U.S. Investors’ Understanding of Workplace Policies and Practices and the Need to Change Them: Progress and Future Efforts

Larry W. Beeferman is a Fellow at the Labor and Worklife Program at Harvard Law School. This post is based on his recent paper.

Under the rubric of “ESG” factors and notions such as “responsible,” “socially responsible,” “sustainable,” and “long-term” investment (and more recently, “impact” investment) increasing attention has been given to corporate conduct as it bears not only on the interests and concerns of investors but also of others whose lives and livelihoods—now and across future generations—are bound up with it. For some time the primary focus was on “G” (governance) issues though “E” (environmental) ones have gained greater prominence. Relatively speaking, little notice has been taken of “S” (social) issues, among them, workplace-related (including human rights) matters.

Change has been very slow though the pace has picked up recently. Among the highlights (in the United States) were the petition filed with the Securities and Exchange Commission in 2017 by the Human Capital Management Coalition pressing for regulations requiring corporate disclosure with respect to “human capital” and the inclusion by the SEC, in 2019, of provisions relating to it in the agency’s broader, pending revision of S-K regulations. Such progress reflects hard, persistent work by numerous actors—certain investors and others who spurred or supported them—who have sought to advance frameworks and/or standards for disclosure.

U.S. Investors’ Understanding of Workplace Policies and Practices and the Need to Change Them: Progress and Future Efforts (aims to aid discussion about efforts in this regard in the United States. It represents a first attempt to gauge the state of the field: what might drive its evolution, necessarily leaving to subsequent inquiry more detailed examination of various issues.

The paper characterizes arguably significant attributes of a small number of seemingly important, representative actors in the field to make the initial assessment. Among them are the following:

  • How actors frame the discourse about workplace-related issues: often in terms of “human capital,” a term not without its attractions but which is associated with and/or may foster treatment of workers as objects of company action, rather than as human beings with values, needs, aspirations, capacities, etc. whose experience with respect to work is embedded in an array of social and other relationships, who can and should exercise agency and voice at the workplace.
  • The broad range of issues which inform actors’ efforts: there is varying attention to part-time, temporary, on-call, agency, etc. workers, those who are ostensibly contractors not employees, those employed by suppliers, those who work outside the United States, etc., and on human rights issues as such.
  • What drives actors’ attribution of significance to these issues: investor narratives are variously framed in terms of one or another version of the factors and notions cited above, but not infrequently are unclear and at worst muddled or even incoherent, or spill over into the misleading. There are parallel company narratives often cast in such terms though articulated in relation to a pursuit of values alongside financial value.
  • The roles actors play as investors and in relation to other actors (including companies from whom disclosure is sought) and how those roles might be bound up with the attribution of significance to issues: the field is obviously populated by diverse kinds of public and private asset owners, asset managers and others who provide investment-related services, major accounting and consulting firms, and necessarily companies which are the object of disclosure entailing complex relationships and inter-dependences; in principle, also organizations which represent the interests of people as workers and others allied with them;
  • In turn, the choices of
    • Topics of workplace-related issues;
    • Particular issues within those topics; and
    • Metrics and supporting data which portray aspects of those issues with which actors are concerned; correspondingly, the methods they employ to make such choices. They range from “popular” sentiment about which implicate important concerns about “just conduct” to opinions expressed by investor, company, and other constituencies about which issues are of significance to ostensibly technical judgments.

The variance among these choices helps explain the multiplicity of standards and frameworks as well as different assessments of the merits of particular elements of them. The challenge is in some measure compounded by an academic theoretical and empirical literature which, though extensive, might be at best suggestive as to which individual elements are important; which clearly points to the greater importance of “bundles” of such elements; and which, it appears, gain great attention by various actors. Literature generated by consulting and other “human resources” services firms—and, of course, firms themselves—is not readily accessible and, in any event, the merits of what is available is not at all clear.

Moreover, actors’ choices necessarily reflect how important legal and related ideological and other frameworks are seen to bear on why and how they make those decisions. Prominent among the frameworks are, of course, ones which pertain to fiduciary duty, especially as it relates to assets in retirement plans and others concerning “materiality” as it relates to regulation of corporate disclosure of publicly traded securities. The former not only remains contested, but also because the standard was formulated for defined plans, there is not yet a suitable one for other kinds of plans. Moreover, the fiduciary or related calculus for the assets in Individual Retirement Accounts has yet to be sufficiently explored. As for the latter, notions of “materiality” are also disputed not only within the context of it understood in terms of (solely) financial materiality but with reference to a broader understanding. That broader understanding looks beyond the crabbed view of the information required by flesh and blood human beings when they make decisions about buying and selling securities, that is, that they supposedly base their choices solely a company’s financial performance and the considerations which bear upon it. It is evident that such human beings almost certainly in some measure take into account the non-financial implications of a company’s conduct; for some such implications represent a significant or even compelling factor in the choices they make.

Acknowledgment of that point is bound up with assessing the evolution of the field: whatever the attention to company conduct for its own (and securities owners’) sake, heretofore it was driven in no insubstantial measure by concerns about the consequences of that conduct for workers’ sake.. The variance noted above necessarily reflects a shifting landscape of actors and their priorities and interests as they bear upon consideration given and significance attributed to one or the other concern. In turn, the paper suggests that the direction of the field will be influenced by the nature and extent of the role of workers and organizations representing their interests in the formulation of standards and frameworks and, in turn, which issues are addressed and how.

Within the compass of the essay there was space to only take note of other important, considerations, which include the following: the size and influence of large actors, e.g., among asset managers, and their complicated relationships with companies in their portfolios; the particular modes for ownership/investment, e.g., on one hand, the enormous growth of index funds and, on the other, the importance of privately held companies; the import of the ongoing and increasing disparities in wealth, including direct and indirect ownership of corporate stock; and developments in the political sphere as they might be bound up with various ideas about enterprises’ relationship with their “stakeholders” in general terms and for some (and most dramatically) as they concern workers having a role in the governance of those enterprises or as their “owners”.

The complete paper is available here.

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