Deliveroo’s performance shouldn’t be a surprise to anyone - people is more than the ‘S’ in ESG.

Dr Scarlett Brown, Policy Consultant.

Last week added more evidence to the argument (as if we needed more) that you can’t build a successful business without investing in your people. Deliveroo and Uber demonstrate the risks that can arise from business models where there is ongoing uncertainty over the employment status and rights of your workforce.  

Deliveroo made an almost comically bad entry to the stock market last week. After its initial public offering (IPO) raised billionsit slumped a whopping 31% - the worst entry performance in the UK stock market for decades.  

This failure isn’t just about workforce – it is rarely that simple. Some argue it represents how the UK market treats tech companies – we should be more willing to woo and court themas Wall Street does with Silicon Valley companies like Amazon and Netflix (“Here, have loads of money and we wont ask questions about your working practices, or even demand returns for years to come”). 

It also raises questions about dual-class share structures in the UK financial market. In dual-class structures the founder or CEO typically keeps a large percentage of the shares, meaning the investors have less power through their voting – something that makes UK investors nervous. The fact that the CEO of Deliveroo had this in place, with the CEO keeping 57% of the shares, was cited as one of the reasons investors like LGIM and Aberdeen Standard Investments avoided the IPO.  

These debates have significant implications for the future of the UK financial markets – when Rishi Sunak is keen to relax the rules to encourage more US tech companies to list in the UK. Given many of the major investors are growing stronger and louder on environmental, social and governance (ESG), it could be a major step back for the UKs corporate governance if less power is given to investors and more to CEOs and founders. At the same time, investor inertia or short termism is often raised as an issue for poor ESG, so you can take the argument either way.   

Perhaps the only really predictable bit about Deliveroo’s launch though, was seeing investors turn down the IPO on the grounds that the company does not have a good answer to questions about workforce. Deliveroo riders are self-employed not workers, they have no employment rights, pensions, holiday or sick pay. Some of the major investors – particularly those with major pension funds – pointed out that it would be hypocritical to invest other people’s pensions into a company that doesn’t offer the same benefits to its workforceThis is part of a broader trend. RPMI Railpen for example, which manages £31 billion of assets on behalf of the railway pension funds, recently updated its corporate governance themes to increasexpectations on how companies treat their workforce 

The investor community is often accused of being too focused on short term financial returns and not enough on the long term. This has always bashed heads with those of us who believe in investment in people, which is a long-term game. You can’t find quick fixes to employee engagement, or culture, or diversity, or wellbeing. Its great to see them putting their money where their mouth is, and eschewing companies that don’t have good workforce policies.  

This isn’t investors just being soft and fluffy. It also shows that poor people management is a major strategic risk. Deliveroo’s business model is a risky investment. As Deliveroo itself acknowledges, if it were to face a ruling like Uber hasand its self-employed riders and drivers were reclassified as workers with associated employment rights, its current business model would be unsustainable. 

For those of us in the people profession, it is no surprise at all that investment in people is vital to both good corporate governance and responsible business. We can only hope the trend continues.  

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