June 19, 2020 / 11:12 AM / 23 days ago

Breakingviews - Cox: Companies can go first on reparations

NEW YORK (Reuters Breakingviews) - The United States is grappling anew with its original sin. The issue of reparations for slavery is a complicated and emotional topic. Like most progress made in America today, don’t expect the federal government, Congress or the courts to lead the charge. But companies could move the matter forward.

Bottles of Aunt Jemima branded syrup stand on a store shelf inside of a shop in the Brooklyn borough of New York City, New York, U.S., June 17, 2020.

Back before Americans watched in horror as George Floyd, a black man, died under the knee of a white police officer last month, they were divided over whether the country owed a financial debt to the descendants of enslaved people. In a poll released by The Associated Press-NORC Center for Public Affairs Research in October, a majority of black Americans supported the idea of the government paying cash reparations, but just 29% of respondents overall agreed.

That partly reflects the abstract challenge of figuring out how such a payment, 155 years after Texas became the final state to recognize the Emancipation Proclamation, would be calculated – a question tackled by my colleague Anna Szymanski. But on a more micro level, there are precedents that would be applicable to enterprises struggling to make amends for past inequities stemming from decisions made by their predecessor companies. 

PepsiCo’s decision this week to put the Aunt Jemima brand to rest is a good starting point. The 131-year-old pancakes and syrup business, whose name is derived from a 19th century minstrel song, for years used the marketing image of a former slave to perpetuate the stereotype of a black woman happily serving up breakfast to white children. Not anymore. “While work has been done over the years to update the brand in a manner intended to be appropriate and respectful, we realize those changes are not enough,” the chief marketing officer of the $183 billion soda company said in a statement on Wednesday.

Other consumer goods companies, vulnerable to social-media fueled boycotts from customers, are getting the message. Mars, whose Uncle Ben’s rice features the image of an African-American man in a bow tie said to be based on a Chicago maître d’hôtel, told Reuters that in an attempt to help “put an end to racial bias and injustices” it is “evolving the Uncle Ben’s brand, including its visual brand identity.”

Wiping the slate clean for companies will take more than simply ditching, or updating, brands and their logos. Acknowledging that a transfer of value occurred from black communities to shareholders is a start, of course. But that still denotes an unfulfilled financial liability that can and deserves to be quantified.

A 2014 lawsuit filed against Pepsi by plaintiffs who claimed to be descendants of Nancy Green, who was born in slavery in Kentucky in 1834, or other women whose likenesses were used to market Aunt Jemima products, tried to do that. They argued they were owed $2 billion in unpaid royalties and a share of future profits. The suit was thrown out by a Chicago court in 2015.

In retiring Aunt Jemima this week, Pepsi said it would donate a minimum of $5 million “over the next five years to create meaningful, ongoing support and engagement in the Black community.” The gap between the damages sought six years ago and Pepsi’s commitment is clearly massive. Whether $1 million a year will placate advocates for boycotting some of its best-selling products, like Mountain Dew or Doritos, is hard to say.

One option for Pepsi, or companies that may have more direct historical links to slavery - from Brooks Brothers, which sold livery to plantation owners or financial companies like Wells Fargo, Bank of America, Aetna and AIG whose predecessors sold policies to slave-owners or used human chattel as collateral - would be to commission a third-party analysis. Most companies have extensive corporate and tax archives that would probably allow for a deep historical dive. Such an exercise might help companies calculate what sort of debt they owe today.

Consider a hypothetical example. Assuming a brand made $500,000 from the 1920s - the era when Quaker bought Aunt Jemima - and grew 5% annually for 100 years, sales would have reached around $800 million in 2020 dollar terms. A 2% royalty over that same period would be roughly $16 million a year today. If a company determined it owed payments stretching back over a century, it could decide to settle the score by donating some portion of the unpaid amount to, say, educational initiatives at historically black colleges or groups working for civil justice.  

That seems to be what some more progressive institutions have done. Consider the approach of Princeton Theological Seminary. After a two-year historical audit, the school determined that it had benefited from slavery through investments in Southern banks in the mid-19th century and from donors who became wealthy from the slave economy. It announced a series of initiatives, including new scholarships and doctoral fellowships and renaming the library after its first African American graduate. The cost of $1 million a year was sustained in perpetuity with a $27.6 million endowment grant.

“The report was an act of confession,” John White, dean of students said at the time. “These responses are intended as acts of repentance that will lead to lasting impact within our community. This is the beginning of the process of repair that will be ongoing.”

Corporations like Pepsi or Bank of America aren’t religious organizations, of course. They also have shareholders to consider. Channeling billions of dollars to pay for sins committed by their predecessors would not be easy, and might even be challenged in court. But if the alternative is widespread customer boycotts or continued civil unrest, meeting in the middle might make good business sense and align with the corporate-purpose capitalism zeitgeist of the day.

Like the country in which they operate, American companies are struggling with an unresolved wound and unpaid liabilities that only expand with each prolific case of racial injustice. Some big company out there has a chance to lead the way.  

Breakingviews

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