Investors embrace employee activism

Many see pushes for change as indicative of a positive culture and a highly engaged workforce

In the shadow of the pandemicdriven “great resignation,” companies that treat their employees well, foster a healthy workplace culture and minimize turnover are attracting premium valuations from Canada’s institutional investors. This shouldn’t surprise anyone. Happy, engaged employees drive higher productivity and greater resilience, two critical ingredients for businesses managing through the challenges of COVID-19.

What will surprise you is how comfortable investors have become with the uncomfortable area of employee activism, a growing trend in Canada that is seeing employees pushing, often publicly and aggressively, their employers to make meaningful changes in areas like diversity, equity and inclusion, racial and gender equality, and climate change. Instead of seeing it as a liability or a threat to productivity, investors now see activist employees as a sign of an engaged and empowered workforce. In other words, they see it as an asset.

A new study by Edelman Smithfield revealed that 72 per cent of institutional investors surveyed in Canada believe incidents of employee activism are indicative of a positive culture and a highly engaged workforce. Investors now prioritize a company’s ability to attract and retain top talent over winning new customers or increasing a valuation multiple. There is a growing sense that public companies are being influenced by not only the barbarians at the gates, but those inside the walls as well. Investors now see employee activism and engaged employees as a driver for positive change and potential financial upside in much the same way as they have viewed traditional shareholder activism.

If recent research from the global law firm Herbert Smith Freehills is any guide, this is no passing fad. In fact, the study revealed that 88 per cent of the North American executives they surveyed expect employee activism to rise over the next three to five years. They list ESG and the rise of stakeholder capitalism, employee well-being and worker rights under a hybrid working model as big drivers of this.

In Canada, Shopify is one of several companies that have recently faced pressure from their employees to make changes. In May, Shopify employees pushed for changes to how the company has handled racial and social issues. This prompted a sharp rebuke from CEO Tobias Lutke: “Shopify, like any other for-profit company, is not a family … Shopify is also not the government. We cannot solve every societal problem here,” he noted in a leaked employee memo.

Lutke is not wrong; companies like Shopify can’t solve all the world’s problems. Trying to do so pulls their focus away from running the business and creating value for investors.

But in a world where stakeholder capitalism has usurped shareholder primacy, those very investors now want to see CEOs paying closer attention to what employees expect of their employers. And employees want to see them step up and do more to help solve big societal problems.

Companies are now faced with the need to balance these two competing imperatives — the need to grow and create value for their investors with the more complex need of contributing to the greater good in society (without sacrificing profits).

Investors have been pushing them to strike this balance. The majority of investors surveyed by Edelman Smithfield feel companies have a duty to take a stand on important social issues, including racial and gender equality, climate change, immigration reform and reducing economic inequality. Further, those same investors believe the reward far outweighs the risk of wading into some of these contentious but important conversations. Even the most conservative of companies now have more to lose by staying silent than speaking out.

This trend is manifesting itself in the rise of ESG activism in Canada. According to Laurel Hill Advisory Group’s 2021 Corporate Governance Report, shareholder proposals in Canada that targeted environmental, social or governance issues far outpaced all other proposal categories this year. Investors and employees want the same thing: for the companies they hold stock in and work for to look at the world they operate in through a different lens, one in which the duty of the corporation extends beyond creating value exclusively for its owners.

Employees have become a material stakeholder and, alongside investors, are driving this change forward. The pandemic has influenced this trend, to be sure. Employees are rethinking every aspect of their lives and have dramatically higher and vocal expectations of their employers and their CEOs. It’s no longer just about the pay cheque; employees now expect their employers to be a force for good in their lives, in their communities and for the planet.

They now have investors standing right there with them pushing for this change.