What is the business of business in a Covid-19 world?

COMMENT

 The unfolding of the global coronavirus pandemic, accompanying economic hardship, and difficulty that governments around the world have encountered in responding raise fresh questions about what the broader role of business is in such moments of crisis. About 50 years ago, The New York Times published an iconic — and short — answer: none.

In The Social Responsibility of Business is to Increase its Profits, the economist Milton Friedman articulated his now famous mantra that business had no business investing in social welfare or the broader public good; he argued that for a chief executive to do so was a dereliction of their legal obligations to the company’s shareholders. Their only responsibility was to deliver as a high level of profit for investors.

In the decades that followed, Friedman’s view came to be immensely influential, coinciding as it did with the rise of neoliberal thinking. Together these developments inaugurated the era of shareholder primacy amid large-scale deregulation and rolling back of the state. Corporate life was dramatically reshaped by the view that a firm’s leaders should be compensated only for how well that firm was doing — and by the corresponding notion that that was best measured by a firm’s share price. This morphed also into the assumption, perhaps most prominently voiced by President Donald Trump, that if the stock market was climbing the entire economy must be flourishing. The contradictions in this approach are increasingly evident in the Covid-19 era.

There was, perhaps inevitably, a backlash, epitomised in the growing prominence of corporate social responsibility, and the view that business needed to earn its social licence to operate. More recently we have seen the development of economic, social and governance metrics to monitor business performance. At Davos in 2017, more than a hundred chief executives issued a compact arguing that “society is best served by corporations that have aligned their goals to the long‑term goals of society”. This was echoed in a 2019 statement by the United States-based Business Roundtable which recognised that businesses owed a commitment not merely to shareholders but to “all of our stakeholders”. The firms’ leaders pledged among other things to “invest in [their] employees” and “support the communities in which [they] work”.

These gestures have been greeted with predictable cynicism. Some nine months into the pandemic, a report issued by the Test of Corporate Services initiative (TCP) and KKS Advisors found that in response to the Covid-19 pandemic, the signatories to the Business Roundtable declaration “did not outperform their S&P 500 or European country counterparts”. If the pandemic provided a grim test of corporate purpose, most firms failed.

This does not mean that no businesses responded thoughtfully to this crisis. The same report found a strong correlation between early responders to the Covid-19 pandemic and firms with a “history of superior performance on relevant social issues”. For example, Trane Technologies, an electrical and electronic equipment firm, provided its US employees with access to child- and elder-care assistance and set up a fund to help those employees facing unexpected financial difficulties as a result of the pandemic. Assa Abloy, a Swedish firm working in the same sector, supplied their government with 100 000 masks.

There are historical precedents for such public-minded firm behaviour. Biographer Jean Strouse cites the example of the banker Pierpont Morgan and the role he played in the financial panic of 1907. In the absence of a central bank that could regulate and calm the markets, it was Morgan who served as the lender of last resort and bailed out much of the financial system, from a pool of funds ($-25-million) that he cajoled his fellow bankers into establishing, as well as from his own and his firm’s resources ($54-million). For a fortnight he substituted for an absent state in a social crisis that threatened his own firm, but also the welfare of millions. 

In South Africa we saw a number of firms react with foresight and courage to the HIV pandemic some 15 years ago. In an era when the cost of antiretrovirals was still skyhigh, a few firms (notably Anglo American and Daimler Chrysler) provided free ARVs to their sick workers — and in some cases to workers’ spouses and families. The actions by the Consultative Business Movements and others in the late 1980s and early 1990s to support and sustain the political negotiations and elections are similarly of a piece.

Such responses are not how all or even most businesses respond in such moments of crisis — but they happen often enough to warrant comment. Meaningful business action flows from the realisation that the true interests of firms cannot be separated out from the wellbeing of their workers or the neighbourhood in which business operates.

 This represents a scalar and temporal shift in how firms understand their interests: away from a narrow or short-term conception to an understanding of business interests as more expansive and playing out over the medium and long-term. To respond proactively then is not to ignore business interests, but to understand and pursue them more fully. As James Mwangi, the chief executive of Equity Bank in Kenya, has argued: “When you see huge threats to society and you deploy your resources to mute those threats, you are not doing corporate social responsibility. It is your survival that you are protecting.” 

There are several reasons African-based firms may be better placed than their counterparts in advanced economies to articulate and act on this view. My research suggests that certain kinds of firms in certain sub-sectors are more likely to be capable of this thinking, namely large, profitable, sole-proprietor or family-owned firms that rely on waged labour; and firms located in particular sub-sectors of the economy (especially mining and finance) or conglomerates invested in wide range of sub-sectors. 

On the face of it, it is not obvious that Africa is well set up then, given the predominance of small and medium-sized firms, and the significance of the informal sector. But the environment for business in Africa has improved markedly over the past 15 years or so; in the World Bank’s Doing Business index for 2019, five of the top 10 most improved countries were in Africa. 

Mining, of course, is prominent in many of the continent’s economies and finance is growing in importance. Africa also features more large firms than many assume — and they are often more profitable too. According to McKinsey, the continent features “400 companies earning revenues of $1-billion or more and nearly 700 companies with revenue greater than $500-million. These companies … have grown faster than their peers in the rest of the world in local currency terms, and they are also more profitable than their global peers in most sectors.”  

Finally, three-fifths of these firms are privately held. Research from Asoko finds 645 sizeable family-owned businesses (earning between $10-million and $100-million) in East Africa alone. This matters because there is some evidence that sole proprietor or family-owned firms may be more value-driven than their publicly-listed counterparts, and hence able to operate in ways consistent with a stakeholder-driven approach. A Brookings report from January argues that “African innovators are often driven by a deeper purpose. They look at Africa’s high levels of poverty and its gaps in infrastructure, education and healthcare, and they do not see barriers to business, but human issues they feel responsible for solving.”

We cannot expect business to solve a problem like Covid-19. Only the government has the mandate and the resources to coordinate a universally-public minded response. But we can and should expect business leaders to be a part of a society-wide response, here in Africa as elsewhere.