Brokerage Ops Industry the March 2017 issue

Callous Capitalism

Clients, millennials and workers are losing faith in the heartless corporate culture. Can the insurance industry actually be the solution?
By Jennifer Smith Posted on February 27, 2017

Institutions that formerly provided a moral compass, respectable work and consistent, strategic clarity have largely felt their foundations rocked as scandals have been discovered, reported and sensationalized. Can the insurance industry actually be a remedial force?

Corporate social responsibility—not a new thing at all, really—falls squarely inside the wheelhouse of both brokerages and insurers, and several firms and companies are making CSR a centerpiece of their business strategies.

“I think there is an increased expectation that a company not only has a corporate social responsibility strategy but delivers on it,” says Paul Jardine, chief experience officer at insurer XL Catlin. “CSR is now business as usual across industries. We can see this evidenced in the way phrases such as ‘the triple bottom line’ have entered general business vernacular.”

Coined by business author John Elkington, “triple bottom line,” aka TBL or 3BL, is a tripartite accounting formula for business that comprises social, environmental and financial performance. The message is that business value goes beyond profit and loss statements.

As capital investment manager Martin Whittaker, now CEO of nonprofit JUST Capital, says, social responsibility has become “a central element to a company’s standing.”

Just or Unjust

According to financier Paul Tudor Jones II, who co-founded JUST Capital with Whittaker, income disparity plays a big role in the eroding confidence in institutions. The income gap between rich and poor, he says, leads directly to mistrust in the economic system.

“Economic inequality makes it difficult, if not impossible, to create equality of opportunity,” writes Peter Singer, a college professor, animal rights activist and author of philosophical treatises. “The holdings of the rich are not legitimate if they are acquired through competition from which others are excluded and made possible by laws that are shaped by the rich for the benefit of the rich,” he has written.

If the system is perceived as being unfair, corporate profits are seen as ill-gotten. It follows that corporate social responsibility rings hollow with no foundation on which to build.

Whittaker agrees. “Through our polling in 2015 and especially in 2016, it became clear that many people in this country, regardless of political affiliation, income level, age, region, etc., feel financially insecure and unhappy with the status quo and in particular their prospects for future prosperity. They feel as though the markets don’t really work for them, that somehow the unwritten social contract, the American Dream, has eroded to the point where they no longer feel respected or valued. For most people struggling to feed their families or save for the future, capitalism has left them behind. The election was a reaction to that,” he says. 

JUST Capital is a new entrant into the field of organizations dedicated to advancing corporate responsibility, but its spin is a little different and it purports to have an answer for those who believe the marketplace is not addressing the needs of the greater public.

“We address this through the power of information,” Whittaker says. “By giving people reliable, unbiased information on how companies truly perform on the things that matter most to them, we empower people to vote with their wallets, their energy, their time, their talents. We have mapped all the issues that Americans care about when it comes to business performance, and now we are building the definitive platform for tracking companies on these issues. Right now, it’s very hard if not impossible for ordinary people to know how companies are really doing on the issues they really care about. Does Wal-Mart really pay its workers fairly? How does Apple do on anti-discrimination or work/life balance for employees? Which banks are the best at supporting local communities? Which companies are the best at promoting gender equality?

The biggest problem we have relative to corporate integrity is when arrogance becomes a virtue and humility becomes a vice.
Tom Tropp, Arthur J. Gallagher

Everyone behaves differently when they know someone is watching them, and big corporations are no different. We want to identify and celebrate just companies and create a race to the top so that billions of dollars start to flow in a more just direction.”

The company goes first to the American public and asks them what makes a company truly just. It then ranks major corporations across industries using those public-driven values and releases the rankings to the public. The company believes by making this information easily accessible to everyone, it will help people incorporate it into their decision making when purchasing products, job hunting and generally choosing which companies to support. In this way, more capital will flow to the more just companies. And in doing so, capitalism in America will begin to take into account and better reflect the true values of the general public, Whittaker believes.

Perhaps they’re on to something. More than 80% of those surveyed by JUST Capital say they are somewhat or very likely to use information on just behavior in choosing where to work, how to invest and what to buy.

Taking the Temperature

Since 2015, JUST Capital has surveyed more than 50,000 Americans to capture their opinions on what is fair. Through focus groups and interviews, it discovered 188 discrete behaviors the public considers just corporate performance. More than 20,000 people were then asked to prioritize the behaviors, resulting in a list of the 36 most important components of justness, which were grouped into related topics to create 10 different “drivers.” Finally, the company surveyed 5,000 people online to prioritize the components according to which ones they found most important. In a very structured way, you get “a hierarchy of behaviors which have been weighted as to preference for America as a whole,” says Whittaker.

Armed with these components, the firm collected data on 897 companies across 32 sectors, ranking them based on the public’s definition of what is fair corporate behavior.

“You don’t have to convince people there’s a problem, but you do have to figure out where we’re going and where the future is for capitalism. The story of business in the Western world is entrepreneurial success,” says Whittaker. “Somehow, we’ve lost a grip on this.”

But, he says, through attention to these rankings, “consumers can participate as part of the virtuous loop that capitalism provides.”

What’s Just?

What JUST Capital found was the top two drivers of fairness at a company were worker pay and benefits (weighted 25.5%) and worker treatment (weighted at 24%), followed by leadership and ethics (17.2%). Community well-being, though it made the list of 10 drivers, was at the bottom (1.7%).

Interestingly, the Deloitte Millennial Survey 2016 showed similar results when rating the values that support long-term business success. Environmental impact and corporate responsibility did make the list; some 8% of millennials said those values support long-term business success. But topping the list at 26% was employee satisfaction, loyalty and fair treatment. Behind that at 25% was ethics, trust, integrity and honesty.

What these numbers seem to say is that people care most about being valued. And Whittaker, who claims he was not surprised by the results, agrees.

“The context for our work is defining what makes a company just, and I think most people experience this first and foremost through the lens of the employee/employer relationship,” he says. “We all need to eat, and so the source of our livelihoods, and in many cases our sense of identity and self-worth, tend to be the most important set of issues. Plus, we know most people are struggling economically, which tends to focus the mind on workplace issues. So it’s not surprising to me that worker, or ‘internal’ company issues, are prioritized. Interestingly, ‘fair pay’ was by far the most important component of corporate justness, closely followed by ‘no discrimination,’ which tells me that as a starting point people really just want to be treated fairly and with respect. Our work shows people still believe community issues, environmental performance, supply chain standards and such are very important; they simply fall behind the things that are fundamental to human nature.”

“I love the [JUST Capital] concept,” says Tom Tropp, corporate vice president for ethics and sustainability at Arthur J. Gallagher & Co. “The more publicity on this type of thing, the more we talk about it, the more we discuss ethics, the better,” he says. Interestingly, Tropp’s ideas of responsibility are well aligned with what JUST Capital found. To him, it is about how employees behave and treat each other, which coincides with the second- and third-highest ranked drivers: worker treatment, and leadership and ethics, respectively.

“There is no question in my mind that the way we treat our internal stakeholders is as important, if not more important, than how we interact with the external community,” Tropp says. “Our most important asset is our employees—25,000 of them around the world. The benefits that we provide and the opportunities we offer to these colleagues have a profound impact on how we are perceived in the world. Integrity begins at the top, is executed from the middle, and is communicated by the employee who faces the external stakeholders every day.”

XL Catlin’s Jardine takes a slightly different stance. His company ranked number one in the insurance industry according to JUST Capital’s methodology. It also ranked particularly high in the area of worker treatment. But that’s not where Jardine feels the most attention should be focused.

“I’m pleased to see we have scored highly on worker treatment and pay and benefits, which are all key elements in creating a successful company through the attraction and retention of the best talent,” he says. “But this talent wants to work for a company that is doing good, and so-called traditional notions of what this looks like still hold true in my view.”

Jardine is referring to the idea of community well-being, being a steward of your environment—the external factors typically thought of as corporate social responsibility today.

“Our role is to set a strategy and deliverables that look beyond what has been done before and harness the talent pool we have here to collectively and collaboratively make a difference. We will do this not only through the innovative insurance solutions we create, which enable the development of future technologies, but also through how we make insurance available in the developing world and manage our own impact on the communities we operate in.”

Both Tropp and Jardine believe participating in the evaluation process is worthwhile. In 2016, Arthur J. Gallagher was listed by Ethisphere—an organization that seeks to define and advance the standards of ethical business practices—as one of the world’s most ethical companies for the fifth year in a row. And every year, Tropp says, the survey gets more complicated, which pushes him forward. “If Ethisphere asks questions about ‘do you do this, this and this’ and we don’t, I wonder why we don’t. And then I back up and ask, ‘Should we?’

“Our employees know the process for inclusion is serious and time consuming,” he says. “It involves a lengthy survey, audits of our documents, and background researches by Ethisphere on our history and current issues. The most important aspect of this award, in my view, is that we use the application process as a learning experience. Each year we discover new ways to improve how we are handling our ethics and compliance programs; the bar is raised each year.”

Jardine has a similar response. “Understanding the public’s view of companies’ roles in society helps us better our business practices. Ratings such as the JUST Capital model help us take stock of where we are performing well and where we can develop further to maintain our position as an industry leader in this space.”

The Industry’s Role

For brokerages, there could be opportunity in all of this. Whittaker believes the insurance industry is in a unique position right now to greatly contribute to these efforts to change the conversation between consumers and corporations.

“It’s easy to get data on environmental issues, and those are important, but it’s not as important as people-driven data,” he says. “This is an area where the insurance industry can really help—their whole business model is data-driven.”

The insurance industry can help companies grapple with how to measure—in reportable ways—worker pay, benefits and treatment, says Whittaker. In this way, brokers could help their clients evaluate these characteristics within their organization to see where they fall in meeting these public-driven values. Employee benefits brokerages, in particular, are in a position to directly help address some of these values with their clients.

I think there is an increased expectation that a company not only has a corporate social responsibility strategy but delivers on it.
Paul Jardine, XL Catlin

“A tactical thing every smart broker should do,” says Whittaker, is to review all the just components and consider them in light of the issues you know are relevant to clients. Providing health insurance and helping workers prepare for retirement, for example, both rate as very important (96% and 79%, respectively) to those surveyed.

And there’s a role to play in serving at-risk populations and businesses. “We believe the insurance industry is uniquely positioned to do a tremendous amount of good by providing risk transfer solutions that protect some of the world’s most vulnerable people,” Jardine says.  

“A good example of this is the Lloyd’s Disaster Risk Fund. The fund is designed to help developing economies improve resilience against natural catastrophes. Emerging economies contribute 40% to global GDP yet represent only 16% of global insurance premiums. Another example is the Blue Marble Microinsurance Consortium, a group of brokers and insurers committed to providing insurance to developing regions of the world using innovative, technology-enabled platforms. Our aim is to achieve sustainability through adequate levels of profitability and advance the role of insurance in society.”

Living, Breathing CSR

Effective corporate social responsibility is a fundamental component of success in the marketplace, according to Tropp. But it’s more than just a business strategy. He also sees it as an internal, personal quality that should live inside each employee. For him, a critical component of corporate social responsibility is humility.

“The biggest problem we have relative to corporate integrity is when arrogance becomes a virtue and humility becomes a vice,” he says. Tropp defines humility in business as the knowledge that you can and will make mistakes and the willingness to admit them. He also believes humility means knowing that listening to direct reports and having genuine dialogue with them will produce better decisions than those made by a leader alone. When looking at branch managers, Tropp says, the most successful are humble; in their units, they have “better staff retention, larger profit margins, and more growth.” Social responsibility is an absolute part of success, he says.

Tropp is talking about the values embodied within a workforce. And this concept is becoming even more important as the percentage of millennials increases—potentially more than 50% of the workforce by 2020.

Millennials are not looking to fill a slot in a faceless company, says Jamie Gutfreund, global chief marketing officer at marketing consultancy Wunderman. “They’re looking strategically at opportunities to invest in a place where they can make a difference, preferably a place that itself makes a difference.”

A 2015 Cone Communications millennial study found young people say they are prepared to make personal sacrifices to make an impact on issues they care about—including taking a pay cut to work for a responsible company.

As brokers fully embrace the role of advisor to their clients, it could be worth considering where these concepts fit in their organization and in their business strategy. As Tropp says, “Companies of high integrity—no matter how large or how small—succeed. Period.”

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