We provided commentary on the Changing Workplaces Review Recommendations, bringing SHARE’s perspective of the business and investor case for creating better workplaces in Ontario. Below is a copy of the letter we sent to the Honourable Kathleen Wynne.
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Earlier this week, the Ontario Government’s Special Advisors released their final report in the Changing Workplaces Review, outlining 173 recommendations to the Employment Standards Act and the Labour Relations Act. We are writing to provide our perspective on the business and investor case for creating better workplaces in Ontario as the government prepares its formal response to the report’s recommendations.
The Shareholder Association for Research and Education (SHARE) is a Canadian leader in responsible investment services, research and education. We work with a network of Canadian institutional investors with approximately $14 billion in assets under management helping them to implement responsible investment policies and practices. SHARE is dedicated to improving institutional investment practices that protect the long-term interest of investors, communities and society in general.
Promoting decent work policies and practices by companies has been a cornerstone of SHARE’s work since its inception. Our efforts on behalf of institutional investors to improve corporate workplace practices is driven not only from our belief that workers have the right to employment with fair wages, dignity and security but also because there is a strong investor case for improving workplace practices.
The investor case for decent work is based on growing evidence that, at the macro-economic level, income inequality weakens economic growth, and, at the company level, precarious work can have negative business impacts. Increasing poverty, the weakening of the middle class and the growing disparity between the very rich and middle- and lower-income earners weakens economies and can have a harmful effect on economic growth. For institutional investors, stagnant growth and weak economies can negatively impact investment performance across a portfolio and over the long-term.
At the company level, more research is showing the negative impacts of growing inequality and precarious work for business outcomes. For example, a study by the investment research firm MSCI found that between 2009 and 2014 companies with lower intra-corporate pay gaps performed better in terms of average profit margins and that labour productivity was lower for companies with high intra-corporate pay gaps on average in the majority of sectors. Good workplace practices can also improve business performance. For example, robust workplace practices can help companies attract stronger candidates and retain key employees leading to lower turnover and retraining costs. Good training programs and strong human resource policies can also improve employee productivity, operational efficiency, brand value and sales. MIT Professor Zeynep Ton’s research provides particularly powerful evidence from the retail sector that companies pursuing a good jobs strategy are more likely to deliver strong operational performance.
Unfortunately, too often these business case arguments are overlooked in discussions about improving worker protections and working conditions due to the entrenched belief that workers are exclusively a cost to businesses that should be minimized, rather than an asset to be protected. However, there is an emerging group of institutional investors calling into question this narrative and recognizing that investments in worker development, protection of workers’ rights, commitments to fair pay and meaningful workforce engagement can lead to important business performance benefits that matter to investors.
For example, the Human Capital Management Coalition is a consortium of 25 global institutional investors representing $2.6 trillion in assets. The coalition was formed to engage with global companies to improve how human capital management contributes to the creation of long-term shareholder value. In the UK, an investor-led campaign successfully encouraged over 30 FTSE 100 companies to become accredited Living Wage Employers. Here in Canada, SHARE has been engaging with Canadian companies on behalf of investors advocating for robust decent work policies in both direct operations and in company supply chains.
Given the importance of this issue to investors, we hope the government will give special attention to the recommendations related to protecting the most vulnerable workers, including reviewing existing exemptions, ending differential pay based on contract status (i.e. part-time, casual, temporary, contract or seasonal), addressing the use of “perma-temps” and identifying ways to limit scheduling practices that can create stress and instability for workers such as on-call shift scheduling.
We would also like to reiterate the recommendation we put forward to the Changing Workplaces Review in a submission dated October 12, 2016 regarding opportunities for the Government of Ontario to improve corporate disclosure of workplace policies and practices. Mandating improved social disclosure in the Ontario Business Corporations Act and/or Securities Act can ensure that investors have access to important information on company approaches to decent work. We believe that improving corporate disclosure through mandatory disclosure rules can offer a valuable supplement to the recommendations from the Changing Workplaces Review.
As the Government of Ontario considers the recommendations put forward by special advisers C. Michael Mitchell and John C. Murray, we wanted to draw your attention to the efforts of institutional investors to support decent work. So often, the debate regarding strengthening labour standards is portrayed in a polarized manner and finding common ground can be challenging. We hope that this letter, and the business case evidence for decent work, will help the Government of Ontario act on the Changing Workplaces Review recommendations in a way that will increase the protections for workers and help build a more inclusive and prosperous Ontario economy.
Director of Responsible Investment
Shareholder Association for Research and Education (SHARE)
For example, a 2015 study by the OECD concluded that inequality knocked 4.7 percentage points off the OECD countries’ cumulative growth on average between 1990 and 2010.
MSCI, 2016, Inequality and the Intracorporate Pay Gap, available at: https://www.msci.com/www/research-paper/income-inequality-and-the/0337258305.