Why Investors and Business Groups Recommend Keeping Workforce Employed

As data suggest infection peaks are being reached in even the hardest hit areas of Europe and the US, groups of institutional investors and businesses are recommending that layoffs and furloughs be stopped in order to make the rebound faster and larger from the virus-associated recession. JL


Larry Light reports in CIO magazine:

Employers should keep workers on the job despite the coronavirus-imposed shutdown of many businesses, urged an institutional investors group. This sentiment, not long ago greeted with eyerolls in the corporate world, may be getting traction.The 195-member group, comprised of public pensions, asset managers, and faith-based funds, controls $4.5 trillion in assets.

Employers should keep workers on the job despite the coronavirus-imposed shutdown of many businesses, urged an institutional investors group led by New York City Comptroller Scott Stringer. This sentiment, not long ago greeted with eyerolls in the corporate world, may be getting some traction.

“Workers must be protected during the COVID-19 pandemic and its aftermath,” said Stringer, who oversees the city’s $217.9 billion public pension system, in a statement. “As shareholders, we expect companies to protect the health, safety, and economic stability of their workers.”

The 195-member group, comprised of public pensions, asset managers, and faith-based funds, controls more than $4.5 trillion in assets. Helping Stringer form that coalition were Domini Impact Investments and the Interfaith Center on Corporate Responsibility. Among the signatories are the AFL-CIO, BMO Global Asset Management, and Invesco. Stringer has backed a host of such initiatives, such as a campaign to let large investors nominate corporate board members.

The latest push by Stringer and his allies hopes to get paid leave implemented and to impose additional health and safety measures on employers. “The long-term success of companies depends on the long-term success of employees,” he said, “and this call to action is not just the right thing to do, but the smart thing to do.” The demand comes amid widespread layoffs of workers across the United States, as consumers stay locked in at home and don’t spend.

Fortunately for them, Stringer and his friends are finding a changed climate for their pro-worker message among companies, and even pro-business Republicans. Congress has enacted a $2.2 trillion rescue program to ease the economic burdens of the virus, including longer and more substantial unemployment benefits.

Part of that legislation is something called the Paycheck Protection Program, which encourages banks to lend to small businesses that keep employees on the payroll. This takes its inspiration from Europe, where several nations are tapping government coffers to pay 60% of workers’ salaries.

Stringer’s initiative is, in many ways, part of a trend that is spreading throughout corporate America—the notion of stakeholders, which covers more people involved in a company than just its investors.  

Last year, the Business Roundtable and the World Economic Forum in Davos called for expanding the purpose of the corporation beyond a focus on shareholders, enlarging it to employees, suppliers, communities, and society at large. In Europe, labor members on corporate boards are fairly common.

This concept, of course, runs counter to the long-held philosophy in corporate circles that stockholders, who by definition have put their money into a company, should be the predominant, if not sole, focus of management policy.

Famed economist Milton Friedman laid the intellectual groundwork for this idea by writing in 1970 that a corporation’s goal was to maximize shareholder value. The Nobel Prize winner was skeptical of advocates for corporate “social responsibility,” a term that he castigated as too vague to be useful.

But now the winds may be blowing in the opposite direction, with even conservative Republicans in Congress joining in on massive federal spending and worker protection, to a degree.

As the Stringer-led group stated in its manifesto, “While it is clear that social isolation is crucial to protect workers and to control the spread of the virus, widespread layoffs by companies will only exacerbate the current economic turmoil and further destabilize markets.”