My grandmother’s oranges and Frank Hester’s rants


My grandmother lived through two world wars and difficult times.  She kept her politics, other than a general sense of fairness and distaste for injustice, close to herself.  I remember it came as a surprise to me when she announced that she made her selection of fresh fruit (oranges if I recall) on the basis that they shouldn’t come from a nation with a pretty toxic regime and social system.  Only a few years later, after discovering marketing during my Stanford MBA, I realised that it should not have been a surprise. It is an essential component of the Escondido Framework that our choices are informed by a wide range of considerations and trade-offs, albeit some may swamp others in their importance, and this affects what we buy.

I recently introduced an old friend who is researching impact investing by charity trustees to a former colleague who is chief executive of one of the largest group of family charitable trusts in the UK.  The old friend is interested in the use of charity endowment to make mission-aligned investments rather than purely for financial yield.  The former colleagues recounted how, as custody of the inherited wealth that the family invests in charitable giving passes from generation to generation, not only does the direction of the charitable giving shift, but also the attitude of the family members towards the non-financial impact of their investment decisions changes.  This should be no surprise either, as impact investment strategies are only a short step beyond avoiding investing in industries that conflict with your charitable purposes (for example, as chair of the finance committee of Versus Arthritis, I had no hesitation in making the case that a health charity should avoid investing in industries like tobacco and alcohol whose businesses contributed to ill-health).

TPP's Frank Hester

TPP’s Frank Hester

So what do I feel about the use by my family doctor (in common with all the GPs in west London and a large part of the NHS community services locally) using SystmOne, one of the most widely deployed electronic patient record systems in the UK?  Most of my fellow patients have no idea that TPP (The Phoenix Partnership), which developed and operated SystmOne, was founded and apparently remains owned exclusively by Frank Hester.  It was Frank Hester, the largest single donor to the Conservative Party, who has been alleged recently to have declared a few years ago at a company gathering that looking at Diane Abbott makes you “want to hate all black women” and that she “should be shot”.  I don’t often have sympathy with Diane[1] who has very different political views to mine and has said some pretty daft and sometimes unpleasant things in the past.  Comments of this type are unacceptable for many reasons and it reflects very badly on the company and its people that he felt able to make them.

I imagine that I will be holding my nose metaphorically when I next sit down in my GP’s consulting room as he or she updates my patient record with the details of my visit.  If I was still chair at West London NHS Trust, where we were in the process of replacing a legacy electronic patient record system with SystmOne  to provide for better interoperability with that used by our primary care partners, I doubt whether the knowledge that SystmOne was provided by a company headed up by someone with such views and that the profits were adding to his wealth would have changed my view of our IT strategy.  Notwithstanding Mr Hester’s unpleasant views, the system produced by his company is the only one in town, or at least in my bit of London.

Whether things might have been different many years ago when TPP was starting out is moot.  I imagine that Mr Hester was more cautious about what he said, how he said it and in whose hearing he said it, even in as recently as 1997.  Certainly, I don’t recall being any less sensitive to boorish, racist and sexist language then, or my NHS colleagues being any less easily offended. But a generation on, and with the money in the bank and the software widely adopted, the customer (and ultimately their patients) has far less choice.  Reflecting on this episode in Escondido Framework terms, the shape of the market interfaces have changed.  How Frank Hester behaves, which has a bearing on how he does business, has almost certainly changed.  Given the strength of his product with its customers and its established position against its competitors, he can (despite the widespread negative reaction his comments received) say unpleasant things without it affecting his business. For those of us who metaphorically are holding our noses, we have fewer degrees of freedom in our decision taking than we might have had many years ago if presented with a prospective supplier who acted in such a way (rather than exercising the restraint that was probably the case when Frank Hester was starting out with TPP in the late nineties).

[1] ……although I am entertained by the memory of serving with her as a fellow member of the Joint Academic Committee in  the History Faculty at Cambridge University in 1974, when she (it can have been nobody else) described me in a student newspaper as “rather too obviously a Cambridge politician on the make” – wonderfully ironic given that she became the career politician whereas I made my escape from politics in the 1980s.

“If you read only one business book this year, read this”

Patrick Nash, author of Creating Social Enterprise
Patrick Nash, author of Creating Social Enterprise[1]
I knew very little about Patrick Nash when he joined me in 2019 as an angel investor and advisor at Tranquiliti, a start-up providing an innovative mobile phone app mental wellbeing tool for school students and their teachers.  I didn’t know much more when we were bought out in August last year by Tes Investments[2], other than what I gleaned from our monthly video call with George and Aaron, Tranquiliti’s founders, which was essentially that Patrick knows a thing or two about social enterprises.  He proved a source of sound advice to them and had a similar appetite for risk and the level of investment as me.

A couple of weeks ago, he invited me to a book launch in November.  I explained that I would be travelling to New York but promised to buy the book and read it on the plane.  Amazon already had “Creating Social Enterprise” in stock and a train journey created the opportunity to get stuck into it right away.  It proved hard to put down and I quickly concluded that it deserves the “If you read only one business book this year, read this” accolade. Scrutiny of the spine shows the publisher to be Patrick’s own company[3], so I doubt whether it will get the push (although it would from any self-respecting business book publisher) in the direction of the shortlisting for FT Book of the Year 2024 that it deserves .

While I was studying for an MBA at the Stanford University Graduate School of Business and serving my apprenticeship at McKinsey, Patrick was doing alternative stuff and getting his first taste of commercial life at Nova[4], a whole food co-operative in Bristol.  He drove the company van, turned the handle on the trail-mix mixer, learnt a range of valuable lessons about people, customers, marketing, margin management, cash-flow, risk, systems implementation – loads that you have still to learn when you graduate from Harvard, Wharton or LBS – and, importantly for his own development, undertook a crash course in double entry book-keeping (something I did learn in the first term at the GSB) from his father when the founder’s ill-health meant he had to step back from the business at short notice.

Scarred by the experience of putting Nova’s stock system onto computer (Patrick’s Learning#8 in the book is “Never Trust  ‘should’” as in “This should work” or “It should be ready by then”) and burnt out by three years without a holiday, he took a spell away from work.   A few months later, he discovered the Findhorn Community.  Most people are drawn to Findhorn in the search for a more spiritual focus to their lives but Patrick was sufficiently intrigued by a conversation with its finance director that he joined it to work in its accounting and finance department.  Rather than finding himself spiritually, he stayed on to lead the project to develop its Ecovillage (the first homes were built from giant whisky barrels), where he “learned much of the complexity of running organisations, raising funds, creating multiple corporate structures and leading teams”.  During his ten years with Findhorn, Patrick learned a lot more about running a successful business, not least about managing external and internal stakeholders.  He describes this time as a “significant phase in my social enterprise journey.  Many of the skills I have deployed as a social entrepreneur were developed there”.  But lessons and consequent skills are not just for the social entrepreneur, most of them translate into any enterprise, public or private, large or small, and independent of industrial sector.

Although Patrick has established twelve social enterprises, charities and values-driven businesses in all, his greatest achievement was establishing Connect Assist, a specialised 24/7, outsourced call centre supporting multiple clients from the public, private and third sectors (including Versus Arthritis where I spent 8 years as a trustee), employing over 450 people in a part of south Wales where employment has still not recovered from the demise of coal mining.  The third part of Creating Social Enterprise tells how Patrick developed a string of businesses that evolved into Connect Assist after first joining the Teachers’ Benevolent Fund, a charity operated for the teaching unions.  In this role he took the lead in some tough decisions, including closing TBF’s legacy residential homes for retired teachers (he is the first to call out the case for closing businesses that are loss making and no longer fulfil their purpose) and pivoting the organisation to become a telephone counselling service, setting him on the path towards establishing Connect Assist.

Patrick has great stories to tell, including how, along the way, he had the Dalai Llama as his boss when, for a few years in between the big projects that are the meat of Creating Social Enterprise, he was CEO of the Tibetan Relief Fund.  He tells tales of scrapes with the law as a twenty-something driving a whole-foods van around the country, when the grass roof of a house in the Ecovillage bursting into flames, and the thrill and relief at securing financing for assorted projects at the eleventh hour.  These come across with a freshness as though they only happened yesterday rather than ten, twenty, thirty or even forty years ago.

He has built the account of his career around no fewer than 44 learnings, drawn out at the end of each chapter and recapped at the end of each of the three major sections of Creating Social Enterprise.  Most, if not all, are relevant to anyone who picks up the book.  As someone who preaches the importance of purpose and values to a business (as part of the Dark Matter that makes organisations more than the sum of their parts) I turned the page corner down at Learning#3: Align values and commercial  interests.  I did the same at Learning#38: Empathy is the new superpower, as I have no doubt that being able “to understand another person’s thoughts and feeling is a situation from their point of view, rather than your own” is essential to effective leadership based on trust.  And his observance of the final sign-off learning, Learning#44: Moving on when it’s time to leave was the one that positioned Patrick for  life after Connect Assist where, from the comfort of home on the Pembrokeshire coast, he could join me in our support to the  young founders of Tranquiliti and find time to write Creating Social Enterprise.



[1] ISBN 978-1-3999-47-6

[2] Tes invests in fast-growing tech to transform pupil wellbeing | Tes

[3] Enterprise Values – Enterprise Values

[4] Still thriving: see Essential Trading Co-operative Ltd | Welcome (





Who is selling what to whom?

One of the Elzabeth Frink stratues that used to greet salesmen visiting the WH Smith Retail Head Office in the 1980s
One of the Elzabeth Frink statues that  greeted salesmen visitng WH Smith Retail in the 1980s

I led a very successful team of retail buyers in the 1980s.  In only three years they improved our margins by over 3.5% of the retail selling price.

The salespeople we dealt with didn’t stand a chance.  As we were the market leader in most of our product categories, we were always looked after by the senior national accounts manager or the sales director – more often the latter, or that is what their business card said – whose status meant they were generally well into middle age.  They would arrive in their Ford Scorpios, which would always be reversed into a parking space so no-one could see whether they had the top of the range model or vanilla version without the bells and whistles.  In a less equal and inclusive age, they were almost universally male. In common with most people working in sales functions at the time, they were outwardly sociable types – you need to be comfortable with people if you are engaged in face-to-face selling – but whose roles condemned them to spend most of their time away from close colleagues, sitting in alone in a car as they headed off to schmooze their customers.  More than anything else, they needed to be liked and to please people.

Our buyers were almost the opposite. Sure, they were great colleagues and a privilege to work with, but they didn’t need to be liked.  They were the gate-keepers to some of the most profitable shelf space on the high street, and had a clear view of how they were going to make that space generate profit for the company.  They were highflyers who had been recruited into sought-after graduate jobs and were still in their twenties and early thirties, were mostly female and often blonde, and tough as nails.  Although we visited our suppliers’ factories and warehouses from time to time to understand their business, most of the key meetings took place on our turf.  And if all this had not already put the buyers on the front foot when it came to seeking discounts from the (remember, generally male and middle aged) salespeople, their adversaries in the negotiation had been unmanned on arrival by having to drive past four well-endowed nude male sculptures commissioned by the company’s chairman from Elizabeth Frink (subsequently sold by a successor lacking any insight into the commercial benefit they provided).

On a recent visit to New York, I recounted this to a Wall Street banker who deals in fixed interest securities, “selling” (his words) to large corporate customers (again, his words) who are raising debt.  He questioned my description of salespeople as needing to be liked. I had to explain that, although he was competing with other banks for the business of the big corporations, it was much less clear in his world who was doing the selling than when I was working for a market-leading high street retailer.  I have not worked as Chief Financial Officer or head of treasury in a big corporate, but I spent a significant amount of time trying to raise money from private equity investors and from suppliers of senior debt (to provide financial leverage for the ventures that I hoped would make my fortune). It was very clear who was selling what to whom – I had the investment opportunity and was trying to sell this to the people with the cash.  I wanted to be liked (or at least for them to like the risk-reward opportunity that I was pitching).  Although, subsequently, I found myself counselling entrepreneurs entertaining offers from venture capital firms that they should look beyond the cash that was on the table and to understand that the investor needed to demonstrate whether they would be attractive people to work with and add value to the business they were “buying” into (ie do a bit of selling), most of the time, the people with the cash needed persuading to buy the opportunity.

The Escondido Framework posits that all commercial transactions (and this spills over into non-commercial transactions – such as those in politics) involve both parties selling and both parties buying[1], albeit with the balance of power (particularly informed by competitive considerations and the availability of alternatives for one or other party to the transactions) influencing the degree it feels to the parties as though they are buying or selling.   This, of course, feeds through to what sort of people you need to charge with leading the transactions with the other party, how they should work, and what tools they need to do the job well.


[1] I have written elsewhere about the experience early in my career as strategic planning manager for WHSmith, working with WHSmith Wholesale, which was the dominant player in the UK distribution of newspapers and magazines.  The business thought of itself as having retail newsagents as its customers and newspaper and magazine publishers as its suppliers.  But, as evidenced by the way that the industry subsequently developed (all this, prior to emergence of on-line channels for news and for magazine content), the core role of the business was to provide a distribution service to the publishers, who were buying the distribution service rather than selling newspapers and magazines to a wholesaler.


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].

Dame Edna Everage and the Future of Soft Power

Dame Edna - soft power at work?
Dame Edna – soft power at work?

I can’t be sure whether Janan Ganesh has lapsed unintentionally into pompous portentousness in the opening paragraph of his column in today’s Financial Times or whether he is reaching out to fans of the late Housewife Global Megastar by writing in her style: “The omni-talented presenter Barry Humphries died over the weekend.  On Monday, his native Australia announced a new and enhanced defence posture.  One way of engaging with the world as a middle power is fading.  Another has just started”.

Either way, the different ways in which a nation engages with the rest of the world are important.  Further, from the perspective of the Escondido Framework, the article illustrates the different ways in which power can be exercised, fleshing out the “three currencies” (cash, influence and force).  However, his core argument, as captured in the last two of the italicized sentences above, feels overstated.  Soft power – an important contributor to influence – hasn’t gone away and remains important.  The role and presence of force in the business of nations hasn’t change, but it’s a lot more visible at present and creating a greater challenge and threat.

Ganesh refers to the increasing salience of South Korean culture in the West as an example of soft power.  Sharing a home with a “K Drama” addict and having visited the Victoria and Albert Museum “The Korean Wave” last weekend, I am in no doubt about the role of Korean cultural exports in changing my perception of the country and helping me identify with its citizens as “people like us”, much in the way that Ukrainians have evoked sympathy with fellow following Russia’s invasion.  It doesn’t mean that Koreans do not reasonably have raised anxieties about Chinese naval exercises or the efforts of their north neighbour to develop nuclear missile capability.  It does, however, decrease the proportion of the populations of the West who think of South Korea as “a faraway country of which we know little”.

Far from discounting the value of soft power, the rising tensions that have led governments to consider whether they should increase their levels of military investment (some of this forced on them by the need to replenish stocks having supplied materiel to Ukraine) only increase the need for countries to invest in soft power to underpin potential military alliances and reduce the risk of losing influence in political non-aligned nations.

US Republicans who don’t understand shareholder capitalism

Freedom, but not to do business with ESG informed institutions
Freedom, but not to do business with ESG informed institutions

Ron DeSantis, governor of Florida and fancied candidate for the Republican presidential nomination in 2024 is proving to be an unexpected enemy of investors in US businesses and the “free market”.  The FT reports that he announced legislative initiatives on 13th February to ban banks and other financial groups from “discriminating against” energy companies, gun sellers and other businesses, and asset managers from considering ESG in investment decisions.

This appears to be only one of 49 legislative initiatives so far this year across the United States.  To the extent that these are the result of the efforts of lobbyists working for pariah businesses, this is fair enough and – in terms of the Escondido Framework model of the firm – represents an understandable response by the managements of such businesses to the pressures they face as they attempt to shape the interface of their businesses with the suppliers of capital.

Whether it is a rational response or is likely to succeed (by reducing the cost of capital or relaxing the pressures faced by management from active investors) is uncertain.  The FT reports further that the Indiana Bankers Association, representing 116 banks, is trying to frustrate legislators in the state who are trying introduce a measure to require the state to divest and cancel contracts with financial groups that consider “social, political or ideological” factors. The Chief Policy Officer of the IBA has said “A lot of my members have ESG statements [that] could prohibit an organisation being a custodian of the state’s finance as a result of this legislation.”

But the growth of ESG is a rational response of businesses to institutional investors’ concerns about the outlook for businesses who traditional activities and business models face a long term threat because of they harm that they are perceived to present to people and to the planet.   Each mass shooting in the US contributes to a ratcheting up of the anti-gun lobby and, absent short term crises resulting in a profit windfall (and these invite a taxation response) the outlook for companies extracting and supplying fossil fuels is undermined by the need to move to net zero.  And when it comes to good governance, the example of value destruction by an unshackled Elon Musk, reinforces the case for the “G” in ESG.

It is reasonable for climate-change-denying and gun-toting Republican elected officials to include financial institutions that do not subscribe to the “E” and “S” elements in the ESG principles among the organisations with whom they do business, providing that such organisations can demonstrate over the long term that they serve the fiduciary responsibilities of the offices to which they have been elected (it is hard to see how they can ignore the “G”).  But it is conflicts with their duties and with the commitment claimed by most Republicans to market capitalism to cave in to the pressure from the pariah businesses and legislate against doing business with ESG informed investment decisions that offer better long term returns and less risk of fraud, provider capture or adverse outcomes from wacky decision making.

The paradox of the anti-woke investor

Fundsmith founder, Terry Smith
Fundsmith founder, Terry Smith – No Nonsense?

The Escondido Framework argues that all the market interfaces of the company (with customers for their goods or services – either B2B or B2C, labour, their own suppliers of goods and services, and providers of capital) are essentially similar.

Customers for goods and services make their decisions to purchases on the basis of a variety of characteristics of the offering: quality, product features, after-sales support, credit terms, price and more, and in relation to all of these, the competing alternatives.  Employees consider not only the raw salary package, but the variety of employment terms, both hard and soft benefits, company culture and values, corporate reputation, risk, opportunities for career development, and that’s just the start of the list.  Suppliers of goods and services also have complex decisions in terms of how they view their customers, whom to serve and how.  It is not just a matter of price.  For example: is this customer big enough to justify the effort to sell to them compared to the other potential customers out there; can we support the service levels and stock requirements to meet their demands; would our brand be damaged in the eyes of our premium customers if we sell to downmarket segments?  And suppliers of funds to companies, whether equity, debt, or hybrid instruments, consider a wide range of trade-offs: risk (reflecting a wide variety of considerations: operational, financial structure, regulatory exposure), term, liquidity, income generation, value growth, portfolio diversification for starters.

So what should we make of the debate raging over ESG informed investment and rise of the vocal “anti-woke” investor?

The Escondido Framework is not a normative model, arguing over rights and wrongs of ESG investment.  The model describes the world as it is, and highlights the shortcomings and incompleteness of other models of the organisation.  Investors, alongside with consumers, suppliers and especially employees include ESG type considerations in the mix when deciding who to do business with and on what terms.  Do I want to be complicit in the destruction of the planet, oppression of minorities, exploitation of disadvantaged populations – whether on a third world plantation or facing an early death through a predisposition to consume addictive toxins (alcohol, tobacco or opiates).  ESG is a fact of life in all markets, the only question is the weight and precise form in which it plays into the consideration of all the parties (aka stakeholders) with whom companies interact.

There are conflicting accounts as to whether ESG focussed companies and investment funds deliver superior returns.  Part of the problem is one of definition and the nature of the measures employed: movements in share price are a poor metric because any starting point in a share price measure has future performance expectations priced in.  However, to the extent that robust taking ESG issues into considerations reflect long term strategic thinking and the combination of transparency to investors and quality in decision-making processes, it is hard to see why and how ESG would not offer great value creation over an “anti-woke” alternative.

The Financial Times has once again (Helen Thomas on 11 January, following an article by Harriet Agnew on 12 January last year) focussed on a spat between “anti-woke” investor Terry Smith of Fundsmith and the leadership of Unilever.  Smith has mocked Unilever’s leadership in his annual letter to investors for highlighting its sustainability credentials and for “virtue-signalling ‘purpose’”.  He takes issue with Unilever for “purposeful” brands. For example, he comments about soap that “when I last checked it was for washing” dismissing Unilever for talking about “inspiring women to rise above everyday sexist judgements and express their beauty and femininity”.  But, as Thomas points out, “the huge success of Dove – one of Unilever’s biggest brands, held up as a marketing case study – suggests a bit of female empowerment and body positivity isn’t a stupid way to sell soap.  Rather like efforts to make mayonnaise appealing to health-conscious millennials [Smith laid into Unilever’s account of the “purpose” of Hellman’s last year], Smith just isn’t the target market”.

He is on stronger ground in his criticism of Unilever, which has been subject to a raid by activist Norman Peltz who now has a seat on the board. He complains that Unilever has failed to engage with his fund which had been a long-term holder of Unilever stock and twelfth largest shareholder.  Marketing to investors, involving both taking strategic marketing decisions about the proposition provided to the investor (ie the profile of the investment including characteristics such as those listed provide above) as well as communicating with the shareholders, is one of the core responsibilities of the chief executive.

Reading the Fundsmith shareholder letter, I take away the impression that Smith’s criticism of “virtue-signalling” reflects a politically informed discomfort with a company that responds to trends in society and to the new consensus about threats to the environment.  However, his language elsewhere and his stated strategy to invest in good companies, hold onto shares for the long term, suggest that he doesn’t recognise that his fund should invest in companies that adopt the underling strategic approach of Unilever (even if not its failure to communicate adequately with large shareholders or its apparently inept approach to large transactions).  Given the stated approach (effectively to emulate Warren Buffett), Smith ought to be able to leave his personal politics and any “anti-woke” tendencies outside in the carpark when he comes to work and to recognise the value of purpose and ESG when investing on behalf of his clients.

“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

First lessons from the war in Ukraine

Russian military convoy

It’s a bold step to claim to draw lessons from a war is that is not yet a month old, where the outcome is very far from clear, and the impact on the world in terms of economic disruption and political destabilisation way beyond the immediate geographic scope of the conflict.

This Russian invasion of Ukraine has so far been consistent with two of the great aphorisms about war.  The failure of the Russian army in its assault on Kiev perfectly demonstrates that “no plan survives contact with the enemy”[1].  And the information coming from all sides, some understandable propaganda and disinformation, some amounting to exceptional self-deception, demonstrating the point originally made by Samuel Johnson in 1758[2] but later attributed in more pithy form to US politician Hiram Johnson in 1917 “the first casualty of war is truth”.

This war also demonstrates as well any other that existence of the three sanctions and the complex web of how they apply and interact. This is a war about the application of force and arms.  It is also a war about the application of politics and persuasion.  It is also a war where economic pressures are at work, where calculations about financial transactions and trade-offs are already having a huge impact.

The question is very reasonably asked how the European customers for Russian gas allow themselves to be propping up a Russian economy that Ukraine’s allies are trying to hobble through a trade embargo.  Correspondingly, the world is being thrown into crisis by the impact of a shortage of Russian gas, whether held back by Russia to apply pressure on European countries or from a curtailing of imports driven by an act of policy.  The impact on large parts of the world of restrictions of exports of grain from the Ukraine is likely to cause prices to rise in the affluent world and threaten famine in the less affluent.

At this stage, it is far too early even to speculate on the outcome.  Will the wave of political sympathy in the West and suspicion of Russia’s motives among the former colonies of both Soviet and Tsarist empires outweigh the economic pressures that may undermine the popular support for the Ukrainians?  Will the costs and potential duration of the “special military operation” undermine the political support for Putin’s irridentist claims?  How does the Chinese claim on Taiwan play into the political and economic debate and super power balance?

Playing into the corporate world that is the home turf of the Escondido Framework, companies have to take into account the changes to the pressures that they work under.  The virtual spaces between market interfaces within which they operate will change.  This will reflect changing patterns of supply and demand for resources and for their outputs.  It will also reflect changing patterns of government interference in the shape of the restrictions on where they source and where they sell.  It will introduce uncertainties where previously there may have seemed a degree of foreseeability.  And all this following on the heels of the pandemic and in the context of a climate crisis.

[1] “One cannot be at all sure that any operational plan will survive the contact with the main body of the enemy”  Herman von Moltke in “On Strategy”

[2] “Among the calamities of war may be jointly numbered the diminution of the love of truth, by the falsehoods which interest dictates and credulity encourages” Samuel Johnson in “The Idler” 1758

What We Owe Each Other, by Minouche Shafik

Minouche Shafik, Director of the London School of Economics
Minouche Shafik, Director of the London School of Economics

There is much to celebrate in Minouche Shafik’s argument that we need a new social contract[1], not least a title that uses the language of obligation and duty rather than employing the language of rights.  This is even if she falls back, in her closing remarks, on answering her question of what it is that we owe to each, that it is “to muster the courage and sense of unity” that the Beveridge Report said was necessary for the “winning” of “freedom and want”.  I was looking for more, and shouldn’t be too critical her effort at a rallying cry to round off the book when she has addressed a variety of policy measures, without being unduly prescriptive about their precise form, that would address “our interdependencies, provide minimum protections to all, share some risks collectively and ask everyone to contribute as much as they can for as long as they can….investing in people and building a new system of risk sharing to increase our overall well-being”.

Shafik’s underlying argument is that we need a new social contract to meet the needs and opportunities facing both individual society and global society in the 21st century, including those of an environment threatened by global warming and the degradation from human activity, of an ageing population, of an inequity between generations, and of the alienation of communities left as others have prospered that as consequence poses a threat the liberal democracy.  She is qualified for this task by her  personal history which includes an affluent childhood in Egypt that exposed her to third world poverty around her before her family emigrated to the USA, a career largely “in the trenches of policymaking” spanning international institutions and in the central government and central banking in the UK, and finally her current appointment as Director of the London School of Economics in 2017 where she launched a programme of research, ‘Beveridge 2.00’, to rethink the welfare state.

Having spent many years in healthcare and the application of health economics, I felt initially that her chapter on health was skated over too much.  But this was before I reflected that the chapters outside my own area of knowledge were throwing me snippets of valuable information and new insights that left me with respect for the ambition within her 189 very readable pages (Thomas Piketty could learn a thing or two from Minouche Shafik!).  Plenty of the examples in this book are familiar, such as the marshmallow test, but others cited, such as the evidence of the value of quite modest investment in early years intervention, such as weekly hour-long visits by Jamaican community health workers for 2 years to encourage mothers to interact and play with their children to develop cognitive and personality skills that 20 years later yielded 42% higher earnings than the control group.

Shafik sensibly avoids too many narrowly defined prescriptions, reflecting on data presented in the book that different countries have successful applied different policy solutions (for example in how they fund and organise healthcare) to achieve broadly similar outcomes (even if the one nation in the case of healthcare that doesn’t do this in a coherent way – the United States – ends up spending far more in aggregate, and in terms of public money, than everywhere else only to realise worse outcomes).  However, the general thrust of her argument in each area of policy is clear.

Shafik poses interesting questions around the intergenerational social contract.  On one hand, younger generations are blessed with material well-being that the old generations could not have dreamt off.  On the other hand, as David Willetts documented in the The Pinch[2]the millennials and generation Z have good reason to be aggrieved as they pay for the higher education and the home ownership enjoyed by their parents appears out of reach.  Shafik recognises, in the emphasis that she places on investment in education in new social contract and various mechanisms for achieving this that she suggests.  There is also the issue of the price that they and future generations will pay in terms of the environmental degradation resulting from the previous generations’ approach to achieving their wellbeing and economic growth.  I am surprised at the complexity that she builds in to potential solutions to this when the solution should lie in regulation, a national income calculus that better reflects the value of the natural world that currently calculated GDP or national income, and environmentally based taxes that capture the externalities of industrial and agricultural activity that damages the environment.

The book also gives rise to a set of interesting questions about what this means for businesses.  Where do they sit within this narrative?  There are important lessons for the people who sit at the heart of businesses, the “controlling minds” in terms what they can do, both in relation to their own workforces, customers and suppliers, in terms of contribution to a new social contract.  For the business to thrive, and sustain itself in the long term, the core lesson is that it should be a player, alongside the individual citizen, in such a new social contract.  Otherwise, its profitability and in due course its survival will be undermined by the very same pressures the Shafik describes threatening both individuals and liberal democracy.

I have a fear about one element in the approach Shafik takes to the need for a new social contract.  This relates to what goes into the “increase in our overall well-being”.   Some of the steam that is driving populism is increasing material inequality and the sense that communities are being “left behind”.  Some of this populism is a function of identity politics, which may be whipped up by the perception that communities with other identities (often, but not exclusively, framed by other ethnicities or immigrant groups) are posing an economic threat or gain an advantage.  But the perception may nothing to do with actual material wellbeing.  Indeed, in the case of some of the 52% of the British population voting for Brexit, or the potential majority in Scotland for independence from the UK, this may be a desire to escape from or avoid the “other” despite the prospect that of material disadvantage.  Some may be seduced by arguments that “getting back control” will leave them better off materially, but many others take the view that independence from Europe or the UK is more important than the economic benefit of remaining part of the whole.  There is, at least at an abstract level, a link between the communitarian spirit in Shafik’s argument for a social contract “that addresses our interdependencies” and the desire to be part of a union, whether of states sharing a continent or Kingdoms sharing a small archipelago at the continent’s north western edge.  Those same people who resist the membership of the country they occupy in a union of countries are also likely to be those most resistant to her arguments for a renewed social contract.

[1] Shafik, Minouche (2021). What We Owe Each Other: A New Social Contract. ISBN 978-1847926272.

[2] Willetts, David (2010). The Pinch: How the Baby Boomers Took Their Children’s Future – And Why They Should Give It Back. ISBN 978-1848872318.