What Drives Organizations? Applying Maslow’s Hierarchy of Needs to Corporations

4 minute read

In 1943, Abraham Maslow published his theory on the hierarchy of needs. You have probably come across it at some point in your life. Maslow used the terms "physiological," "safety," "belonging and love," "social needs," and "self-actualization" to describe the linear ascension of human motivation. According to Maslow, human beings are motivated to satisfy basic physiological needs such as food and water before they can progress to the next level of needs for safety, belonging, social acceptance, and self actualization. The further removed the individual is from simply obtaining the necessities of life, the less anxiety and tension is present as they seek to fulfill higher functions of personal growth. The pursuit of these functions is critical to the advancement of innovation as the individual is liberated to focus on the needs of others once their own necessities have been fulfilled.

The arc of Maslow’s theory closely aligns with the needs of corporations.  From a legal perspective, American corporations have been granted many of the same rights as individuals under the 14th amendment of the Constitution (See 1886 Santa Clara County v. Southern Pacific Rail Road). Over the past 130 years, corporations have evolved into legally distinct beings that enjoy many rights normally reserved for individuals such as the right to own property, enter into contracts, or pursue legal action. If corporations possess many of the same legal rights that individuals do, it stands to reason that corporations also share a hierarchy of motivations that begin with their basic need of survival.      

The International Monetary Fund is forecasting that the U.S. and Canadian economies will shrink by 8.0% and 8.4% this year because of COVID-19 related shutdown. As these effects hit corporate balance sheets, many executives have been forced to take extraordinary measures to keep their businesses solvent. corporate leaders are shifting their focus to satisfy the company’s basic ‘physiological’ needs for cash flow, liquidity, and debt coverage at the expense of higher corporate aspirations. The abrupt departure of these aspirations is particularly problematic when viewed in the context of environmental stewardship. As Maslow’s work highlights, the greatest advancements in corporate innovation are likely to occur beyond the base levels of sustenance. As corporations mortgage future development to sustain existing operations, critical ESG commitments, research, and technologies are less likely to come to fruition.

According to Bloomberg, climate change-related talk on S&P500 earnings calls fell from 33% in Q1 to just 17% in Q2 as Companies re-tooled their corporate strategies to focus on the fiscal necessities of survival. This is strong evidence that higher corporate functions are a luxury of choice – ones that are only possible if the basic corporate needs of survival are met. Therefore, stakeholders should celebrate Companies that remain steadfast in their commitment to environment, social, and governance standards in the face of a global pandemic. This praise is warranted because corporate ESG commitments confirms the importance of these factors to the survival of their business. These corporate leaders do not view ESG as a luxury of choice or a higher corporate function, but rather as a fundamental cornerstone to the success of their business.

As noted by Bloomberg, discussions regarding the acceleration of the climate crisis dropped by 50% on average across every industry in the S&P 500 earnings call transcripts from Q1 to Q2 2020. The largest pull back was seen by Technology Companies (53%), Financial Services (69%), and Energy Companies (58%). Energy Companies touted their energy transition goals earlier this year, but unsurprisingly this rhetoric has dwindled and has been replaced with urgent discussions regarding production cuts, liquidity, and plummeting demand. What may be surprising are the industries that have managed to keep ESG commitments front-of-mind during coronavirus-dominated earnings calls. As noted by Bloomberg, “Sustainability talk in the utility sector did decline in the first quarter, but only by 31%. The drop at industrial companies was just 10%”.

Earnings call transcripts are a way for management to communicate corporate priorities directly to shareholders.  While a pull back of long-term initiatives is inevitable as Companies focus on the short-term realities of survival, the degree of pull back could signal the level of commitment of Companies towards environmental stewardship in the long-term. The next time you are looking through the earnings call transcripts of Companies you have invested in make a point to quickly scan through previous transcripts prior to the pandemic to see which Companies are still including language outlining their ESG ambitious and what resources they will be dedicating to achieve those objectives.

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This work has been funded by Viewpoint Foundation.