There is nothing like a crisis to focus us on what’s most important. Perhaps one of the silver linings to this large and dark cloud brought on by the COVID-19 pandemic is an accelerated embrace of private-sector leadership on major public issues and the role it can play in supporting a full range of stakeholders.
Since the Global Financial Crisis, there has been a growing focus on the need for a more inclusive capitalism, driven in part by increasing inequality of income and wealth over the last 25 years. Simply put, inclusive capitalism is a refutation of the Milton Friedman view that maximizing shareholder returns should be a company’s only goal. Instead, proponents of a more inclusive model argue that the interests of employees, communities, clients, and other stakeholders should be explicitly addressed in a company’s purpose.
We now find ourselves dealing with crisis on two fronts. The first is a raw humanitarian tragedy that is devastating families, upending communities, and inundating our increasingly fragile health system. The second is a global economic downturn that is the most dramatic since the Great Depression. Businesses, small and large, struggling to survive, have been forced into very difficult decisions over staying open, furloughing or laying off workers, paying suppliers, and making rent payments. As a result, many businesses have shuttered, and huge portions of the population have stopped working, stopped producing, and stopped consuming almost overnight. In the United States alone, a staggering 10 million people lost their jobs in just two weeks.
But we have also seen how many businesses are stepping up to broader responsibilities by committing to pay hourly workers, extending paid sick leave, and freezing layoffs. Manufacturers have shifted their focus to the production and distribution of much-needed inventory for health-care workers and hospital systems. Across the world, businesses have implemented programs to assist health-care professionals, impacted communities, and those most vulnerable through donations of personal protective equipment, logistics support, and financial assistance.
“I am convinced that the companies that are most effective in maximizing shareholder value over decades are those that practice inclusive capitalism.”
-David Hunt, President and CEO, PGIM
As one of the world’s largest investment firms, we have seen how businesses perform over many market cycles; as a CEO, I am convinced that the companies that are most effective in maximizing shareholder value over decades are those that practice this sort of inclusive capitalism. Because, while the interests of shareholders and other stakeholders may diverge in the short term, sustained performance and the ability to adapt quickly in a rapidly changing business environment requires long-term thinking. Businesses must show commitment to employees to foster innovation and further productivity, they must contribute to their communities in order to hold trust, and they need to be transparent with customers to build loyalty. All of this builds lasting shareholder value.
Companies that take the long view will emerge from this crisis more intact and better positioned than those that don’t. Not because they were better prepared for this specific crisis, but because they embraced the interconnectedness of our world and the fact that their shareholder returns depend on the success of a broader group of stakeholders.
This epidemic will end, and we will recover. As we do, the business community can and should play an enhanced role in leading the revitalization of economies around the world by fully embracing a wider sense of corporate responsibility. If we take on this responsibility with a broad, inclusive, and mutually beneficial view of stakeholders, that will be a silver lining indeed.
This essay was written by David Hunt, President and CEO, PGIM, and first appeared in the Milken Institute’s Power of Ideas collection focused on building and rebuilding lives in the face of the COVID-19 pandemic. The essay series features insights from thought leaders across industries.