COVID-19 is exacerbating the global inequality crisis – here is what business can do.
Rising economic inequality, now exacerbated by the COVID-19 pandemic, is a major threat to the world’s economy and to achieving the UN Sustainable Development Goals. SDG 10 (reducing inequality) has been one of the most neglected SDGs by companies to date. More recently, leading organizations like the World Economic Forum or the World Business Council for Sustainable Development have highlighted the threat posed by rising inequality to our economic health, our social fabric and our political institutions.
This attention is critical since business plays a key role in shaping inequality trends. Oxfam’s recent report ‘Power, Profits, and the Pandemic’ has highlighted the different ways companies have contributed to or benefitted from the skewed economic impacts of COVID-19. A stark illustration of this trend is the contrast between the $3 trillion of market value gained by world’s most successful companies vs. the 400 million jobs lost since the start of the pandemic.
Business and inequality – where to start?
Here is the challenge – the way a company affects inequality are manifold. It bridges business functions (operations, finance, human resources) and involves multiple stakeholder groups (consumers, employees, suppliers). Some impacts are more direct and quantifiable (e.g. how much money goes to CEOs vs. the average worker); others less so (how a company’s political activities shape a policy environment conducive to worsening inequality).
But this complexity shouldn’t impede action. To start making inequality an integral and actionable part of engagement in the SDGs by businesses, we recommend three initial steps:
- Strengthen corporate financial accountability
At the core of companies’ inequality footprint is how it decides to distribute the economic resources it manages. Profits – how they are made and where they go – have remained the elephant in the room when it comes to sustainability discussions with companies. For many the mantra still holds that maximizing profits for shareholders is either independent from or equivalent to a company’s social impact.
Yet, this approach is no longer tenable. In a time of extreme inequality, companies’ revenues and profits can be used to widen or narrow the economic gap we are witnessing at a societal level.
Take the choice between paying shareholders or reinvesting profits into workers. Our recent paper highlights how excessive shareholder payouts (the S&P 500 have spent over 90 percent of their profits, or $9.1 trillion on shareholder payouts) have not only made companies vulnerable to managing the current pandemic but also are a key contributor to economic inequality as most shareholders belong to higher income groups.
The majority of hard-working people do not benefit in this manner from corporate profits, and certainly not those living in poverty.
- Understand intersectionality
COVID-19 has hammered home how companies affect different and inter-linked forms of inequality. It is not only low-wage workers who have been hurt disproportionately by COVID-19, but in particular women, migrant workers, and racial minorities.
Any company sincerely concerned about its impact on inequality needs to look at how its distribution of resources, power, and opportunities play out along racial and gender lines. Primarily white and male executive suites and boards are as much of a significant problem as gender pay gaps and the disproportionate presence of racial and ethnic minorities in low-wage jobs.
The shareholder-first model is part of the problem since it primarily benefits white men who not only constitute the majority of the world’s billionaires but also the wider shareholder class. Only 11 percent of the world’s billionaires are women. In the United States, black and Latinx families – 13 and 18 percent of the population, respectively – own only 1.6 percent of corporate shares each. Black South Africans own only 23 percent of the shares of the country’s top 100 companies but make up 80 percent of its population.
- Consider the indirect inequality impacts
Rising inequality is not an accident. It is the result of an economy that delivers for the few, while hurting many. The ways companies influence government policies, and their business models, play a significant roles: Take companies’ influence on government’s ability to redistribute resources and ensure equal opportunities for all people (e.g. through their tax payments/avoidance, their political activities). Or the way companies have structured their supply chains that channels costs and risks to the most vulnerable participants.
Similarly, inequality cannot be assessed in isolation from other forms of corporate impacts. For example, a company with a high impact on climate change will inevitably have a negative effect on inequality as climate change hits the poorest the hardest.
Purpose, people, power, and profits
We won’t achieve the SDGs’ ambitions around poverty, health, or climate change without tackling rising inequality.
Companies play a central role in this endeavor. Yet change won’t come easy. Addressing companies’ inequality footprint will require a substantial change of contemporary business practices and models. In our recent paper, we put forward 4 Ps as an approach to more equitable businesses:
- Purpose – redefining corporate purpose to include non-financial objectives and fiduciary duties beyond shareholder returns
- People – putting well-being of people in companies’ operations, supply chains, and broader society at the center of corporate purpose
- Power – integrating corporate purpose through corporate governance reform and radical transparency
- Profits – increasing the ability of stakeholders to directly benefit from a company’s earnings
COVID-19 has brought us to a critical juncture when it comes to inequality. Unless we change course, our economies will be dominated by an ever-smaller number of large corporations exerting greater economic and political power to the detriment of small businesses, workers, and democratic institutions. This is not good for anyone – including business.
This article is part of the content for Business Fights Poverty NYC Online 2020, a one-week, online conference (21 to 25 September) that builds on our recent online conference Business Fights Poverty Online 2020 (13 to 17 July) to drive forward connection, conversations and collaboration around how we rebuild better – how together we create an equitable and resilient world. The week consists of inspiring and engaging content, live events, peer networking and community-led learning. The week also builds on our Business and COVID-19 Response with Harvard Kennedy School Corporate Responsibility Initiative, and supported by DFID and a number of our corporate partners.
Each day, we will focus on a specific theme: Imagining the Future We Want (Monday); Creating an Equitable World (Tuesday); Helping People Survive and Thrive (Wednesday); Building Resilient Livelihoods (Thursday); Shaping System-Level Partnerships (Friday).
If you were unable to join these sessions you can access all of the recordings and summaries with a Digital Pass. You can watch the opening sessions and musical performances via the links on the event page.