Social Factor round-up
Labour standards in social care, private credit vs ESG, worker voice in governance, Thames Water and stakeholder priorities
Labour standards in social care
A well-deserved plug for new research - How can investors drive up labour standards in the English care sector? Conducted by the Rights Lab at the University of Nottingham and funded by Friends Provident Foundation, this research provides a critical examination of the sector's financial and ethical landscape. With the adult social care sector employing 1.79 million people and projected to grow by 490,000 jobs by 2035, understanding its underlying challenges has never been more important.
The research focuses on 59 'difficult to replace' care providers and reveals:
Widespread labour rights issues, including exploitation of migrant workers
Complex ownership structures
Significant financial sustainability challenges
Potential routes for financial institutions and government to drive positive change
There are also policy recommendations that are aimed at both both investors and government:
Recommendation 1: Investors such as private equity companies, publicly listed REITs, and other real estate holders should adopt measures to strengthen investor stewardship, set and monitor labour standards, conduct labour-related due diligence and post-investment monitoring on the companies in whom they invest, and introduce contractual obligations in leases and through red lines related to the quality of care and work.
Recommendation 2: Pension funds, other asset owners, and their investment managers should explicitly expect private equity companies, publicly listed REITs, and other real estate investors to follow recommendation 1.
Recommendation 3: The UK Government should legislate to ensure that care workers in the UK have the right to organise and engage in collective bargaining.
Recommendation 4: The UK Government should ensure that any funding improvements are tied to care quality and minimum safe staffing levels.
Recommendation 5: The UK Government should mandate the disclosure of legal ownership structures and human capital metrics within annual statements prepared in response to section 54 of the UKs (2015) Modern Slavery Act.
Recommendation 6: The UK Government should launch a public inquiry into working conditions within the care sector. Research overview Within a mixed methods study, we analysed financial performance and ethical reporting in the care sector.
Full report here.
Private credit vs ESG
The Pemberton / Oscar Mayer ‘fire and rehire’ story rumbles on. Today Financial News has reported on Unite’s complaint to the PRI about Pemberton being a signatory.
Worker voice in governance
Also out today, the International Corporate Governance Network (ICGN) has issued a useful ‘Investor Viewpoint’ on worker voice in corporate decision-making. This is something I spent quite a bit of time working on this year - particularly the case for workforce directors. The ICGN briefing includes a broad range of worker voice mechanisms and the first topic covered in the briefing is actually collective bargaining. This is helpful as employee representation at board level is sometimes seen as an alternative or competitor industrial relations structures - but actually they serve different purposes and should work in tandem. It’s great to see the ICGN issue something on this topic and investor interest in worker voice seems to be growing more generally.
Thames Water and stakeholder priorities
Finally, bonuses for water company operators are back in the news today. The bit I found interesting in this story was not actually about executive pay, but rather the following:
A final decision on whether Thames can increase its bills by 59% is due on 19 December. Mr Weston described the upcoming decision as a "critical" step which would be "fundamental" to the company's future. Bosses have argued they need extra cash to make Thames Water "investible" enough to attract fresh funding, and to pay for improvements to its network of pipes and sewers.
This goes exactly to the point I was trying to make about business case arguments and investor expectations. Is the issue that the leadership of utilities should be grappling with the need for these businesses to be ‘investible’? Obviously businesses need to be able to raise capital, but this is a sector where business leaders are probably better advised to take unambiguously pro-public positions.
This also reminded me of a great bit in the The Unaccountability Machine by Dan Davies which articulated very clearly something that I hadn’t consciously thought of before but immediately recognised:
[D]ebt, considered as a way of managing information, is extremely efficient. The lender doesn't have to get involved in the management of the business project, or even have to take a shareholder's perspective in assessing how valuable the enterprise is. All they need to answer are two questions: 'Is the promised interest rate attractive compensation for the time and risk?' and 'Do I think I will get paid the money back?'…
From the point of view of the borrower, though, that variety-attenuating power has some rather more subtle qualities. It introduces a new constraint into the 'survival set' - if you aren't able to make the payments, something bad will happen. And every time you make a payment, it reduces your cash on hand. If you only have a small amount of debt, this just becomes one constraint among others. If a system is loaded up with a lot of debt, the need to make the payments becomes a signal that swamps all other sources of information. It becomes impossible to pay attention to anything that doesn't directly help to generate enough cash to ensure continued viability.
Strong recommend for that book by the way.