Why Corporate Transparency is a Win-Win for Business, Consumers, Top Talent
It's not just consumers who need to align with a business's values, it's the employees as well. Here's why corporate transparency is a win-win situation.
For the first time in a long time, businesses are embracing transparency.
As we’ve come to learn, people and corporations do not always see eye to eye. As many corporations prioritize their bottom lines over the wellbeing of employees, communities of people, and the environment, both workers and consumers, have come to feel the strain of complicity.
In response, people are deciding to support companies whose values most closely resemble their own, specifically in regards to diversity and sustainability. Trust is also an important factor, with a 2021 Edelman report finding that 68% of people consider it “more important” for them to trust a brand than it had been in the past. Along with that, consumers are demanding more accountability from CEOs concerning the lasting impacts of the companies they lead.
If companies and leaders ignore the call? It could cost them.
In many ways, it’s classic laissez-faire economics. What’s the saying? “Adapt or die”? As customers have more tools to help them make better-informed decisions, they can simply choose to patronize one business over another based on how well their personal value systems align with those of the business. After all, a dollar is an endorsement, which is why boycotts can be so effective towards enacting change.
Now, consumers are demanding even more information to guide their decisions not only about purchasing goods or services but also about where they want to work.
In fact, a recent Deloitte survey of millennials and Gen Zs found that the younger generations are wielding the power of the individual in a way that previous generations may not have been able to. The survey found that in 2020 and 2021, nearly half of millennials and Gen Zs made employment decisions based on the business’s ethics. Also, almost a third of them have started or continued to patronize businesses that prioritize their impact on the environment while cutting ties with businesses that don’t.
Some Millenials and Gen Zs factor in corporate social responsibility when deciding where to spend their money, and where to pursue job opportunities.
Case in point, we’re now heading into our third year of a pandemic that’s changed the way we work seemingly overnight. Companies that refused to adopt COVID-related safety protocols, hoarded heightened pandemic profits at the top, and/or otherwise worked against the interests of their employees or customers were put on blast on social media. The result?
The Great Resignation brought waves of job quitting
In November 2021, a record 4.5 million US workers quit their jobs, according to the U.S. Bureau of Labor Statistics.
Yes, that was in one month.
On top of resignations, thousands more workers were or are still on strike from work, demanding increased pay, better benefits, and increased labor protections. According to the Cornell University Institute of Labor Relations, 2021 saw 365 labor strikes in the United States. That’s compared to only eight major strikes in 2020.
With workers reevaluating what’s important to them, millions across the country have decided to cut ties with their employers. Naturally, this caused a massive cross-industry labor shortage, with job postings hitting a record-high of 11.1 million in July 2021.
Those jobs have proven difficult to fill. As with consumers, workers are becoming pickier about what they want and what they’re willing to tolerate from employers. Now, workers are disrupting entire industries, and businesses that refuse to meet new employee-related demands are worse off for it.
Demands for corporate transparency at all-time high
In an act of solidarity between workers and consumers, businesses are being held accountable for their actions. People want to know to whom and to what they’re contributing their time and money. As the tenets of supply and demand go, the market is demanding better business practices from companies. The companies that cannot only meet that demand but can also show how they’re doing so will be favored in both the job and consumer markets.
A survey from Sprout Social found that 86% of people believe that transparency in business is more important now than it has ever been. Additionally, 73% said they were willing to pay more for goods and services from more transparent brands. But how can consumers determine which brands those are?
Enter the ESG score.
What is an ESG score?
ESG stands for environmental, social, and governance. Companies receive an ESG score that reflects how well they tackle each of those realms of business. The better the score, the better the brand is doing at mitigating or preventing risk in these areas relative to their competitors.
The ESG score breakdown:
Environmental considerations include things like animal testing, carbon emissions, land and water usage, waste creation and management, and the impact an organization has on local resources and communities.
Social criteria include DEI (diversity, equity, and inclusion), ethical supply chains, charitable donations, treatment of workers, and how well the company’s values reflect those of its customers and stakeholders.
Governance refers to democracy within the organization, ethical operational and financial practices, and overall legality and transparency.
The score is intended to alleviate the burden of having to do extensive research into companies before deciding whether or not to support them. It’s also meant to build trust between companies and people in a time when misinformation is so prominent and easily spread. Ratings agencies calculate the score based on analysis of companies’ publicly available documents, so ratings can vary depending on each agency’s ratings standards. The availability of public records is also a factor. To that end, the US House of Representatives passed the ESG Disclosure Simplification Act of 2021 which requires more transparency from U.S. companies. Currently, there are a few major ratings agencies, including MSCI, Sustainalytics, and RepRisk.
However, the methodology isn’t without its critics with some conservative figures fearing that the score is a way to inject “woke” politics into business, although those at the forefront of social and racial justice movements would argue that the two are inherently intertwined. Yet others are skeptical of the metric’s reliability as many generally disliked companies have been given high ESG scores.
That said, the score is determined based on risk exposure and mitigation, not necessarily on the organizations’ current or past actions. For instance, a business exposed to less risk in one area might receive a high score for that criterion. Similarly, a business exposed to high risk in the same area might also receive a high score as long as it can show that it is actively working to mitigate that risk. For this reason, the score is widely referred to in investing circles.
What data points inform an ESG score? Data points are pulled from company filings, NGOs, government, media sources, and alternative data sources. (Market Insider)
Who’s doing transparency well?
Heineken has made significant efforts over the past several years to increase its level of transparency. Its efforts paid off. Heineken currently enjoys an ESG score of AA (the highest being AAA), an improvement from its A rating at the end of 2019. As such, Heineken is recognized as a leader within its industry.
Heineken’s rating was earned by the company’s efforts to publicize its efforts, specifically in the realm of sustainability. For instance, the company is brewing more sustainable beer by working with its farmers to develop innovative ways to increase crop yields while reducing carbon emissions and water, land, and pesticide usage. It’s also set a goal to be fully carbon-neutral by 2040. Heineken has already made big strides in the realm of recyclable and reusable packaging materials, as well as prioritizing green energy sources.
Another brand that has championed transparency is Whole Foods. After catching some fire in 2013 for selling mislabeled food products, Whole Foods took the proactive step to re-evaluate the brands they partnered with and commit to full food transparency. Just two years later, they were named one of the most reputable brands for corporate social responsibility by Reputation Institute. Today, the company evaluates everything it sells at all stages of the products’ life cycles, from farming and sourcing to packaging and waste disposal.
That said, in 2017, Whole Foods was acquired by Amazon. Currently, Amazon has an ESG rating of BBB, a solid average score.
As far as major corporations go, attempts have been made, with varying degrees of success, to be more transparent with business practices in response to large-scale social and labor movements. Nike, for one, leaned into calls for racial justice by featuring Colin Kaepernick in a 2018 ad. The inclusion of Kaepernick helped Nike increase its sales revenue by 31%, or $6 billion, however, the company has done little since to take meaningful action in this space.
Additionally, Microsoft promised to revamp its handling of internal sexual harassment and discrimination cases in response to the increased scrutiny brought on by the #MeToo movement. In a 2019 memo from CEO Satya Nadella, Nadella promised a revamped internal infrastructure to address and investigate the cases, along with more “transparency around the outcomes from these investigations.” Similarly, Google faced a mass employee walkout in 2018 after records came to light that the company was protecting male employees accused of sexual misconduct. In response, Google CEO Sundar Pichai released a statement promising “more transparency,” a stronger commitment to diversity in the workplace, counseling and career support for alleged victims of sexual harassment, and more.
The bottom line
For the business, it all comes down to profits.
Overall, increased transparency can benefit companies financially in a few different ways.
In a Visier Workplace 2022 Trends Report it states,
“An increasing number of US companies are tying CEO pay to diversity metrics, according to an analysis conducted by Reuters in July of 2021, and investors are pouring money into companies with improving environmental, social, and governance (ESG) scores.”
Increased transparency and a higher ESG score make companies more attractive to investors, particularly because a higher ESG score indicates forward thinking and proactive risk management.
Additionally, by responding to consumer demands for transparency, businesses are more likely to foster customer loyalty and build trust. A 2021 survey from Lucidpress found that 68% of respondents experienced revenue growth of over 10% as a result of consistent brand messaging. Another survey from Edelman in 2019 found that 81% of consumers said that trust in a brand was a deciding factor in whether or not they made a purchase, with that percentage increasing to 88% in 2021. Furthermore, in 2019, customers were 33% more likely to remain loyal to a brand they trusted than to one they didn’t. However, just two years later in 2021, a whopping 68% claimed that having trust in a brand was more important to them than it had been in the past. The reasons behind that 68%? Edelman cites consumer awareness of brands’ environmental and economic impacts, as well as people’s increased dependence on brands during the pandemic.
For employees, they are generally more likely to stick around longer in transparent companies, saving companies the hefty expense of hiring and training new employees.
…And it is hefty. In 2019, Gallup reported that employee turnover was costing US companies $1 trillion annually.
The same report said that over half of the employees who quit their organizations could have been convinced to stay had their employer been more transparent with them regarding their future with the company.
The price of opacity
Conversely, companies that are slow to adapt to transparency demands might find themselves falling behind the curve in both business revenue and employee retention rates.
For one, millennials and Gen Zs aren’t afraid to tweet. If they feel a company is acting unethically, they’re quick to call it out publicly. If the issue gets enough traction, it could be a hard hit to business.
They also hold onto their convictions at work more strongly than previous generations. Referring back to the Deloitte survey, “Over the past two years, 44% of millennials and 49% of Gen Zs said they have made choices over the type of work they are prepared to do and the organizations for which they are willing to work based on their personal ethics.”
Similarly, consumers have been empowered with more options, meaning more competition for brands. If a company doesn’t resonate with their ideals, they can choose to offer or withdraw their support. For instance, the survey found that 60% of people were likely to make purchase or boycott decisions based on a company’s response to racial injustice, with 86% expecting CEOs to speak publicly on societal issues, pandemic responses, and more.
People v Business
So, which is it—people or numbers?
In many ways, they’re one and the same. Overall, the data suggests that in the long term, businesses that prioritize transparency, diversity, sustainability, and corporate responsibility are more likely to retain and attract employees and customers, ultimately resulting in better all-around business performance.
It’s all about balance.
People data is important to the business because it’s half of what makes a business function,” explains Ian Cook, VP of People Analytics at Visier. “One half is money. The other half is people. Without people data you’re missing half the question.”
It’s in their best interest for companies to celebrate and support their employees. Companies that do reap the rewards of having empowered, creative, and engaged workers.
And maybe—just maybe—everyone really can win.
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