ESG: A Dysfunctional Metric

The quality profession already offers solutions to promote environmental and social responsibility

Environmental, social, and governance (ESG) is growing in popularity as a metric to guide investment decisions. What does ESG have to do with productivity, quality, or stakeholders, aka relevant interested parties? The answer is—with the exception of generally accepted practices for workplace safety and reduction of all forms of material and energy wastes—almost nothing. ESG underscores instead the well-known principle that measurement of the wrong performance measurements will deliver dysfunctional results.

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Courage

It took courage to write this article, and to publish it. I salute all involved.

Utility of ESG

Dysfuntionality could be ue to its demadning metrics and measures, and not it utility

Dysfunctional Metrics are Ubiquitous

I was disappointed in the focus on the metric, rather than on whether ESG is a good corporate practice. The reality is that vast numbers of metrics, of otherwise valid business objectives, are dysfunctional. All you have to do is read books like "Tyranny of Metrics" to see that reality.

Therefore, it's disappointing to see a potentially beneficial practice being conflated with a poorly designed metric to track the practice.

Broad and Useful References

To Dr Levinson, I love that you used any manner of useful sources in your article. Beautifully comprehensive, thoughtful, and renaissance, you even used the Gospel of Matthew in a practical (purposful( way. In Quality everything that serves a purposeful aim, for the benefit of the most effective and resourceful solution, is useful.

The Real Metric Out of Balance

The author here states that Henry Ford didn't give to charity yet kept prices low, paid his employees a living wage, and treated his suppliers fairly.

Good for Henry Ford -- if that's true, he's probably a man I would've respected.

Unfortunately, there aren't many Henry Fords around any more. Corporate America has become overtaken with greed and self-interest that has resulted in the greatest wealth gap in history, stagnant wages for the "everyman" in our country, and retreating ability to gain dignity, hope and security in one's future. Even the highly educated and well off struggle to eat the scraps from the tables of the new uber-rich individuals and gain success and stature working in and for the mega-corporations.

Corporations and businesses as a whole are not natural persons. They don't have inalienable rights. They exist ONLY at the will of the government, i.e., at the will of the voter -- the taxpayer -- who still (at least for now) gets to choose that government to support the collective peoples' interests. Saying that ESG doesn't benefit the "stakeholders" means it doesn't benefit Wall Street -- which is where the VAST majority of this wealth is both directed to, and controlled by. Why should this be our metric -- the almost sole enrichment of a small minority of our population to the exclusion of the majority? Where does it say in the Constitution that Wall Street's "pursuit of happiness" is the most important?

If corporations and businesses are not serving the interests of our society, then they should be governed, regulated, and where necessary reigned in. ESG is a way for those companies that embrace this belief that they are bound to serve MORE than just Wall Street to do so in a way that is balanced and still reflects the fealty and adoration of the almighty dollar -- and -- provides a fair return to their stakeholders.

So, it seems to me like ESG is a pretty functional metric for those that care about more than just Wall Street -- which should be all of us.

Respectfully.

What is this "small minority" you speak of?

Jack,

What is "Wall Street" in your context? Basically businesses and the people who own them. Over half of Americans own stocks, so "Wall Street" is comprized of over half of Americans, not the "small majority" you mention, sir.

Yes that wealth is not evenly distributed. It never was in history, and never will be. You seem to advocate government playing Robin Hood and taking from "the rich" to give to the "poor". Where and when has this ever worked in the history of the world?

Google It

Steve,

All you have to do is Google "who owns stocks in the US" to see from a variety of sources that, while technically you are correct that 53% of Americans "own stocks" the vast majority of wealth in stocks is weighted towards the wealthy. From The Motley Fool, Jan 19, 2023 (not exactly a bastion of political messaging):

Key findings

About 150 million Americans, or 58% of American adults, own stock.

The 1% hold 53% of stocks, worth $16.76 trillion.

The bottom 50% of American adults hold only 0.6% of stocks, worth $19 billion.

White Americans own 89.1% of stocks, worth $28.17 trillion.

American families held an average of $40,000 in stocks as of 2019. This is far below the peak of over $50,000 in 2001.

Assuming these are even close to correct it's pretty clear that Wall Street benefits mostly the rich. Not exclusively, but on a weighted basis, without question.

Also, even assuming further that this wasn't the case, that would still leave around 50% of the country that did NOT own stocks. Should a majority of our government policy be oriented towards ensuring corporations make more and more money and ignore the common worker?

I'll ignore your Robin Hood comment about taking from the rich and giving to the poor as political diatribe.

Going back to the issue of ESG as a metric, given the above, don't we have a sufficent financial metric -- the market -- to take care of the wealth creation goals of business owners? Can't we afford as a society -- and shouldn't we ask of corporations -- to provide some balance with respect to environmental, social and governance goals as well? Don't we all live on this planet and breathe the same air? Shouldn't we all have a right to participate equally in our society? I think there's plenty of money being made and we all collectively can afford to consider more than just money without "taking from the rich and giving to the poor" (what a horrible thing).

All I'm suggesting is a little balance. It seems to me that we're out of balance. I'm suggesting that the author is wrong about the markets being a sufficient metric -- I think it's clear that it's not.

Respectfully.

Out of Balance Indeed

I get tired of the whining about "the rich" or those who own a lot of stock. I'd like to be one of them!

Promoting "balance" as you do is just a nice way of saying taking from some to give to others, period.

Here's something else "out of balance", or "weighted toward the wealthy" to use your terms. Around 50% of the country pays no federal income taxes. Yet we constantly hear "the rich" must "pay their fair share". Heck, "the rich" i.e the upper half of earners, are the only ones who pay any taxes!