Article 1: Companies doing what government won 't

IBy The Editorial Board

Sept. 16, 2019

After recent mass shootings, including one in a Walmart in El Paso, Walmart's chief executive, Doug McMillon, announced that his company would stop selling ammunition for military-style assault rifles, remove handguns from stores in Alaska - the only Walmarts still carrying them - and ask armed people in open-carry states to stay out of its stores.

"It's clear to us that the status quo is unacceptable," Mr. McMillon said in a statement.

The leaders of 145 other big American companies, including Levi Strauss, Royal Caribbean Cruises and Bain Capital, published an open letter to the Senate last week pressing for new gun laws, including background checks on all firearms sales and a "red flag" law to keep guns out of the hands of potentially dangerous individuals.

"Doing nothing about America's gun violence crisis," they said, "is simply unacceptable, and it is time to stand with the American public on gun safety."

On a wide range of issues, including gun safety, environmental sustainability and the treatment of workers, corporations have lately been making a point of doing more than they are required to do by law. In August, the Business Roundtable, a lobby for big companies, replaced its old mission statement, an unapologetic declaration that corporations are in the business of making money, with a softer statement acknowledging "a fundamental commitment to all our stakeholders," including workers and communities.

In some cases, companies are calculating that near-term costs will lead to higher profits down the road. Companies that have curtailed gun sales are, at least in part, betting on increased sales of other things to people comforted or gratified by the gesture.

Companies also are under pressure from customers and shareholders to demonstrate a broader sense of responsibility for the long-term health of the communities in which they operate. Proponents say the longer view is good for the companies, too: PepsiCo, for example, needs clean water to make drinks; Walmart's sales depend on the economic health of the middle class; climate change threatens broad disruptions in the business models of any number of companies.

But companies are being forced to change even if they are not among the beneficiaries.

In an earlier era, people who wanted to constrain corporations mostly sought to act through the political process, pressing governments to write and enforce health, safety and environmental regulations. This approach has the obvious advantage of scale - it's better to win one big battle, if you can. But such political victories have grown more difficult to win.

Indeed, the Trump administration's aggressive efforts to roll back regulations have left some corporations in the unaccustomed position of favoring stronger rules. A paradox of the current moment in America is that big companies like Walmart may be more concerned than the Republican Party about the wishes of a majority of the population.

Some companies, too, are hedging bets, anticipating that future administrations may be more interested in regulation. The decision by automakers to strike a deal with California on emissions standards, in defiance of the Trump administration, which favors more lenient standards, reflects a judgment that the march toward higher fuel economy will continue after this brief intermission. Similarly, big energy companies, including ExxonMobil and Royal Dutch Shell, have opposed the Environmental Protection Agency's proposal to loosen rules governing methane emissions during natural gas production, fearing that it would undermine demand for natural gas as a "greener" alternative to the burning of coal.

Even before the Trump administration, however, activists had come to appreciate the power of money. One approach making great progress in recent years has been persuading institutional investors - including state pension funds and university endowments - to work for changes in corporate behavior. Supporters make the argument that these funds have a particular interest in long-run outcomes, because they are responsible for delivering returns into the distant future. Corporations that use their money should be pressed to heed their concerns.

This is powerful logic. It is an argument that investors must do a better job of representing their own interests, not simply giving money to corporations and hoping for higher stock prices, but superintending the way that companies do business.

One step in this direction is creating an infrastructure that allows better decision-making. Some 86 percent of Fortune 500 companies issued reports last year describing the environmental and social impacts of their businesses - documents that can inform investment decisions, much like the calorie counts seen on restaurant menus can guide eaters' choices.

There are now more than 1,200 American "B Corporations" - companies certified and audited by a nonprofit called B Lab as meeting its standards for labor, social and environmental policies. Separately, 35 states certify so-called benefit corporations, which have similar goals.

The European Union, meanwhile, created a rule this year requiring investment funds to disclose environmental risks in investments. The bloc also is moving to establish standards for investment options marketed as environmentally friendly.

Some executives insist that they're also acting from a sense of public responsibility. Dick's Sporting Goods' chief executive, Edward Stack, decided to stopped selling assault-style rifles and took other measures to restrict gun sales after the massacre at Marjory Stoneman Douglas High School in Parkland, Fla., in February 2018. Mr. Stack, a gun owner, said he had cried after hearing about the massacre, and thought he had to act.

"A company's income should be a reward for not only worthy products and good business strategy but responsible behavior," he writes in "It's How We Play the Game," his forthcoming book. "Put simply, to be a good company, you have to do good."

That's a laudable sentiment. It would be nice if the federal government would act, too.

But for now, perhaps the best surety for corporate conduct is for investors and customers to keep their eyes on the long run, aligning market incentives with public welfare.

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