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May 27, 2020

US mid-caps warm to stakeholder value

More than 70 percent of mid-cap executives focused on wider stakeholder picture in last year, survey finds

US mid-cap companies are focusing on more than just shareholder returns by increasing the integration of ESG factors into their business performance planning, according to new research.

In a survey of 400 middle-market executives, 74 percent say formulating plans to develop and appropriately compensate employees is important, followed by 70 percent who emphasize the importance of providing value to customers. Delivering results to investors rounds out the top three most-important picks. 

Among other choices in the research, more than half (56 percent) of the mid-cap executives think maintaining strong supplier relationships is somewhat or very important, while 55 percent say supporting the community where the mid-cap company operates is significant.

The survey was jointly conducted by North American audit, tax and consulting firm RSM US and the US Chamber of Commerce as part of the fourth quarter proprietary RSM US Middle Market Business Index survey between October 7 and 25, 2019. The findings were released last week.

Even though the survey was undertaken before the coronavirus outbreak in North America, the issues will still be dominant after the public health emergency passes, according to Anthony DeCandido, an RSM partner who specializes in ESG issues. ‘The long-term view is still intact,’ he says.

Source: RSM US Middle Market Business Index, Q4 2019

The joint study indicates that companies with greater revenues are more likely to disclose written objectives and public metrics related to key stakeholders’ interests. Larger mid-cap companies with $50 million to $1 billion in annual revenue are more likely to have written objectives and metrics than their smaller mid-cap counterparts ($10 million to $50 million in annual revenue) within every stakeholder category.

For example, 63 percent of the larger companies’ executives say they have a formalized commitment to support their communities, compared to 47 percent of the smaller mid-cap group. 

This large-small divide is also evident when it comes to having performance standards in employee compensation. The majority (81 percent) of larger mid-caps say developing and appropriately compensating employees is ‘somewhat important or very important,’ a view shared by only 68 percent of smaller mid-caps.

US mid-caps appear to recognize their broader responsibilities but are still grappling with how to integrate ESG measures within their organizations.

The study finds that only 39 percent of middle-market executives say they are familiar with ESG criteria to evaluate the performance of organizations, the same percentage as in 2018. Again, there is a divide between bigger and smaller mid-caps’ familiarity with the use of ESG criteria: just 27 percent of smaller mid-caps are ‘familiar’ with the measures, compared with more than half (55 percent) of larger mid-caps.

Among the 39 percent of firms acquainted with ESG criteria, 79 percent say they use it to evaluate their performance and 74 percent apply it to look at competitors’ performance, the study finds.

‘Increasingly, companies are using ESG reporting to deliver information to different stakeholders, including investors, customers, employees and communities,’ the Center for Capital Markets Competitiveness at the US Chamber of Commerce notes in a statement.

‘Today, almost 86 percent of the S&P 500 produce their annual sustainability report, and this is something middle-market companies should definitely be aware of and consider as they continue to grow.’