So, what would a fair society look like? Daniel Chandler’s “Free and Equal”

What Would Rawls Do?
What Would Rawls Do?

Daniel Chandler was introduced to John Rawls’ Theory of Justice during his history degree at Cambridge.  Although I was encouraged to write a dissertation on Les événements de mai 1968 while studying for the same degree thirty or more years earlier, Theory of Justice, only published in 1971, hadn’t made it into Quentin Skinner’s “History of Political Thought” lectures when I attended them in 1976.  Instead, my introduction came at Stanford University’s Graduate School of Business a few years later.  By the time that I was involved in the Britain’s short-lived Social Democratic Party in the 1980s, Rawls’ theories, particularly his rationale for a just society being one which offers the most for the least well off in society, provided a philosophical justification those who defected to the SDP from a Labour Party wedded to “Clause 4” socialism.

Chandler and I share a huge respect for Rawls.  Chandler takes this to the extent that Rawls’ theories become his lodestone for examining public policy.  In the first half of his book, Free and Equal: what would a fair society look like?[1] Chandler performs a valuable service by providing a readable and accessible summary of John Rawls’ famously turgid and impenetrable book, along with an account and rebuttal of Rawls’ critics and of those such as Amartya Sen (a hero and, apparently, mentor to Chandler) who have built on Rawls’ foundations.  But the second half of the book, which justifies the sub-title , leaves me imagining that Chandler either wears a leather bracelet imprinted with WWRD (like members of some Christian youth groups wearing one for “What Would Jesus Do”) or lives under a banner like that raised by members of the Occupy Movement at St Pauls Cathedral in 2011.

Chandler works his way through a wide range of public policy issues, trying to apply Rawls’s view of what constitutes social justice by setting out a collection of prescriptions for addressing social and global problems, such as income and wealth distribution, the environment, and distribution of power in the workplace.  The attempt is admirable, but disappointing.  While conveying the impression that emotionally he is politically on the left, he is resolutely a centrist and not afraid to challenge traditional leftist positions, probably reflecting his academic move from history to politics and philosophy, so less a slave to dogma that some who take on this challenge.

His cv includes Harvard and the LSE, the UK Prime Minister’s Policy Unit, the Resolution Foundation and the Institute for Fiscal Studies, but his prescriptions and supporting accounts lack grounding, are uniformly derivative, and feel embarrassingly like the work I was turning out as a student politician and parliamentary researcher in my late teens and early twenties.  Given his background, he can’t be blamed lacking the grounding in the real world that might have informed an approach that would be both more nuanced and insightful.  His account of ownership and power in the context of the firm is particularly disappointing and falls into the trap of believing that the shareholders generally hold the power rather than the managers, and the power of different stakeholders depending on the characteristics of the particular markets in which the firm operates, may have more or less power[2].  The consequence is a very simplistic set of prescriptions, with nothing particuarly original.

I briefly found myself bothered by the utopianism that underlies the ambition for the second half of the book, but then cames across his own apology for this and explanation of the need for ambition to make the world a better place, and the value of Rawls’ ideas about justice in thinking about what constitutes “better”.  I was then reminded of Lenin, writing in the fifth chapter of What is to be done? Where he cites 19th Russian nihilist Pisarev

 “the rift between dreams and reality causes no harm if only the person dreaming believes seriously in his dream, if he attentively observes life, compares his observations with his castles in the air, and if, generally speaking, he works conscientiously for the achievement of his fantasies. If there is some connection between dreams and life then all is well.”

before then observing

Of this kind of dreaming there is unfortunately too little in our movement.[3]

So, full marks to Chandler for his account of Rawls, and also the aspiration to frame practical solutions in light of Rawls theory, even if he falls well short in his prescriptions and how be presents them.



[1] Chandler, D. (2023). Free and Equal. Penguin UK

[2] Ironically, I read his objection (page 262) to John Lewis Partnership being viewed as a co-operative “because workers do not exercise full control over management” on the very day that the John Lewis staff chairman Dame Sharon White lost a vote of confidence in her past performance from the Partnership Council although she received support for her future leadership going forward.

[3] Wikipedia. (2023). Dmitry Pisarev. [online] Available at: [Accessed 10 May 2023].

“It’s the investors’ fault, not ours”

Tulchan State of Stewardship Report

Financial communications company Tulchan’s State of Stewardship report, capturing the views of 35 FTSE company chairs (26 from FTSE 100), makes depressing reading.   “Many of the chairs interviewed for this report conveyed a sense of deep unease at what they feel is a lack of alignment between their objectives and those of their shareholders” writes Mark Burgess, a Tulchan Communications partner, in the foreword to the report.  And whose fault is this?  According to the commentary and the chair’s quotes scattered through the report, it appears to lie with the investors.

“The report suggests….that we should recognise that board are mostly constituted by good people trying to the do the right thing for the good of their stakeholders., and invites shareholders overseeing them to start by assuming positive intent, placing accountability for stewardship where it belongs;[1] in the boardroom and working together to improve conditions for growth”.

This is a bit like a sales and marketing director blaming customers for not buying their products or services.  No, you need to design your offering to meet customers’ needs, and your advertising agency (Tulchan’s equivalent in the consumer marketplace) should shape your messages to so that they demonstrate how your offer will address those needs.

Shareholders don’t “oversee” boards.  Boards are accountable to shareholders, and to other stakeholders too.  Their companies have a duty to provide returns that are sufficiently attractive to shareholders in terms of the balance of capital growth, dividend income, risk, timing, and alignment with ethical and any other shareholder concerns.  Folded into risk are concerns about consumer and supplier market movements, competition, government intervention, financial leverage, and investors’ portfolio composition[2].  Get that right, and investors will place a higher value on your shares.  Get it wrong and investors will either sell or, if they believe other directors will provide returns (taking all the dimensions list above into account) that are more attractive to them, replace you.  Boards need to think of their shareholders as customers and shape their offer to them as though they were customers.

[1] Tulchan’s punctuation

[2] Witness the challenge faced by Baillie Gifford needing to unweight its investment in Tesla as the share price took off

Investors call a chief executive’s bluff

Don't ask these investors for a pay rise
Don’t ask these investors for a pay rise

News of a chief executive’s resignation following a failed bid for more pay reminded me that back in April, the FT’s Brooke Masters wrote an article about the difficulties faced by both governments and shareholders reining in the excesses of corporate pay.  Noting that in 2021 it was possible to believe that “corporate sermonising about the need to look beyond pure profit was beginning to bear fruit”, “that the pandemic had prompted most corporate chieftains to show financial restraint” and that CEO pay in the FTSE 100 had dropped by 10%, she noted that the tide had turned.

Her article was triggered by controversy around the salary to be paid to Carlos Tavers of carmaker Stellantis which attracted the ire of French presidential election candidates and was voted down by shareholders.  But this contrasted with larger remuneration packages in Stellantis’s US domiciled competitors, and much large packages in the tech giants.

These big packages have been facing challenges from shareholders. Masters reports that 18% of US companies with revenue in excess of $50 billion failed to get a majority voting in favour of their executive salary resolutions, and there was a 20% increase in shareholder protest votes on pay in Europe.  But often these have no effect and merely advisory, with no pain felt by boards that fail to comply with the expressed shareholder will.  She indicates that she feels that the pressures for restraint in public companies are insufficient, completing her article by giving the impression that the promise from the Stellantis board that the shareholders’ vote would be “taken into account” in next years’ pay report suggests that shareholders are not being taken seriously.

In contrast, the response on 7 August of the founders of private equity company Carlyle Group to the attempt to extract economic rent from shareholders, otherwise described as a pay claim worth $300m over five years, submitted by chief executive Kewsong Lee, suggests a that they have some backbone.  Admittedly, Bill Conway, David Rubenstein and Daniel D’Aniello are all billionaires and can absorb the immediate response of the stock market, a 10% decline in the share price, to the announcement of Kewsong Lee’s departure, but some of this soon recovered and the price remains 13% above the price one month ago.

But given that there is a vacancy at Carlyle and that Kewsong Lee received a total of $42 million last year (mostly in stock awards, but a fair bit of leverage on the base salary of $275,000), anyone willing to exercise a little restraint in the face of some hard-nosed shareholder may want to apply.

Lessons from Emmanuel Faber’s departure from Danone


On 26th June 2020 99% of the shareholders in Danone voted for it to become an enterprise à mission, or purpose driven company, required not only to generate profit for its shareholders, but do so in a way that it says will benefit its customers’ health and the planet.

Less than nine months later, Emmanuel Faber, Danone’s chief executive and the architect of the new strategy, was ejected by the board in the face of pressure from activist investors.  The FT leader writer observed on 18th March that “a backlash against purpose-driven capitalism was overdue” and that the debacle was “a reminder that distractions from the core goal of making a profit can be dangerous” before concluding that it did “not …. signal that leaders should rein in their ambition to go further and reassert the role of companies in society” and that to “revert now to simplistic and damaging pursuit of crude share-price maximisation would be a mistake.”

The ejection of Faber was not an illustration of the primacy of Friedmanite shareholder value, but an example of a chief executive failure to manage the investor market interface.  We don’t know precisely what the activist investors were thinking, but they were clearly dissatisfied with the returns they were expecting and believed that their investment returns would be increased with a different chief executive.

Under Faber’s successor, the activist investors hope that the value of their investment (in terms of capital growth and dividend returns) will increase as a result of improved internal operational performance and a changed strategy towards the customers at its other market interfaces – including suppliers, employees, consumers, owners of real estate and local communities, regulators, and government (recalling the appetite of the French government to view large domestic consumer businesses as strategic national assets when threatened by acquisition by overseas multinationals).  The choices of the different types of customer will include some consideration of ESG: consumers with an eye to environmental consideration (packaging, use of sustainable resources; employees preferring to work for companies whose conduct they can take pride in; investors wanting to see good governance.  The rhetoric employed by the activist investment customers may reflect discontent with financial returns, but implicitly they are concerned with how the Danone’s mission is translated into strategy and the possibility that Faber’s rhetoric around purpose conceals a lack of grip on operational performance.

The Danone debacle generated further commentary on whether this apparent backlash represented a retreat from “purposeful capitalism”.  John Plender wrote a powerful article for the FT on 4th April reflecting both on the Danone story and on the lessons from the Covid about the impact on stakeholders (particularly suppliers) who were unable to diversify  their risk (unlike investors) when a business hit rocks as the pandemic closed down parts of the economy.  He shared the view, which we addressed during the debate in 2017 on corporate governance reform in the UK, that appointing employee directors (or by implication directors representing any other specific stakeholder group) does not address the governance gaps.  He went on to argue for changes to the incentive models for senior managers to address short-termism and that profit or share value metrics determining them should be supplemented by ESG related metrics.  In short, “stakeholder capitalism must find ways to hold management to account” and that “the prevailing commitment to short-termist shareholder value has undermined corporate resilience.”

Hakan Jankensgard, Associate Professor of Corporate Finance at Lund University responded to Plender in a letter published by the FT on 7th April with an assertion that the firms should adopt the Hippocratic oath since this “would ensure that firms act as good corporate citizens”, with focus on long term profitability and “not become do-gooders picking sides in social debates”.  It is probably a reflection of the challenge of drafting a letter of appropriate length for publication, but some steps in his logic seems to missing.  However, other parts of his letter are compelling, echo arguments within the Escondido Framework view on how firms work and pitfalls in contemporary corporate governance, and are worth producing in full:

“As far as everyone is concerned, shareholders are the root cause of all the troubles afflicting our societies.

“Well, think again.  The real problem today is managerial capitalism – that managers run firms primarily to increase their own wealth and prestige.  A few decades back, managers were busy building wasteful empires, and the shareholder model arrived as a particular remedy for this gross inefficiency.

“Another innovation that arrive about the same time prove more fateful.  It was the idea that managers, if given the right financial incentives, would rediscover their entrepreneurial spirt. It caught on, to say the least.  What it really did, however, was to shift managers’ focus from building empires to extracting wealth through compensation packages.

“As manager took n their new role, they found willing accomplices in a cabal of short-term oriented investors looking for a quick return.  This unfortunate marriage is the problem at the heart of today’s economy as it creates short-termism that adds to long-term risk.”

Image manipulation or vanity project?

23/01/21 - Auckland (NZL) 36th America’s Cup presented by Prada PRADA Cup 2021 - Round Robin 3 Ineos Team UK, Jim Ratcliffe
Jim Ratcliffe (centre, without helmet) with Ben Ainsley (front row, third from right) and crew of “Rita” aka Ineos Team UK after winning round robin stage of Prada Cup in Auckland 23 Januaary 2021

Richard Pares, in his account of 18th century British politics, observed “It is a pity that historians should so seldom have recognized the fact that men were in politics not only for party and for profit, but most of all for the due exercise of the talents that God gave them, and for fun.”[1]

This thought came to mind when I read Catherine Bennett’s diatribe in today’s Observer about the £100m donation that Jim Ratcliffe has made to Oxford for the worthy cause of research into antimicrobial resistance.  Particularly when I recalled the sight yesterday of the INEOS boss with the crew of the British entry in the America’s Cup celebrating getting through to the final round to select the challenger for the oldest trophy in international sport.

A sub-editor (or perhaps Bennett herself) has provided the headline “Just what was it exactly that Oxford University saw in the billionaire boss of Ineos?”  What a daft question!  It is clearly his £100m, and what is wrong with that?  This is not a statue to a long dead racist or slave trader

Bennett continues by pointing out that INEOS has challenged union power at its plants, most famously at Grangemouth in 2013 when, having purchased assets that the previous owners had decided did not have long term commercial future, it faced down resistance to the changes required to make the plants profitable and secure local employment and the local economy.  She points to a “lamentable environmental record”, a reasonable criticism of INEOS and proper issue for stakeholders of every sort to address with INEOS (and which if it was not privately owned, two thirds by Ratcliffe himself and one third with his partners, Andy Currie and John Reece, would put it in the cross hairs of ESG conscious institutions).  These are things for governments to address, under pressure from voters and, insofar as we can influence suppliers of the raw materials for the things we ultimately buy, for consumers of goods made by INEOS’s customers.  But does this amount to a  reason for Oxford to turn down its (or rather, Ratcliffe, Currie and Reece’s) money?

Bennett turns her fire on INEOS for its efforts to avoid paying tax.  No-one sets out to pay more tax than they can.  If there is anyone to blame for companies like INEOS, or super-rich individuals, moving assets or their domicile to tax havens, it is the governments for their failure to collaborate in the setting of taxes on those parts of the potential tax base that are amenable to institutions and individuals to shop around in this way.

Looking at the way that INEOS is currently distributing its largesse, it is unlikely that it is motivated by a desire to manipulate the corporate image.  They have very little to do with its corporate purpose but are best understood as vanity projects for the owners.   INEOS may have started selling disinfectant gels during the pandemic, but it is hardly a consumer good company (certainly this is born out by the very industrial style of the branding for the disinfectant gels).  It has also launched a business selling a replacement for the Land Rover Defender, but looks like a sentimental hobbyist’s venture rather than something that will cause any worry to Toyota or the other brands producing rugged off-road vehicles.

INEOS has thrown sums at cycling and sailing that are material in terms of the impact on the sports concerned, but it is hard to believe that these “investments” will earn any greater commercial return for INEOS in terms of shifting the dial on consumer sentiment or invite more sympathetic treatment by government agencies or regulators than the donation to Oxford University.  Rather, Ratcliffe and his two colleagues are throwing a small amount of their very considerable wealth at things that they think either have intrinsic value and do something for the welfare of mankind (antimicrobial resistance), or give them the opportunity to have fun.  If anyone doubts this, they should take a look at the coverage of the Prada Cup (the qualification stage of the America’s Cup currently underway in New Zealand) and see Jim Ratcliffe basking in the company of Ben Ainslie and the INEOS Team UK crew after winning the round robin series races that take them one step closer to challenging for the America’s Cup.

[1] Pares R.,1953, King George III and the Politicians, Oxford, p30

How can investors and owners support purposeful business?

This, the fourth session of the British Academy Future of the Corporation – Purpose Summit opened with the Colin Mayer as session chair arguing that shareholders should be responsible for insisting that the business in which they own shares following their corporate purpose.

It may not have been his role as chair of the morning session to set out the logic behind the assertion, but it was disappointing that he did go on to frame this not so much as a responsibility of the shareholder as being something that is in their interest.  After all, it is in the interest of the shareholder who has invested in a particular business proposition (with the prospect of financial returns that relate to the industry sector, corporate capability, strategy and market position) that the business “sticks to its knitting” and pursues its purpose to the best of its ability.  After all, we are taught at business school that the shareholder can diversify their risk by investing in a variety of business and can buy instruments and investment that offer different patterns of return.  The purpose of the company is something that attracts the shareholder to invest, and both the company and the shareholder have an interest in the company following its purpose.  This proposition is the outcome of Escondido Framework thinking and its model of the firm.

Douglas Lamont, CEO of Innocent Drinks gave us a inspiring account of the Innocent Drinks story including a description of its purpose, vision and values – the why, what and how.  He explained how Coca Cola, when it invested in the company in 2009 approached its investment with the intent that the purpose of Innocent should be protected.  The relationship should be “connected not integrated” so Innocent could benefit from the positive things that Coca Cola could provide but not be swamped and turned into a fizzy drinks brand.  As a consequence, Lamont feels that he has a “strong, trusting relationship with our shareholder” and sees the model of his company’s relationship to Coca Cola being a challenge to big corporates to emulate with their acquisitions and subsidiaries.

Lamont also spoke about the being a “B Corp”, the movement of companies trying to shift the reputation of business from greed to good.

Hiro Mizuro, CIO for the Japanese Government Pension Investment Fund spoke about the relationship between the “owner” of the asset in the shape ultimately of the pension beneficiary, the investor or investment fund and the portfolio company.  He posed the question that I see as the beneficiary of some pension funds that are not yet paying out and some that now are, and as the owner of insurance policies and Individual Savings Account investments in tracker funds.  To what degree do I take responsibility and, indeed, in relation to the argument from Colin Mayer at the start of the session, can I take responsibility for the purpose.  On the other hand, thinking back to my time as chair of the Finance Committee at Versus Arthritis, it was just this approach from the team at Baillie Gifford that attracted me to advising the charity to invest in its Global Stewardship Fund, which proved the best decision I took in my eight years as a trustee of the charity.

The penultimate presentation of this session was Phil Thomson, president of global affairs at GSK.  He spoke of joining Glaxo Wellcome, a pharmaceutical company with a strong sense of purpose 20 years ago, but also of an industry that lost its way in terms of its sense of purpose for time.  He spoke of how the world had “dodged the bullet” of a pandemic several times in that time but the sense of purpose for the life sciences companies has been restored and reinforced by the current crisis and has helped stabilise and increase the resilience of the business.  He argued that embedding purpose takes time and requires consistency but, along with clear values (Transparency, Respect, Integrity and Patient Focus) provides a simplicity that can be understood among the 125,000 employees of the organisation across the globe.  Later, in answer to questions, he talked about how the values and the shared understanding of the purpose gave staff a sense of ownership in terms of their responsibility for what the company does and how it does it.

The final speaker was Deb Oxley, chief executive of the Employee Ownership Association.  It is her role to promote employee ownership, extolling its virtues, overclaiming for what it can deliver, and blinding her to the competing challenges of other stakeholders to ownership rights and to diversity of types of engagement of people in a workforce – from the casual part-timer, to the person with transportable skills through to “lifers” who have made huge commitments to the organisation and few choices to move elsewhere.  The shortcomings in her presentation only highlight the strengths of the alternative way of understanding ownership that underpins the Escondido Framework.

Employee activism: what does the Escondido Framework say?

Staff at Wayfair, the online furniture and household goods company, have been protesting at their employer selling furniture to a company equipping migrant detention centres in the US.[1]  What does this say about the relationship of companies to their staff, about limits on the ability of shareholders to exercise power over the behaviour of that conventional theory suggests that they own, and about the rights and responsibilities of every one of us in relation to the organisations that we work for?

The relationship of companies to their staff

An organisation should consider ethical and political behaviour as part of the marketing mix when it thinks about its strategy towards its employees.  Charities and other not for profit organisations are generally able to employ staff at a lower cost than organisations without an ethical mission because their staff make trade-offs between the income they receive in cash and feeling that they are achieving something for the wider good.  As I have written elsewhere, when I headed up the buying and merchandising for the UK’s largest retailer of stationery in the 1980s, I argued to my bosses that the halo effect of developing environmentally responsible product ranges would be to enhance our standing among the students graduating from universities where we were recruiting.  By selling to a company equipping detention centres, Wayfair has effectively shifted its positioning on one of the marketing dimensions of its interface with employees.  This decision may blow over, but in the longer term Wayfair needs to consider whether to adopt a clear stance about the larger customers it sells to or it may ultimately have to accept that is will need in some way or other to change.  This might involve paying staff a bit more in order attract staff to replace those who don’t want to be involved doing something they view us unethical.  Or, if we make the assumption that one of the benefits of employing ethically informed staff is they are more trustworthy, it may need to put controls in place to cope with the risk that staff who are not as ethically sensitive to offset a lower level of trustworthiness.  Or, if the values of the staff protesting against the sales for the detention centres reflect cultural norms in the location of the offices or warehouses in which they work, Wayfair may need to go to the expense of moving its operations to locations where the local population is less sensitive to such issues.

Limits on company owners

Ownership is a complex subject.  Ownership of a piece of paper that says you have a share in the common stock of a company gives you a right to residual profits of a company and (assuming it is voting stock) in decisions about the appointment of directors of the company.  And even if you are the owner of the entire voting share capital, it does not give you the ability to dictate everything that the company can do.  Others who interact with the company can exercise their rights too.  The Wayfair employees have made it clear their views and are attempting to limit the ability of the company’s owners to sell to whoever they wish.  It is not a matter a law, or at least not law alone, the practical balance of power between an incumbent workforce, the managers and directors, as well as those of people who have invested in the company all come into play.  In the case of a company with publicly traded shares that offer the opportunity to exercise votes once a year, if at all, and then only as a very blunt instrument, the shareholders can hardly been exercise ownership rights in relation to decisions about whether to sell to the developer of a migrant detention centre.  The managers and directors will have to consider what is best for their own interests: do we concede to the employees’ demands, or do we shift the company’s market positioning in relation to the explicit and implicit interests of the workforce?

Our rights and responsibilities in relation to the companies we work for

The workforce at Wayfair may have put their jobs at risk.  Those who have walked out are likely to have breached their contracts of employment.  But acting in line with your conscience is not a matter of exercising a right as discharging a responsibility.  The staff at Wayfair will be making trade-offs (or need to realise that this is what they are doing) between doing what they believe is right and their immediate financial self interest.  The level of risk they take will reflect their own market power: can their employer find substitute staff with the requisite skills at a price that it can afford, or will it respond to the pressure from the protest, and furthermore, are they supported by the legal framework surrounding their employment or not?

[1] “Activist employees pose new labour relations threat to bosses: Wayfair walkout shows CEOs cannot duck political risks by claiming neutrality” FT 4th July 2010


“A slow dawning that most companies are run pretty badly”

Sarah Gordon has written a memorable reflection today on her 20 years writing for the FT.

She reflects on a career with the paper that started with writing about what were in the early years of the millennium breaking technologies but which have been mainstream for so long that we can’t imagine life before them, which continued through the years of the Financial Crash and the great depression and bull run that has followed.  She writes about the routine reports of company news stories and mind-numbing performance data, and the occasional more gossipy pieces that appear to have been what the readers found more engaging than the hard news.

She found clearing her desk brought back memories of the events and personalities that have filled the business and company pages of the paper of the past two decades, and anyone reading the article be a share in the trip down memory lane.

Reflecting on these years, she reaches very strong conclusions about shortcomings in governance in response to the accretion of overweening power at the heart of companies.  She cites Dick Fudd at Lehman Brothers.  He is an easy target, but her description of what went wrong is compelling: “board members neither delved deeply enough into the real activities of the bank, nor did they challenge the person running it sufficiently. Being on the Lehman board, it seemed, was a social honour rather than a fiduciary responsibility.”  Writing of people like Martin Sorrell, who spent 33 years at the top of WPP, she observes: “Business bosses who enjoy too long a tenure lose self-awareness. They become reluctant to promote people around them who will challenge their point of view. Meanwhile, questioning a boss who enjoys such stature becomes all but impossible, encouraging hubris, and leading to bad business decisions.”

Gordon reflects that such problems, with accompanying shortcomings in governance, are not restricted to the private sector.  She cites the example of Camila Batmanghelidjh and the failure of Kids Company in 2015.  I reflect also on the ignominious departure of Sir Leonard Fenwick would was finally dismissed for Gross Misconduct by the board of Newcastle upon Tyne Hospitals NHS Foundation Trust, where he had been chief executive since 1998 having previously led one of its predecessor organisations since 1992.

She also reflects on the poisonous value destruction in so many big corporate deals, which appear to be motivated by executive greed and supported by a flawed network of advisory institutions corrupted by perverse incentives.

Her time at the FT was a journey of personal discovery and growing disillusion (albeit one shared by most of in parallel in other parts of our lives) : “As a child, lucky enough to grow up in comfortable circumstances in London, I simply assumed that the world was run efficiently by the grown-ups. It has been a slow — and sometimes painful — dawning that in fact most companies are run pretty badly.”

Gordon is hardly less critical of other institutions, regulators and politicians.  She also appears to despair that the wider lack of economic and financial literacy, and the gullibility of much of the general public.  She suggests that a public that feels exploited and even robbed by corporate excesses does, in some part, have itself to blame.

But she stresses that it is not business itself, as opposed to individual businesses, to blame, but it is within the power of business to improve popular understanding and dispel the blame:

“Many businesses are badly run, but business is not bad. Most people running companies whom I have met over the past 18 years care about the people they employ. Most entrepreneurs believe that there is a purpose to running their company which is greater than just making money.

“The voices of big business, and the big business baddies, too often drown out the stories from the millions of small companies that make up the bulk of employers in the UK and across the globe. I’ve interviewed many of them in the past few years, in Scotland, outside Cambridge, in Bilbao and Munich. Many are family-run, on the second or third generation, focused on building sustainable businesses. Unlike the UK’s big supermarkets, gouging dairy farmers with ever lower milk prices, they have long and mutually dependent relationships with their suppliers. They look after their staff, turning apprentices into engineers and keeping people on their books during extended periods of illness.

“The popular caricature of business, filled with profiteering bankers and gig economy exploiters, simply does not reflect the reality. But it is up to business to dispel it.

“……  business needs to do more than change its culture. It must challenge itself on what its purpose really is, not just what its investors want. It must be prepared to tackle the great ills of our time, such as climate change or modern slavery. And it must be louder in explaining why it matters.”

Increasing inequality is a problem – a challenge to the Panglossian Pinker

There is much to admire in the Stephen Pinker’s recently published Enlightenment Now.  Building on his success demonstrating in The Better Angels of our Nature that mankind is becoming progressively less violent, he sets out to challenge much of the pessimism that surrounds us.  It is a fashionable thesis, Pinker’s volume beat Hans Rosling’s Factfulness: Ten Reasons We’re Wrong About the World – and Why Things Are Better Than You Think to the bookstalls by less than two months.  It would appear that, whatever it may feel like, the world is not going to hell in a handcart.

Much of the thesis is backed up by solid data and robust argument.  This doesn’t mean that there aren’t plenty of lapses, but this the risk when a writer strays too far from their home turf and are ambitious in drawing on a wide range of sources from outside their own discipline.

One area where Pincker’s panglossian (or pollyannaish?) view of the world falls down is his discussion of inequality.  It is hardly original, but no less untrue, to observe that material inequality does not imply necessarily that some people are less happy than others.  But there is extensive evidence at a  linking health outcomes and many other proxies for happiness and wellbeing to prosperity.  He also slips into the trap of seeing a “lump” fallacy (as in “lump of labour fallacy” as first described by David Frederick Schloss in 1891, referring the idea that there is only a finite amount of work to spread among a population) in relation to material wealth.  At one level, he is absolutely correct – there is nothing to stop us all becoming wealthier together, even if unevenly.  But at another level, he is the subject of another fallacy, to the extent that inequality is measured solely in terms of the distribution of material wealth.  Material inequality is also a measure of inequality in the distribution of the potential power that people have over their own lives and over each other.

There is plenty of evidence around at present of the impact of increasing inequality in income on the distribution of wealth, particularly in relation to relatively scarce resources – witness the decline in home ownership in the UK and the increasing proportion of the population renting, on health outcomes – witness the correlation between life expectancy as you head out on the Central Line from  inner-London Tower Hamlets towards leafy suburban Essex, and on the impact on health of people working at lower income levels of inequality in job autonomy as documented, for example, in Jeffrey Pfeffer’s recent Dying for a Paycheck.

Is Capitalism Killing America?

I was stopped in my tracks this morning by an email from the Stanford Graduate School of Business with the subject line “Is Capitalism Killing America?”. It is not the sort of thing that the world’s top business school (at least that was how it was rated forty years ago when I was there) normally sends to its alumni.

The key feature in the email newsletter was an article with the subheading “Young & Rubicam Chairman Emeritus Peter Georgescu says it’s time to end the era of shareholder primacy[1] which reviews Georgescu’s new book Capitalists Arise! End Economic Inequality, Grow the Middle Class, Heal the Nation (Berrett-Koehler, 2017). Georgescu, a fellow Stanford GSB “alumn”, is looking to chief executives to think about how, and for whom, they run their companies.

Capitalism is an endangered economic system, Georgescu says. He cites by economist William Lazonick, who studied S&P 500 companies from 2003 to 2012 and discovered that they routinely spend 54% of their earnings buying back their own stock and 37% of their earnings on leaving just 9% of earnings for investment in their business and their people.

Innovation is the only real driver of success in the 21st century, and who does the innovation? Our employees. How are we motivating them? We treat them like dirt. If I need you, I need you. If I don’t, you’re out of here. And I keep your wages flat for 40 years,” says Georgescu, who points out that growth in real wages has been stagnant since the mid-1970s.

Georgescu continues by noting that the lack of investment in business and their people feeds back into demand, undermining sales growth. With median household income in the US less than 1% higher today than in 1989: “There’s no middle class, and the upper middle class has very little money left to spend, so they can’t drive the economy. The only people driving the GDP are the top 20% of us”. 60% of American households are technically insolvent and adding to their debt loads each year. In addition, income inequality in the U.S. is reaching new peaks: The top layer of earners now claim a larger portion of the nation’s income than ever before — more even than the peak in 1927, just two years before the onset of the Great Depression.

Georgescu blames the ascendency of the doctrine of shareholder primacy.

“Today’s mantra is ‘maximize short-term shareholder value.’ Period,” he says. “The rules of the game have become cancerous. They’re killing us. They’re killing the corporation. They’re helping to kill the country……..

“The cure can be found in the post–World War II economic expansion. From 1945 until the 1970s, the U.S economy was booming and America’s middle class was the largest market in the world. In those days, American capitalism said, ‘We’ll take care of five stakeholders,’. Then and now, the most important stakeholder is the customer. The second most important is the employee. If you don’t have happy employees, you’re not going to have happy customers. The third critical stakeholder is the company itself — it needs to be fed. Fourth come the communities in which you do business. Corporations were envisioned as good citizens — that’s why they got an enormous number of legal protections and tax breaks in the first place.

“If you serve all the other stakeholders well, the shareholders do fine,” he says. “If you take good care of your customers, pay your people well, invest in your own business, and you’re a good citizen, the shareholder does better. We need to get back to that today. Every company has got to do that.”

It’s refreshing to hear this from one of the grand old men of the commercial world in the United States. But in his critique of “shareholder value”, he fails to single out the principal beneficiaries, the chief executives and top management teams themselves (including our fellow business school alumni) who have exploited the system to cream off an ever increasing share of the rewards in salaries, bonuses and options, all the while failing to invest in productive assets, innovation, securing long term positions with customers and local communities, and in the people who work in the companies themselves.