of Walmart, is not trying to curry favor with Senator Elizabeth Warren. What he's trying to do is figure out the most effective way to run his company and create value.
This has gone from leaders saying, "I'm doing this because it feels like the right thing to do," to saying, "I'm doing this because I have to create long-term value." What really drove Mary Barra to transition to build only electric vehicles at GM was Tesla. Tesla demonstrated to the world that there was enormous value to be had from making this transition, and that a lot of money was going to be spent during the transition. And so her decision was not just about electric vehicles ultimately going to be the right thing for the environment. It was about a broader transition in the industry and her wanting to get there faster than other legacy car companies. Brian Moynihan, the CEO of Bank of America, addressed this question by saying, "This isn't woke capitalism. It's just capitalism. We're trying to create long-term value."
P+S: Do you think the woke capitalism backlash is going to grow or is it going to fade out?
Murray: I don't think it's going to fade out quickly. We know it's going to be a major theme in our politics for the next few years, and companies are going to have to figure out a smart way to deal with it.
I totally understand why CEOs don't want to tie themselves inextricably to the Democratic party. We've seen enough polls now that say a majority of Democrats don't believe that capitalism is the right system for organizing society. I totally disagree with that, and pretty much every CEO I know totally disagrees with that. So how can you cast your fate with a party that doesn't seem to believe that capitalism is an effective means for dealing with resource allocation and addressing society's problems? And to the extent that the Republican party decides to pursue this notion that anything that sounds like ESG is just woke capitalism, that presents a very difficult political situation for companies.
As much as companies want to avoid politics, politics is not going to allow them to avoid it. They have to figure out a better way to engage on these issues. How they do that is the big unanswered question.
Michael Porter of Harvard Business School and his colleague Katherine Gehl wrote an interesting piece for Fortune about five years ago, which they then developed into a book that used Porter's strategic framework to evaluate what's going wrong with our politics. They noted that this is a classic duopoly. The parties behave in ways that are clearly good for them. They're thriving, raising lots of money and getting lots of engagement. It's just not working for citizens, who are in effect the consumers. Business has to figure out a way to get on a better path, because it is crazy to live in a world where the political system is beating companies up for focusing on their positive contribution to society.
P+S: We raised this before, but it does seem like the commitment to real action is uneven. While you noted some important examples of companies taking concrete and meaningful steps, there is a lot of sloganeering going on at a lot of organizations, without real action behind it.
Murray: We're talking about business becoming more human. Human motivations are complex. Most human beings are a mix of good and bad, and companies are the same. So there's going to be a whole spectrum of behavior on all of these issues. What we're learning is that there is a set of behaviors that defines the best companies.
Jim Collins will tell you that it's always been this way—that the best companies have always been the ones that had a clear purpose. What's happening now is that's becoming less of a nice option and more of a necessity.
If you want to survive and thrive in this very disruptive marketplace, you're going to have to do this in a very real way or your company is not going to get the best employees. And if you don't get the best employees, you're not going to win the corporate battle. Employees are very good at sniffing out the difference between purpose-washing and true purpose.
This is my advice to board directors: If you really want to understand whether your company has a true purpose that's driving its operations every day or just a purpose that's out there for public relations, the best way to find out is to look at the employee surveys. Look at what the people who actually work there are saying.
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