Martin Whittaker is the CEO of JUST Capital, an organization with the mission to “build a more just marketplace that better reflects the true priorities of the American people.” JUST Capital ranks 1,000 of the largest publicly traded U.S. corporations on the issues Americans care about the most. In partnership with Forbes, they recently presented their 2018 list of America’s Most JUST Companies .
How did JUST Capital come into being?
We can trace our origin back about six years ago, to conversations between Deepak Chopra, Rinaldo Brutoco who founded the World Business Academy, Paul Tudor Jones, and a couple of other founding board members who – as a result of an inquiry from one of Deepak’s students at Columbia: “how can companies and markets be more just, more fair, equitable, and balanced?”– decided to see if they could create an organization, a non-profit, that could build a more just economy in America.
It appealed to those people because they were interested in exploring ways to train companies on becoming more just, and to channel capital to solve social, economic, environmental and health challenges. The definition of JUST, it was felt, should come of, by, and for the people, from the bottom up, so as to serve the interest of the public. This gave rise to the idea of polling the public to find out what matters the most to them.
The data, the rankings, are all derived in an open and transparent way. And this leads to a framework that companies could use to improve – to recognize best practices, and to learn what works – and to better align with all their stakeholders.
Today we find that 76% of working Americans said that when considering accepting a job, they would opt to work at a more just company, even if it paid less. In fact, the majority of working Americans say they would accept 20% less pay.
What did the latest survey uncover?
In 2018, companies in the JUST 100, compared to other Russell 1000 peers on average:
- Pay their median workers 26% more.
- Pay a living wage to 12% more of their workers.
- Are 9 times more likely to have conducted gender pay equity analyses (69% vs. 8%).
- Are 4 times more likely to have PTO and parental leave policy disclosures (80% vs. 20%).
- Are nearly 2 times more likely to offer flexible work hours or day care (92% vs. 48%).
- Are nearly 4 times more likely to have diversity targets (31% vs. 8%).
- Recycle 8 times more waste (41% vs. 5%).
- Give 6 times as much to charitable causes per dollar of revenue (2.4% vs. .4%).
- Employ 2.4 times as many U.S. workers.
- Pay 99% fewer sales terms fines, 90% fewer environmental fines, 71% fewer worker safety fines, and 41% fewer EEOC fines per dollar of revenue.
- Have 4 times as many women directors (27% vs. 6%).
- Have a 5% higher return-on-equity (23% vs. 18%).
Topping the list was Microsoft, which performs exceptionally well on many of the issues defined by the American public – including Workers, the Environment, Customers, and Leadership & Shareholders.
see the complete JUST rankings >>
What’s the response been from the companies that are being ranked?
I would say cautiously welcoming, and the numbers support that. Three years ago, when we first opened up a portal for companies to submit their data, we only had a dozen or so companies that got involved. Last year it was about a 110, and this year its been over 335. So that’s a good leading-indicator that companies support it. What’s important is that the companies that are engaged with us are not just the companies who do well in the rankings – they are companies from across the board, and all industries.
There’s been a frustration among companies with existing rankings and lists out there because some are “pay to play” others are “black box” methodologies, and some have a profit motive. All of this has helped us – we’re a non-profit, and we want to transform capitalism in a positive way. Companies themselves, we see, want to be better on a whole raft of non-performance areas. We’re trying to be as unbiased as possible – we don’t have an ax to grind. So we see companies shifting from healthy skepticism to realizing we’re providing them with real value, celebrate leadership and create a race to the top.
In the JUST rankings, what differences are you noticing between the leaders and the laggards?
Over the past five years, the JUST index, which is essentially the top 50% companies in every sector, has delivered 7% higher return on equity (ROE) on average than Russell 1000 companies not in the Index. And when you look at the JUST 100, you see a return on equity that’s 5-7% higher than the rest of the field.
We haven’t published this, but I can tell you that the top 20% of companies in every sector has outperformed the bottom 20% in live trading over two years in the region of 2000 basis points.
I think when we look at the quintiles – there’s a real difference between the leaders and the laggards.
One of the vexing questions for both proponents and skeptics of sustainable investing is whether profitable companies perform better on ESG issues because they can afford to, or whether strong ESG performance can lead to higher profits. In other words, are profitable companies more just, or are just companies more profitable? We’ve run the Fama-French model and we find that 75-80% of the additional return is not explained by the traditional drivers of performance.
Without being naïve, we’ve identified an incredibly strong connection between companies that treat workers well, treat customers well, and make great products, reduce environmental impact, look after the communities in which they operate, look after shareholders, are well managed, all of those things – and their market performance. You know what, that’s just common sense. It’s completely intuitive that that would be the case, but we now have the data.
Are certain industries more progressive than others? Do you see practice sin one sector influencing the others?
In resource intensive industries, you see some best practice spread within the industry. And in the social dimensions – non-discrimination, paid family leave, diversity in boards, transparent leadership, etc. you may see more cross-industry spread. It doesn’t matter what industry you’re in to follow social best practices.
The benefits of having a strong, diverse, well-compensated highly engaged workforce – those are the areas where we see progress across the board. Companies recognize they can be better.
How does your polling get done? How do you decide which issues matter? Do you poll people on income-inequality, for example?
The public decides which issues matter. Right now we’re just focused on polling in the United States, although some of the issues are global. We poll tens of thousands of people using different types of polls. The issues that arise are organized into 7 major themes:
- How a company pays and treats its workers
- How a company treats its customers
- The nature of a company’s products and services
- The impact of a company on the environment
- The support a company provides for local communities, in the U.S. and internationally
- The impact a company has on the job market overall
- A company’s leadership and how well it serves its shareholders and investors
In terms of how we measure companies, we do see the deeper trends, and the underlying issues shine through. We are very mindful about income-inequality and inequality of opportunity, for example. We track how companies spend their tax windfall, how companies are investing in communities, how companies are paying their executives vis-à-vis their lowest paid workers, living wages, etc. So taken together, we do get a picture of income-inequality, and how companies can intervene to do better. We have to be careful not to put our finger on the scale in terms of which issues get measured, but the good news is that all the critically important issues do come through from the public. We start with a blank sheet of paper, and we get back a lot of common sense. Overall, people believe in business and they just want a fair shake. Political extremism happens when people don’t believe the system works for them, or is rigged against them. That’s what we’re seeing with the rise of populism.
In 2018, as part of our annual survey effort, JUST Capital conducted a special poll of the American public, to better understand what people believe companies should be doing with their tax savings. When asked to indicate the percentage (ranging from 0% to 100%) of tax savings they thought should be allocated to each category, the results were:
The feedback is striking when looked at alongside our analysis. While Americans agreed that 24 percent of savings should go toward worker pay and benefits, worker issues account for just six percent of how companies are actually allocating their savings.
What are you finding when it comes to CEO-to-Average worker pay?
JUST Capital’s breakdown of CEO-to-Median Worker Pay ratios for the top 1,000 publicly traded companies in America provides some fascinating context on the issue. Take the industry comparisons, for example. Ratios tend to be much “lower” (between 100 and 150:1) in technology fields, where workers are paid more on a relative basis and many tech CEOs are company founders with high ownership interest, tending to pay themselves less in salary. At the other end of the spectrum, in Retail and Automobile industries for example, a proliferation of lower skilled workers with lower pay results in very high discrepancies between the earnings of CEOs and workers, in some cases above 400:1.
Based on our own studies, the increasing gap between CEO and employee pay in 2016 may actually be even greater than The Conference Board reports. SEC reporting rules for executive compensation require companies to report stock-based compensation in the year in which it’s granted, not necessarily as its earned. For example, Apple CEO Tim Cook has earned an average of just over $7 million annually over the past five years, but he also received a $376 million bonus in 2011 that does not fully vest for 10 years.
Under JUST Capital’s methodology, that bonus would then be spread evenly over 10 years and added to other annual compensation received during that span. Our numbers also include all executives who have held the title of CEO and/or Executive Chairman in a given year, while excluding all one-off cash payments (severance for departing executives and so-called “make whole” payments to new CEOs).
Using this methodology across the 728 companies in the Russell 1000 for which we have compensation data for both 2015 and 2016, median CEO compensation actually increased 9%, more than triple the average hourly earnings for employees in the private sector.
We also took a look at how this ratio compares to other measures of worker pay. For example, we found that the companies that pay the majority of their workers a living wage tend to have a narrower gap between CEO and employee pay. Conversely, the gap is typically wider for companies that pay only a low percentage of workers a living wage. This stands to reason, as low-gap companies are in higher earning industries where more employees make a living wage.
Can you tell us about the JUST Scorecard?
We often hear from corporate leaders that they are looking for more tools and resources that can help them align their business practices with the values of the American public.
The JUST Scorecard builds upon our survey results and the metrics we use to evaluate just business behavior in our Rankings, and creates a resource for companies to use in reviewing their own corporate practices. We hope businesses can use it as a guide with cross-functional teams to explore questions like: Where are we taking the lead on just business behavior? Where is there room for improvement?
What are you looking at for the future?
Corporate culture is going through a fundamental change – what people want, how they want to be treated, and their sense of purpose. The public is no longer ready to blindly accept authority – moral or otherwise – from business leaders. The whole area of human capital is changing.
We see issues like gender pay equity coming into the limelight – as companies work on fixing their policies and taking action to achieve real outcomes.
Surveillance and privacy are also becoming huge issues with the public. We see this in the controversy around leadership decisions around privacy. We could see an analogous situation to Big Tobacco – where technology and social media in particular begin to incur huge liabilities based on their current approach to privacy.
The bottom line is that companies that know who they are and what they stand for, and a North Star that helps them connect effectively with all their stakeholders will do better than those that don’t. Significantly better, according to the data.
Thanks so much for your time.
INTERVIEW by Christian Sarkar