2023 Budget Speech- A Quest for value creationPart 5
In this article, corporate governance continues the discussion on the global income and wealth disparities and further launches an enquiry on some peculiarities in the various respective countries of the world to find out if at all there are any solutions or serious mitigations to this inequalities’ phenomenon. We will still relate some aspects of the discussions to some aspects of economic setting in Botswana, especially, the 2023/ 24 National Budget which, in essence, is an economic stimulus. Without prejudice, we will also investigate the possibility of the corporate cadre that the 77 percent of respondents to the 2023 Edelman Trust Barometer survey single out as the last hope of resolving the inequalities phenomenon, who are the Chief Executive Officers ( CEOs).
Having had the insight in what we believe is the main influence on the income and wealth disparities, through the illustration of the incomes of the CEOs and the other cadre of their colleagues unbearably big differences, we would like to put it to the other opinion makers and pose the question, are CEOs the right people to make a proposal for any reforms of reducing the gap? It is evident that if one has access to, hypothetically, 70 percent out of 100 percent to the market ruling incomes, he/ she will surely be concerned about the advocacy for reducing economic gaps, specifically, to wages and salaries incomes.
THE QUESTION IS, WHY THE CONCERNS?
The obvious response is that the entire setting of things in the basket of the market incomes contains only 100 percent salaries and wages. Therefore, if there is a consideration of increasing the incomes of the cadre that earns the remaining 30 percent of the market incomes in which 70 percent goes to the CEOs, obviously, that incremental differential, say 10 percent, will be effectively reducing the 70 percent earned by the CEOs by the same amount of increase to the other cadre.
Another rhetorical question is, will the CEOs easily consent to that initiative? Will they forego part of their incomes in favour of the people whom they do not even know, let alone being not their relatives or their compatriots?
Hypothetically, it should be noted that, this is the advocacy for a worldwide initiative of reducing economic disparities to pave the way for meaningful sustainable development as income and wealth inequalities are some of the dysfunctionalities to this ‘ desired commonality of purpose’ for all those pressure groups pedalling and steering initiative of hope advocacy. It is already in the news that the CEOs are concerned about the negative impacts of environmental, social and governance ( ESG) on their corporations’ performance and by extension their personal functional and income performance. The following illustrations may give the reader a clue on these issues:
QUESTION 1- HOW DOES ESG IMPACT CORPORATE PERFORMANCE?
“While ESG data collection and reporting is the first step of a company’s ESG journey, it does not by itself lead to financial improvement. According to McKinsey, studies show that strong ESG performance is positively correlated with higher equity returns and reduction in downside risk.” Available from: https:// www. walterskluwer. com> expert- insights Accessed on 24/ 04/ 2023
QUESTION 2- WHAT IS THE IMPACT OF ESG ON COMPANIES?
“In summary, ESG factors have a significant impact on company valuation. Companies that prioritise ESG factors are likely to see increased demand for their shares, reduced exposure to long- term risks, and increased revenue, which can result in a higher valuation.” Available from: https:// www. linkedin. com> pulse> impact- esg- company.” Accessed on 24/ 04/ 2023 In question 1, the authors are concerned about data collection and reporting as the activities that do not bring financial improvement. We believe that is short- termism in approach. The long- term approach will view this as sowing a seed which will, initially, draw the resources from the investor and bear fruits later.
The second part talks about the ESG correlation with higher equity returns which is return on equity which is the main result of growth in corporate profitability. It further talks about reduction in downside risk which implies security’s potential loss in value if the market conditions precipitate a decline in that security’s price. In other words, a downside risk is a general term for the risk of loss in an investment, as opposed to the symmetrical likelihood of a loss or gain. In question 2, the summary says companies that prioritise ESG are likely to experience increased demand in their shares. It further says that company reduces exposure to long- term risks and increase revenue which enhance corporate evaluation.
By and large, both questions view ESG in good light except for question 1 which considers the activities of data collection and reporting as a burden that does not bring financial improvement to the business. Certainly, ESG also has its own organisational dysfunctionalities. In the next article, we will be continuing our discussion, especially looking into Botswana 31 percent deficit in efficiencies. We extend our warm gratitude to our readers’ continual feedback and their spirit of goodwill in these articles.