At the height of the pandemic, one great preoccupation was how Covid-19 would change the world. All envisioned futures came with tolerance, cooperation and low-carbon as standard, with a wide range of ways to “build back better” from which to choose. Essentially, we knew it was going to be wonderful. We just didn’t know how wonderful.

Two years on, it has become clear Covid-19 has let us down very badly as an agent of change. Far from signs of a “new normal”, the world is currently in the throes of utter chaos. And, no matter how long the Ukraine conflict and the cost-of-living crisis lasts, climate change on its own could ensure the age of disruption continues for decades.

Essential workers

In developed markets at least, it’s only during crises consumers remember they need food to live and begin to appreciate just what it takes to keep supermarket shelves stocked. Outside of crises, people take food for granted.

The food supply concerns and sudden panic witnessed early in the pandemic served as a reminder of what the food industry is there to do and, more importantly, what society expects and depends on it continuing to do, come rain or shine, fire or flood, in time of war, pestilence and all the days in between. The industry’s unique function and responsibility to nourish people sets food apart from other sectors, something that needs to be understood now more than ever. Companies and organisations operating within the food system, and the people that populate them, have a crucial role to play in tackling the huge environmental and social challenges the world faces.

The continuing development of environmental, social and governance (ESG) reporting frameworks will be critical to a sustainable global food system and the formation of the International Sustainability Standards Board (ISSB) last November and introduction of the EU’s Corporate Sustainability Reporting Directive both speak to the progress that has been made.

However, there is a vocal contingent in the investment community that remains highly sceptical about ESG and resistant to its integration into the global financial system. A fierce diatribe against stakeholder capitalism by policy analyst Carrie Sheffield, published in The New York Post in April, contended that “ESG is becoming Marxist ideology hiding under a fig leaf of ‘corporate responsibility’”. 

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The term stakeholder capitalism has struck a particularly raw nerve with ESG doubters, who retain a firm adherence to the free-market theories of economists such as Milton Friedman. They characterise stakeholder capitalism, or stakeholderism, which is enthusiastically espoused by the World Economic Forum (WEF), as a dangerous product of “hard left” ideology when what is generally being discussed, at this stage, is no more than the next iteration in how companies engage in ESG areas.

Stakeholderism represents a useful frame of reference for food companies not only for measuring and accounting for impacts on stakeholders but also helps underpin stakeholder engagement. The stakeholder focus has the potential to bolster supplier relationships and improve consumer communication, while also fostering internal cohesion and employee engagement.

One perhaps unexpected effect the pandemic had was how clapping for health workers spoke to a generalised sense of gratitude for what essential workers were doing, the personal risks they were taking and the sacrifices they were making. Many of these people, including those working in food processing, were on the very lowest wages in their respective economies.

The growth in CEO pay

A report by the UK parliamentary Environment, Food and Rural Affairs Committee into how the food system coped during the first phase of the pandemic stated: “We would like to put on record our unreserved thanks to all the key workers in the food supply chain whose efforts and sacrifices have meant that the nation is being fed during the Covid-19 pandemic.” It would also be reaffirming for workers to hear this type of message from CEOs but, as things stand today, this is where the interpersonal, empathetic aspects of stakeholderism may be unhelpful.

The disproportionate growth in CEO remuneration, when measured against increases in median salaries and even company performance, has provoked criticism from campaigners for decades, with the debate intensifying in recent years.

Despite the sustained pressure and compelling evidence, gathered mostly from corporate disclosures, campaigners made relatively little headway on CEO pay. However, pressure groups in the US and UK have been registering greater public traction on the issue, with the pandemic and the cost-of-living crisis further heightening negative public sentiment.

While the controversy over CEO remuneration can be traced back to the deregulation of financial markets that began in the mid-1980s, the issue remains unerringly relevant to contemporary questions relating to ESG and the future of work. In fact, the integration of ESG into corporate reporting may well make the reputational, ethical and governance issues around CEO pay more problematic for companies today than they were in the 1980s. 

Before the 1980s, CEO pay would very often have been part of a company-wide pay structure. Following deregulation, companies began to introduce performance-related incentives, typically related to a company’s share value, which led to the huge growth in CEO remuneration, with share-related income accounting for a large and growing proportion of the package.

Research has suggested CEO pay growth has not always reflected better performance. According to a report from US think tank the Economic Policy Institute (EPI), last year, CEO pay at the 350 largest publicly-quoted companies in the US rose by a staggering 1,322% between 1978 and 2020, compared to S&P stock market growth of 817%. At the same time, linking CEO pay to share performance has created the potential for conflicts of interest, the most controversial issue in this respect being possible abuse of share buybacks. 

Criticism could intensify

While there are governance issues for boards to ponder, heightened attention on the gap between CEO and workers’ pay could create other reputational challenges in the near term, particularly as the cost-of-living crisis bites.

The EPI report suggests there was an 18% income growth for typical workers between 1978 and 2020. The ratio between CEO and typical-worker earnings was 21 to one in 1965, rising to 61:1 by 1989. By 2020, the figure had surged to 351:1, increasing sharply from 307:1 the previous year.

UK pressure group the High Pay Centre (HPC), meanwhile, reported in May the average CEO-median pay ratio across the companies on the FTSE 350 Index fell to 44:1 in 2020/21 from 53:1 in 2019/20. However, HPC expects pay ratios to increase again, based on the 69 businesses that have already disclosed figures. Across those companies, the CEO-median employee ratio was 63:1, almost doubling from 34:1 in 2021.

HPC also provided some specific data on food companies for Just Food. With the caveat it is a small sample of six companies, HPC reported the average CEO-lower quartile ratio for the food companies in the FTSE 350 was 82:1 against the overall ratio 59:1.

Peter Drucker, the esteemed management guru whose writings had an incomparable influence on modern management theory and practice, said of the role of the chief executive: “CEOs set the values, the standards, the ethics of an organisation. They either lead or they mislead.” He also believed the CEO-to-worker pay ratio should be around 20:1.

CEOs have been key players in the evolution of ESG over the past three decades, including stakeholder capitalism. During the same sort of timeframe, their share of the wealth has increased massively through the type of capitalism that many would say has helped keep other stakeholders poor.

That said, there are indications boards are responding to concerns and excesses are slowly being reined in. So, over time, it is possible CEO pay ratios will begin to look more acceptable. But, for now, they continue to offer an easy way to tell if the old paradigm is alive and kicking.