Organisational purpose – Page 2 – Escondido Framework

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 18^th 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

“…… because they still do the same thing: they primarily serve shareholders”

Dame Vivien Hunt, until this year managing partner of McKinsey’s offices in the UK and Ireland, has written in today’s Financial Times on workplace diversity and equality under the heading “Change how boards work to achieve to true diversity”.

She asks why, when one third of the seats on the boards of FTSE 100 companies are now occupied by women, “those boards still look similar……still filled with people who have the same skills carved out of similar professions, networks and university degrees.” Her explanation is that it is “because they still do the same thing: they primarily serve shareholders.”

I am pleased that one of the current leaders of the organisation where I started my professional career takes such an unambiguous and very public position strong position on both the composition of boards and their purpose. Back in the 1980s, most of my colleagues were beholden to the orthodoxy of “shareholder value” and, although there were a small number of senior non-white consultants (including Keniche Ohmae, who led the Tokyo office, and Rajat Gupta, who became an office managing partner shortly after I left and subsequently global managing partner), the firm was anything but diverse.

Dame Vivien argues that “we need to find people who represent not only our investors but everyone else – from buyers to suppliers, to local communities, to our natural environment”. Her use of language and her argument is not entirely clear here: her article could easily be interpreted as making a case for a board of representatives of stakeholders as opposed to a board that understands the broader mandate of the company and the need to take all stakeholders’ interests into account.

I have argued elsewhere against boards being composed of representatives of stakeholders. As is implicit in Dame Vivien’s article, directors should have a duty to all stakeholders, because their wellbeing of all groups is critical to the wellbeing of the company. Furthermore, in UK unitary boards composed of executives and non-executives, at the board may be the executive directors responsible for sales and marketing who should be the effective advocates for interests of consumers if they are fulfilling their role understanding and satisfying consumer needs. Similarly, executive directors of workforce and of operations should be able to represent to colleagues, who may place a primacy on the interests of shareholders and customers, the interests of the people they recruit, support, and manage. Whether or not they are full board members, most large companies employ directors of communications and public affairs (or similar) whose primary role may be to advocate externally for the company but also represent to the board the case for taking into account the interests of local communities, the environment, politicians and lobbyists.

Her underlying argument for diversity on boards is compelling, not for the purposes of representation but because a genuinely diverse board “brings diversity of thought, skills and experience that will lead to better decision making”. However, better decision making also depends on boards understanding their purpose of their companies, which is the sustainable creation of value for all those the company engages with, by producing goods or services more efficiently than would be possible in the absence of the company. The purpose of the company is not the creation of shareholder value: shareholder value is the necessary return provided to shareholders in return for their investment and the sustainable creation of shareholder value is the result of serving the interests of all stakeholders.

I was thrilled to read Dame Vivien’s piece and pleased to see her continued work championing diversity in business. But, notwithstanding my concern about some of the logical flow and detail in her argument, I was even more encouraged to see her set out the case that genuine diversity on boards will not be achieved until shareholder primacy is consigned to the waste bin.

Shifting the dial on purposeful business: what can we learn from crises, past and present, in solving the problems of people and planet?

The fifth and final session of the British Academy Future of the Corporation – Purpose Summit was a disappointment after some of the high points of the earlier sessions, but was rescued by an inspiring closing contribution from Mohamed Amersi, whose Amersi Foundation is one of the principal sponsors of the Future of the Corporation programme.

The essential shortcoming of the session was that it failed to address its intended subject or answer the question set in its title. I was left with the impression that, particularly with the backdrop of the Covid-19 pandemic, the organisers felt that they would be failing to notice the elephant taking up most of the room if they didn’t address business purpose in times of crisis. As keynote speaker, Mark Carney tried to combine his experience as a central banker through the financial crisis and its aftermath with his appointment as UN Special Envoy for Climate Action and Finance. He made the case for a strategic reset to deliver “Net Zero” to address climate change, argued for corporations to be required to disclose how they contribute towards reducing carbon emissions, but did not manage to articulate how this relates corporate purpose. In Escondido Framework terms, the appetite of investors and consumers to do business with organisations that are addressing climate change and the restrictions and/or incentives provided by governments reduce carbon emissions shape the market interfaces of the firm, and the interest of the firm in its own sustainability should encourage it to behave sustainably, but they don’t change the corporate purpose.

Following Carney’s contribution, the session moved onto a panel discussion. As CEO of SSE, an electricity utility, Alistair Phillips-Davies had an easy job relating the changes made to his company’s corporate purpose in relation to the climate crisis. He further argued that clarity of corporate purpose helped everyone in his company respond appropriately to the current Covid-19 crisis, albeit that this sounded like a general statement about how it was good for the company’s reputation to be seen to behave responsibly when this latest crisis hit. The session then wandered, as it seemed unclear whether the discussion should be about how companies respond to crises, in particular whether they should be holistic and strategic or driven by short term financial optimisation, or whether companies should become principals in addressing the crises themselves, which seemed to be the line adopted by Ngaire Wood of the Blatavnik School.

I was left frustrated as Colin Mayer tried to sum up both this discussion and the material covered over the three days of the summit, ultimately feeling that we were left with a laundry list rather than an understanding of purpose, and that this final session had left the impression that the purpose of the organisation had been reduced to steering the organisation through the crisis. This may be consistent with the thesis that an organisation can be viewed as an organism whose purpose is to survive, but it falls short of the Escondido Framework understanding the purpose of the organisation is to create value for society than cannot be created through a set of atomised transactions.

Mohamed Amersi was given a few minutes to wrap up the summit and, for me, saved the day. He referred back to the 1850 charter of his family’s business which stated its duty to its “superior creator”, suppliers, those served [ie customers], the state, shareholders, surroundings and society. He described the challenges we face today as planetary sustainability, inequity and technology. He spoke of modern society by way of an analogy with an apartment block containing a flooded basement, crowded middle floors and a growing penthouse, but with a broken elevator. He despaired of top-down organisations in which no-one is actually in control and argued that is up to everyone to act – “If not you, who? If not now, when?”

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.

How can technological change serve society through purposeful business?

This third session of the on-line British Academy Future of the Corporation – Purpose Summit was anchored in an interview with Satya Nadella, CEO of Microsoft and, as became clear, a living embodiment of the importance of purpose to business.

He conveyed a strong commitment to the resilience and survival of the corporation, and the place of purpose within this. Early on, he stated “A company should not outlive its social purpose. Its social contract should be sustained.” His final remark, in response to a question about what he wanted to achieve at Microsoft, was that measure of the contribution of leaders to their companies was that they left them with the institutional strength to outlive them. These two observations together add up to a compelling view of the role of the leader to ensure that the company’s purpose, in terms of what it provides to society at large, creates value for society. By implication, strategy is about adapting to ensure that the company’s purpose continues to achieve this.

Nadella, in common with Alan Pole of Unilever in an earlier, reflected on the importance of a company’s purpose in relation to meeting he challenges of the climate crisis and inequality. He spoke of the need for economic growth, but that it needs to serve everyone, to be anchored in popular trust, and to be sustainable – “you can’t have growth and break the planet.”

Nadella spoke repeatedly about the need to earn and maintain the license to operate, a particular concern for the very largest technology companies. They need to be more sophisticated in avoid the harm that is a consequence of their scale – not least to keep regulators and would be regulators off their backs. He spoke of the need for companies like Microsoft look upstream of themselves and see what they can do to ensure that through an embedded culture and value system of their own they do what they can to shape their external environment so that “we can be customers of good stuff”.

He was asked whether the pressures of quarterly reporting imposed short term pressures on Microsoft and compromised its corporate purpose and own long term strategy. He acknowledged that quarterly reporting was a constraint but only insofar as it forced the company to explain what it did and why. He explained that he had no difficulty, for example, justifying to his shareholders why Microsoft invested in local housing projects in Washington since the company need to support its wider workforce, not just highly paid software engineers but also people in blue collar service roles keeping the local economy operating.

Chair of the House of Commons Science and Technology Select Committee and former minister, Greg Clark, had to follow this tour de force. He reflected on the how the Covid-19 pandemic had accelerated some technology trends such as video-conferencing but also commented on the degree to which the recent experience surrounding the popular responses to apps to tracking infected patients had highlighted the importance of face to face contact in service activities.

The third contributor to this session was Ngaire Woods, Dean of the Blatavnik School of Government at Oxford who focussed on the role of government in regulation and the limitation of self regulatory codes in prevent a “race to the bottom”. It was apparent that her underlying thesis is that, notwithstanding the sense of purpose adopted by some business leaders, regulatory intervention is necessary – citing as her example the need for Robert Peel to secure the legislation to ensure widespread adoption of the standards in factories that Robert Own had pioneered. She also highlighted the need for appropriate regulation, in that the cheap solution is not always the best (using the example of the alternative approaches to preventing oil spills: the inexpensive solution of a fining system was ineffective whereas the policeable and expensive solution of requiring tankers to have a double skin has been highly effective). In answer to questions later, she also argued that governments should be prepared to use their power as lenders of last resort in the pandemic to secure responsible and purposeful behaviour by business – an answer that unwittingly brought us full circle back the issue addressed by Nadella of the license to operate.

Role of stakeholders in purposeful business

The second session in the British Academy Future of the Corporation – Purpose Summit took place earlier this afternoon, with a focus on the role of stakeholders in purposeful business. The proposition in the Escondido Framework that what most people call stakeholders should be thought of as customers of the firm is at odds with conventional stakeholder theory, but for the purpose of this review I will talk about stakeholders as conventionally understood.

Some of the richest material in the session came from Victoria Hurth from the Judge Institute, although perhaps I reach this conclusion because the language she employs comes closest to that used in the Escondido Framework model of the firm. She framed her introduction to the session by talking about the relationship of corporate purpose to stakeholders being one in which the role of the market is to mediate the pressures from stakeholders. She also talked about tapping the wisdom of shareholders to give meaning to the purpose of the company, which may be another way of looking at the Escondido Framework view that the organisation exists to resolve the symbiotic needs of the stakeholders. She wrapped her introduction with an argument about need for diversity on boards to help with a paradigm shift away from a shareholder value driven model of the firm to one driven by purpose in the service of stakeholders – but without demonstrating the logic behind her argument. There may well be plenty of meat underlying her assertion, but today she did not have the time to make this part of her case.

Frances O’Grady, from the TUC, made the case for hearing the voice of the workforce on the boardroom, referring back to Theresa May’s proposals for changes to corporate governance and the subsequent review that I contributed to and commented on in 2016 and 2017. She explained that she is agnostic about whether worker representation should be in the context of a unitary board or a two tier board following the model in some northern European countries. She also argued for a change to directors’ duties, by implication beyond those set out in Section 172 of the Companies Act requiring them to take account of all stakeholders, to require more focus on the long term.

Dan Labbard, CEO of the Crown Estate (an organisation whose roots go back to 1066 and William the Conqueror) addressed the question of whether a focus on purpose creates additional risk to the corporation. He argued that a focus on purpose equips the corporation to recognise and then organise to address risk, in contrast to a primary focus on profit. He build on this argument by encouraging organisations to proactively go out to their stakeholders with a purpose led strategy, rather than merely responding to stakeholders, and to look at risk through a stakeholder perspective.

Jim Snabe chairs two of Europe’s biggest corporations, Siemens and Maersk. He framed his concerns around the impact on companies of globalisation, technological change and the climate crisis. He argued for leadership anchored in corporate purpose, which describes as explaining why your organisation exists. Leading two companies with two tier boards, he is an enthusiast for this model, explain that the “management board drives the bus” while the supervisory board “sets the GPS”. He sees four roles for the supervisory board: ensuring the strategy is correct by asking the right questions; ensuring that the strategy is aligned with the United Nations strategic development goals; promoting the next generation of leadership; and defining success in terms of addressing the needs of all stakeholders.

Colin Mayer opened the responses to questions by observing that it is difficult, notwithstanding the variety of means that can be considered (different board structures, consultative bodies, citizen juries), to capture the views of stakeholders. (for the Escondido Framework perspective, visit the section of this site addressing governance and some of the relevant earlier posts).

How is business adopting purpose around the world?

The British Academy’s Future of the Corporation – Purpose Summit is an important contribution to developing our understanding of what business is about, and a subject at the heart of the Escondido Framework. Possibly as a result of the selection of speakers, this afternoon’s opening felt a bit like a vehicle for Colin Mayer’s view of the world, particularly for those in the audience who stayed on for Mayer to answer the questions posted during previous hour – (including his final response, in answer to the question that I had posted “Is purpose the answer to the questions “why does this business exist?” and “what do we do that creates value for customers, employees and suppliers?”, which was an emphatic “Yes”).

It was a pity that technical difficulties meant that it was impossible to hear the opening contributions from Mayer or from Stefan Oschmann, CEO of Merck, and that Ashley Grice, CEO of BrightHouse (a creative consultancy owned by the Boston Consulting Group, not to be confused with the bankrupt business that used to rent consumer durables to cash strapped households in the UK) had a false start and when she resumed once the technical problems had been addressed, spoke thirteen to the dozen presumably being anxious that she would run out of time.

Grice is her own worst enemy, or her delivery and articulation of the importance of corporation purpose risks undermining what I think is her core message. The technical problems today may have been part of the problem. However, her claim to have been part of a movement born in 2003 sounded a little bizarre, failing to recognise those who have been ploughing this furrow for many years, including people like Colin Mayer, and also Mark Goyder from Tomorrow’s Company whose name cropped up among the questioners in the chat box. No-one can doubt her passion, even if her references to the bionic company were puzzling. The most compelling part of her message was the value of purpose as something to engage the people in the company, because people need to find meaning in their work and their organisations, which (I am paraphrasing here) means they benefit from doing something worthwhile.

Alan Jope, CEO of Unilever, brought the session alive. He is a Unilever lifer, and comes across as a worthy successor to Paul Polman not only as a leader of the company but also as an advocate for a view that companies exist for a purpose rather than for profit, and that making profit serves the purpose of the company (in that without profit companies do not have investors or access to capital and, of course, if the chief executive fails to keep the investors happy they will be replaced as chief executive). He remarked that “companies without a purpose risk foundering on the rocks of moral bankruptcy” and told us that the purpose of Unilever reflected a founding mission “to make cleanliness commonplace and lessen the load on women” that had been updated to the 21^st century as “making sustainable living commonplace, improving livelihoods and respecting and protecting the environment”. Jope’s commitment to corporate purpose is expressed in three beliefs: that brands with purpose grow; companies with purpose last; and people with purpose thrive. He concluded by observing that collectively we have two big problems to address: inequality in all its forms and climate change, and that business has to play its part in addressing these.

The final speaker was the shadow chancellor of the exchequer, Annaliese Dodds. Following Alan Jope, with his clearly articulated and well structured case for corporate purpose, was a hard act, but she made a competent fist of the challenge. However, she did not manage to display the clarity of vision of what the corporation is about that Jope managed in his contribution or Colin Mayer provided when answering questions. In common with many others, she blurs boundaries and does not have a clear model in mind that allows her to express why governments have a role to play in regulating and on occasion supporting private businesses. I hope she did not intend to convey the impression that hitherto different industries were of different social worth (with ones that make or grow stuff at the top) and she had only come to recognise the importance of business such as logistics, retailing and social care as a consequence of the Covid-19 crisis. As someone who has worked in distribution and retailing, now works in an industry adjacent to social care, I know that the organisations that I worked in had purpose and that we created value for society!

The session ended with a short Q&A, in response to questions posted in a chat box. It was depressing to see how many questioners struggle with idea that purpose and profit have a symbiotic relationship. However, it is that very lack of understanding that justifies the efforts of those who are trying to deepen the popular understanding of the way that businesses actually work. I was disappointed by Colin Mayer’s response to a question about charities in which he failed to recognise how much charities have in common with businesses that trade for profit, in the equivalence between the way that charities have to satisfy their funders and the need of “for profit” businesses to satisfy their investors. But, as mentioned earlier, he rescued himself with a clear articulation of purpose in the answer to the question planted by this commentator.

Lessons from a Warzone, by Louai Al Roumani

My NHS Trust has an annual “Lessons Learned” conference, for sharing the lessons that teams have drawn out from incidents that have taken place in the previous twelve months. Don’t waste a crisis by failing to learn from the experience. This book is about lessons learned from a crisis, but is much more than just another business book.

Louai Al Roumani was the fairly newly appointed CFO of the leading retail bank in Syria when the Arab Spring turned into the Syrian civil war. Most of his family fled to the safety of Kuwait as conditions turned nasty (ironically, they had been living in Kuwait when Saddam Hussein invaded in 1990, but missed the occupation because they were on vacation in what was then a very safe Damascus), but Al Roumani chose to remain, loyal to his home city and his company.

“Lessons from a Warzone: How to Be a Resilient Leader in Times of Crisis” recounts the lessons learned by Al Roumani over the next five years. In this time, despite mortar bombs falling in Damascus and ISIS reaching the outskirts, his bank, BBFS, didn’t just survive but thrived. It did this by doing things that when explained by Al Roumani, and you should already have realised if only you thought about them for moment, make lots of sense even if they fly in the face of what many less insightful managers and directors might do (and, indeed, was evidence by departure of the two directors appointed the one of the major investors).

The lessons include going the extra mile to look after customers (airlifting safe deposit boxes out of a local branch as ISIS overran a provincial town), providing them with reassurance (displaying piles of cash when they queued up to withdraw their deposits and not restricting the amount they could withdraw), looking after staff and avoiding redundancies and cost-cutting around workplace hygiene factors ,and robust systems testing and disaster planning.

He draws on his heritage as a Syrian, living in a city that claims to have been longest continuously inhabited community in the world (a claim of Damascus that Aleppo contests), but also sharing the nomadic transitions of hospitality and reciprocity of Arabi culture. There are great insights relating to thinking about the long term health of the company, informed in part by a different “concept of time” from the one that he had been exposed to during his Harvard MBA. He argues that you should not treat profitability as a critical success factor but that if you see your objective the long term wealth of your shareholders you will from time to time have to sacrifice short term profitability. Although his bank was a creation only of the 1990s, he argues for playing “the long game as a third generation family business does.” He tells a charming anecdote of a large purchase from a shop in the Damascus souq where, in contrast the lady ahead of him who haggled hard and secured no discount, the old gentleman who been silently observing the young man serving Al Roumani gave the instruction that Al Roumani should receive a discount to reward him for not haggling. The account provided by Al Roumani explains why BBFS displayed such resilience through the Syrian civil war that it both maintained sustainable positions in relation to the marketplaces it deals with and also built the corporate and social capital inside the organisation not just to survive but the thrive.

Don’t read this book just for the business lessons. It is a powerful tale of the resilience of a man and a society in the face of enormous threat and massive upheaval. You will learn about the experience of a slice of Syrian society during the last decade and about the cultural hinterland that supports it. It is also a human tale, which keeps resurfacing through the book and continues right through to the acknowledgements at the back – just for once, make the effort to read these as the book keeps on giving right up to the final page.

Lockdown – through the Escondido lens

We are in lockdown with Covid-19. Large parts of the economy are in suspended animation. Other businesses are operating on a hugely reduced scale. Others have recognised that their sales have dried up but have redeployed that assets and staff to help address the pandemic. The Chancellor of the Exchequer has become the “employer of last resort”, funding 80% of staff wages as an inducement for companies to keep people on their payrolls.

How should we interpret the reshaping of businesses through the lens of the Escondido Framework? In particular, what does it do those market interfaces that define the firm as visualised in a simple form by the Reuleaux Tetrahedron?

Are companies in the same business now that they were last month, before lockdown? In some cases, it easy to say that, at least temporarily, they are: the Lymington sail maker who has turned over his computer fabric cutting capability to turning out fabric pieces for others to sew up as scrubs for NHS front line staff and the university engineering departments that have deployed their 3D printers to make components for surgical masks. These companies have moved from one market into completely different one. Their staff, capital, and suppliers are relatively unchanged, but they have exchanged the customer market with which they usually interface with a completely different one.

Others have been transformed into agents of the state: temporary distributors of transfers by a government that has banned their businesses (particularly those in consumer services: retail, hospitality, entertainment) from operating. In their cases, the regulatory interface (not displayed in the 4 market interfaces of the Reuleaux Tetrahedron that describes the simplest companies, but has to be imagined in a multi-dimensional context) has moved inwards to the degree that the company is no longer creating value other than as a channel for transfer payments.

Another way of looking at the interpretation is that the company exists only in a shadow form, some ghost of what the company could become once again. I suspect there is a quantum analogy here – the locked down company with furloughed staff as Schodinger’s Cat. Certainly, the physical assets remain present, the staff remain employed, the wiring of the corporate structure remains in place, and the Dark Matter of the soft things such as relationships, corporate memory, social glue, shared assumptions, implicit operational and communication protocols continue – albeit that they may be vulnerable the longer that the lockdown continues. Zoom and its competitors keep some of the Dark Matter alive. The efforts that the investor, directors, and managers make in supporting and communicating with their staff will help, but the longer the uncertainty remains, or if the companies scrimp on their effort and investment in maintain this soft stuff, the greater the risk that the Dark Matter will leak away.

Purposeful finance – in ancient Ephesus

I have always been interested in long lasting institutions. I attended Corpus Christi College, Cambridge, established by the city’s townspeople in the aftermath of the Great Plague, and lived for a year in a room in its Old Court, built in the 1350s. There was something very special about occupying a room that had seen young men* engaged in the same endeavour for over 600 years. A few years later, living in west London, I relished the occasions driving when I found myself behind removal vans owed by the local branch (sadly since renamed because the branding confused the locals) of the Aberdeen Shore Porters Society, that proclaimed its foundation in 1498.

Esra Turk wrote a fascinating article in the FT on 20 August about an even longer lasting institution, a bank rather than a college or a logistics business, albeit one that was abolished 1600 years ago by a Roman emperor, a Christian intent on stamping out pagan beliefs. The Artemision was one of the earliest known banks, operating within the great temple of Artemis (as known to the Greeks, or Diana to the Romans) at Ephesus, one of the seven wonders of the ancient world. Its origins were as a place to deposit wealth under the protection of the deity and predate Croesus, the first ruler to issue gold coinage, and man synonymous with great wealth and an early depositor in the Artemision.

Turk recounts how the Artemision developed to become more than just a safe deposit facility for the mega rich to evolve “into a much more sophisticated regional and international financial institution, operating not only as a reserve and depository bank, but also undertaking fiduciary and mortgage business. The accumulation of earnings and reserves were of such magnitude that it became known as the Bank of Asia”.

What was the behind its success and its longevity? As every pre-digital retailer will tell you, the first was location – Ephesus was the central junction of the ancient world. But beyond that, Turk spells out three great strengths: purpose, leadership and a clear view of risk.

Regarding purpose, Turk observes, its “sophisticated banking functions were always carried out in the sacred service of a goddess with a strong ethical code. Similarly, banks today need a guiding purpose that looks beyond financial performance and provides a clear and sustainable ethical framework”. It may be a stretch, but is there anything in the waxing and waning of some of high street financial institutions in the UK to link the points at which they have exhibited most resilience and placed themselves at great risk to the strength or weakness of their links to heritage of their Quaker and Non-conformist founders?

Regarding leadership, Turk tells us its “governance was characterised by high levels of personal and collective accountability, trust and connection to the society in which it operated”. Leadership was initially jointly vested in the high priest and priestess of the temple and later in the sole charge of a high priestess. Turk wryly describes this as “an experiment not much emulated in the subsequent 16 centuries, but perhaps worth revisiting”. Not so much the 30% Club as the 100% Club. Gender may have played its part, but I think Turk’s core message is that accountability and trust embodied in the priesthood and accountability to the deity was key to the longevity of the bank.

Regarding the clear of view of risk, Turks suggests that bank was a model of prudence and caution, deploying its own capital as well as the funds of its depositors, and restricted itself to low risk lending because the money help under the goddess’s protection had to remain inviolable. No sub-prime activity in the Artemision!

*Corpus Christi only started admitting women undergraduates in the 1980s