Queen’s Medical Centre, Nottingham University Hospital
I read an inspiring interview in Health Service Journal last week with the fairly recently appointed chief executive of a large NHS Trust facing a massive turnaround challenge. Anthony May, recruited last year to Nottingham University Hospital following many years as a successful chief executive of a large local authority spoke of the importance of providing the organisation with “hope” and of his visibility throughout the Trust. He also commented that the problems faced by the organisation had resulted in it spending too much time looking inwards and that it now had to rebuild relationships with its stakeholders. This resonated with my experience chairing to two NHS organisations through turnaround where I worked in support of two outstanding chief executives. A sense of hope and what I recall describing to colleagues as “something to believe in” is part of the “Dark Matter” that makes organisations more than the sum of their parts. And these are things that can only be created and communicated by a leadership team who are highly visible.
It has taken a few days for me to find time to blog about the interview. Returning to the on-line interview, I discover that it is now accompanied by a dozen or so comments from May’s colleagues. They are all anonymous (which enhances rather than diminishes their credibility) and all clearly come from within NUH. Some are very supportive. All confirm the scale of the task confronting May and the Trust. Some more sceptical, although they suggest an impatience in the delivery of the turnaround – but, as another comment points out, given the toxicity of the culture that May has come into it seems unreasonable to expect a turnaround to be completed overnight. Other comments have descended into a mudslinging between front-line and support services staff, only confirming the cultural challenge. Others display a degree of cynicism: one expresses this in a constructive tone, remarking “Always conscious a few quotes could be taken out of context but CEO needs to be careful here he doesn’t look to subscribe to the ‘great man/heroic leader’ school of management. Always implodes in due course.”
The commentators also remark on the intrinsic challenges that NUH faces because of its size, its spread across multiple sites, and its complexity. They also comment on the distraction provided by past M&A activity, regrettably something that has been, and continues to be in fashion in the NHS (many years ago I undertook an analysis that suggested an inverse correlation between NHS trust size and both financial performance and quality of care), and is consistent with most of the work undertaken in the private sector suggesting value destruction from M&A).
The delay in writing this blog piece is fortuitous. My enthusiasm for Anthony May’s comments is undiminished, but the comments highlight the challenge he faces and the need for him to sustain his effort and commitment as he has a long, hard road ahead. I wish him well.
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.
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.
Sarah Butler-Sloss wins case for purpose informed financial investment by charities
Of course, a charity’s purpose should inform its investment decisions. But that was not the position that the Charity Commission argued in the High Court recently when Sarah Butler-Sloss, who chairs a Sainsbury Family Trust that addresses environmental causes, sought to exclude investments in companies who policies were not aligned to the Paris Agreement targets for limiting carbon emissions.[1]
The Charity Commission took the position that the purpose of a charity’s financial investment is “to yield the best financial return within the level of risk considered to be acceptable – this return can then be spent on the charity’s aims” and further provided guidance that ethical investing by charity’s should not result in “significant financial detriment” to the charity. But what if the activities of the company in which your charity is investing directly undermine the purpose of the charity itself? It is not just a matter of a financial return that reflects “dirty money” (either income or capital gain) but that the investments held by the charity increase the size of the mountain that the charity is seeking to climb in its charitable work. In this case in question, the Charity Commission’s position was that the Ashden Trust board had not properly balanced the potential financial detriment from its investment decision against the risk of conflict with its charitable purposes.
I recall just such discussions when chairing the finance committee, charged with managing the £200 million portfolio of Versus Arthritis (at that point called Arthritis Research UK). I argued that it was nonsensical for us not to direct our fund managers to avoid investing (as far as it was possible) in companies whose businesses contributed the problems that we were trying to solve. Fortuitously, the investment strategy of the Baillie Gifford funds in which we invested didn’t raise any difficult ethical issues for us, as well as allowing us to benefit from a bull market in the tech stocks that featured in it
Mr Justice Michael Green took the right decision when he decided that a charity’s trustees can exercise their discretion when managing their financial investments to reflect the charity’s purposes and not solely to maximise financial returns. In doing so, he set out useful principles that address not only the nonsense that investments that directly conflict with a charity’s purposes but also reflect in their turn the decisions that personal investors make in decisions that they make about their savings (witness the growth in the number of ethical or socially responsible investment funds available) but also consideration of the impact on donors to charities, many of whom are concerned that the charities they support invest their financial assets ethically or, at the very least not inconsistently with charities stated purposes.
[1] Sarah Butler-Sloss & Others v Charity Commission [2022] EWHC 974
Emblematical Print on the South Sea Scheme – William Hogarth
At the height of the South Sea Bubble, an investment prospectus seeking to exploit the febrile market of 1720 is supposed to have described “A company for carrying on an undertaking of great advantage, but nobody to know what it is.”
This story is generally described as apocryphal. It would indeed be unbelievable but for the appetite last year for investors to pour money into Special Purpose Acquisition Companies, or Spacs, shell companies that raise money from investors through a listing on a promise of merging with an unidentified private company[1]. Apparently, nearly half of the $230 billion raised globally in new listings have gone to Spacs. In the words attributed to PT Barnum “there’s a sucker born every minute.”[2]
There is no reliable record of whether the “company for carrying on an undertaking of great advantage” ever existed, let alone what became of the funds committed by investors if there ever were any. But the fortunes of the Spacs and their investors is better documented, and an analysis has been published by the FT today. 425 of these “blank cheque companies” have listed since the beginning of 2020. The shares in two thirds are trading at below the $10 listing price, implying that they are worth less than the cash that was invested. Only 41 of these companies have completed transactions, and on average their shares are 39% below their peak valuation, despite a rally in the US stock market overall. Only 3 are within 5% of their peak, 18 are more than 50% below their peak, and 8 are below the $10 valuation when they first raised cash.
Perhaps “purpose” and a credible plan is worth something after all? It is moot whether a speculative investment not underpinned by a credible plan and purpose is better than a pig in a poke but, if so, it is not by very much.
An FT reader (pen name: Warthog Under The Bridge) who has commented on today’s FT report observes: “As a rough guide, the only way to make money with SPACs is to be a SPAC manager. Buyer beware, the guys running the shows are doing very well at your expense.” There may some SPAC managers making out like bandits, and there may be some advisers and professional firms raking in fees. But there may be some whose own money is at risk or whose advisers were taking fees on a risk basis. But Warthog Under The Bridge is probably right to claim that there is no other way to make money from a SPAC. Nonetheless, those who have spent the past year on these ventures would have created more value for themselves and society doing something else!
The same probably applied in 1720. But as there is no record of that the “company for carrying on an undertaking of great advantage” ever existed, we also don’t know whether its promoters, their lawyers, or even the printers of the prospectus made money either.
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.”
I often wonder about the applicability of the Escondido Framework model of the firm to organisations in other cultures and at other times to the developed world in the 21st century . One of the claims of the Escondido Framework is the degree to which it can be applied universally. Certainly, the model can be applied to public sector and third sector organisations, and can be applied wherever there is some sort of corporate collective structure that can be shown to create value that is greater than the sum of the efforts of the people who are working together within the structure if they were together in a set of discrete collaborations brought about by a set of separate agreements (whether explicit or implicit).
I have just completed reading Max Adams’ account of Britain in the 5th to 7th centuries, The First Kingdom[1]. This covers the period often known as the Dark Ages, following the departure of the Roman Empire and before settled control of England by Anglo-Saxon rulers in the Heptarchy. He pieces together the considerable research undertaken in recent years to describe a fragmentation of society, depopulation of most cities and towns and replacement by what may in many respects to a pre-Roman pattern of village economies and local tribal leadership, subject to incursions by Viking and north German raiding parties, but still with some loose links to continental Europe, with the Christianity that had arrived in the Roman period hanging on in places prior to reintroduction both from Ireland with Colme Cille (St Columba) and with St Augustine from Rome, and with continuing trade.
One of the key themes of the Escondido Framework is the identity of the corporation independent of stakeholders, the “societé anonyme” whose ultimate purpose is to survive, and which outlives its “controlling mind”. Adams marks the end of the period that he is describing by an important transition, from one in which the individual “kingdoms” were pretty fluid, some very small and sitting within and subject to other kingdoms (in a system described as Tribal Hidage), and most regimes pretty ephemeral.
“Victory on the battlefield and political success measured in tribute and booty secured the loyalty of secular élites for their king and his eligible successors; but for a life interest only. Defeat, if not fatal, weakened a king and exposed him to internal coup of external domination…..The luck of the tribe was invested so heavily in the person of its kings that when they died any imperium that they may have exercised over rival kings was void.
“As Bede so vividly described it, the pagan supernatural experience was in some sense like the passing of a sparrow into and out of a hall whose warmth and fellowship matched their brief period of Earth while all before and after was cold darkness unknown…..
“Pagan kingship was not stupidly irrational. Rulers were bound by conventions of honour, reciprocity and political pragmatism. They calculated odds as coolly – and with about as much reliance on superstition – as any politician or football coach whose tenure might be equally precarious.”[2]
But this changes with a new social contract, between church and king, that reflects the new world being constructed with the arrival of Christianity and the conversion of the rulers, whose souls continue after death. Adams cites a law of Wihtred, king of Kent 690 -725: “The Church shall enjoy immunity from taxation; and the king shall be prayed for” before noting:
“The rapid seventh-century establishment of monastic communities across the Insular kingdoms, supported by extensive, formerly royal estates and nurture by their relations with kings, parallels the history of secular territorial lordship founder on the right to exact and collect renders from lands and communities, but with a a critical difference. The unique brilliance of this new social contract was to convert landed assets otherwise held for a mere life interest – the so-called folcland held by the thegns and gesiths form the king, which returned to the royal portfolio on their death – into a freehold bocland of abbots and abbesses. Bocland or bookland – what we would call freehold – was fundamental to a relationship meant to last for eternity on Earth and in heaven. It allowed the church to invest in physical labour and material wealth in permanent settlements free from the obligation of military service and taxation; to capitalize agriculture an technology. It laid the foundations for a literate, institutional clerical caste and formation concepts of obligations owed by kings to their people.”
Permanence is the key word – even if in due course the success of the monastic corporations became the seed of their undoing at the Reformation. The monastery or convent was greater than the abbot or abbess. The kingdom also secured more permanence, even if an institutional fluidity remained until the major kingdoms of the Heptarchy progressively consolidate and became on under Athelstan in the 10th century.
[1] Adams, Max (2021). The First Kingdom: Britain in the Age of Arthur. ISBN-13 : 978-1788543477
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
Chartists meet on Kennington Common in 1848 – the year of the Communist Manifesto and “All things bright and beautiful”
I went into the first Covid-19 lockdown in March with three doorstep sized volumes to keep me going.
The 912 pages of Hilary Mantel’s Mirror and the Light were riveting, even if I knew from the outset that Thomas Cromwell’s career would come to an abrupt end at Tower Hill in 1540. The 1088 pages of David Abulafia’s magisterial The Boundless Sea kept me entertained as it opened my eyes, chapter by chapter, to the way that different parts of the world became progressively connected by maritime exploration, communication and trade.
I had started turning the 1041 pages of Thomas Piketty’s Capital and Ideology before restrictions started to be lifted in May but, despite finding some stimulating ideas in his opening account of the different sources of power of different parts of premodern society (which he describes as ternary or trifunctional, and have echoes in the Escondido Framework’s account of the three currencies or sanctions), it was not until the re-imposition of lockdown (the UK government’s Tier 4 restrictions) that I finally completed it.
I admire much of what Piketty has done in Capital and Ideology. His effort to document the movements in the shares of income and wealth between different groups in different societies throughout human history, and particularly the past century or so, is admirable and revealing. It is possible to challenge some of his assumptions and definitions, but the picture he paints of the direction of the trends in material inequality are compelling. I agree with his spin on Rawls’s maximin principle: “To the extent that income and wealth inequalities are the result of different aspirations and distinct life choices or permit improvement in the standards of living and expansion of the opportunities available to the disadvantaged, they may be considered just.” (p.968). His chapters on the increasing support of the “Brahmin” classes educated to degree level for parties of the left and the corresponding “Nativist” alignment of parties of the traditional right and “left-behind” communities are persuasive. But the book is far longer than it needs to be, many of its graphs add little, and he strays from the professorial scholarship of the economist/social scientist-turned-historian into an undergraduate level of prescription.
Piketty’s underlying thesis is that “no human society can live without an ideology can live without an ideology to make sense of its inequalities.” I didn’t need to read 1041 pages to recognise this: growing up in a churchgoing family, I remember singing the third verse of “All Things Bright and Beautiful”
The rich man in his castle,
The poor man at his gate,
God made them, high and lowly,
And ordered their estate.
These days, it is generally omitted!
It may or not be a coincidence that Mrs Cecil F Alexander wrote these words in 1848, the “Year of Revolutions”, in which Marx and Engels also wrote The Communist Manifesto. Piketty chooses to reformulate the opening words of its first chapter “The history of all hitherto existing society is the history of class struggles” as “The history of all hitherto existing society is the history of the struggle of ideologies and the quest for justice.”
There is something in Piketty’s thesis about the relationship between the ideas that prevail at any point in time and the organisation of society and its impact on the distribution of wealth and income. It may be that I started out as a historian whereas has come to history by way of economics, but I find that he oversimplifies to sustain his argument. Ideas ebb and flow and they can influence behaviours, but this is not the same thing as saying that they determine behaviours. He falls into the trap of assuming that the behaviours that are generally ascribed to “capitalism” are the product of the past few centuries.
He frequently quotes Karl Polanyi with approval, who was even more blinkered in this respect, regarding capitalism as an entirely modern phenomenon. Peter Acton has undermined Moses Finlay’s thesis that the ancient economy was shaped by considerations of status and civic ideology rather than rational economic considerations, demonstrating in Poiesis: Manufacturing in Classical Athens demonstrates that the commercial decisions of Athenians “were for the most part…consistent with today’s understanding of good (rational, profit-maximising) business practice[1]. It does not require a 21st century reading of the biblical parable of the talents to see that the notion of investing for a return was established by the time the Christian gospels were written. And Abulafia’s The Boundless Sea, contains plenty of evidence for the commercial underpinning of the development of maritime trade over many centuries. One of the primary shortcomings in Polanyi’s approach was that set very specific conditions around anything that he would define as a market and, by framing his argument in this way, created a platform for his dismissal of the longstanding heritage of commercial activity. It is as though Polanyi, and to a lesser extent Piketty, seek to dismiss market mechanisms and their place in human societies on the basis that, prior to Adam Smith and his successor, the conditions assumed in classical economics had neither been articulated nor did they prevail.
Essentially, it is not that Piketty is wrong, but his case is overstated and needs reframing. It is not that ideology determines the form of economic organisation, but it helps shape relationship between the parties. In Escondido Framework terms, the prevailing ideological frameworks will influence the attitudes and trade-offs made by parties in their relationships with each other at market interfaces. For example, a religious ordained prohibition on usury does not undermine the human behavioural drivers for gratification today over gratification tomorrow and discounting for risk (although these can be culturally influenced), but historically has resulted in work-arounds (eg Islamic finance) or lending being undertaken by a community less constrained by the prohibition. Certain activities, as in caste based societies, may be undertaken by tightly defined social groups, with implications for the commercial terms on which these activities take place. But this is not the preserve of caste societies: while the boundaries may be less clearly defined and not religiously ordained, even in contemporary society there is an intergenerational stickiness in occupations and values, traditions and attitudes acquired in childhood shape occupational choices and behaviours.
So, two cheers for Picketty for the underlying thesis. And, in due recognition of his own disclaimer in his concluding chapters, he has set out to provoke further debate and provide the foundation for further scholarship rather than provide the definitive answer
However, where I find Capital and Ideology most flawed in when Piketty moves from diagnosis to prescription. In particular, his leap from describing to the increasing inequality in economic outcome for the richest few percent compared to the poorer mass of the population to concluding that all would be solved by appointing worker representatives to corporate boards highlights the danger of straying too far from your own area of expertise.
The inequality that Piketty documents arises from the endowments that we start out with in life (geography, genetics, family wealth, upbringing, education) and our life choices and chances (too many possibilities to enumerate). These will shape whether we end up with investable wealth (the impact of this on equality is thoroughly documented in his earlier work: Capital in the 21st Century) and whether we end up in positions in which we have market power and are able to extract economic rent, which has arisen most egregiously in recent years for executive directors of large companies as a result of shortcomings in corporate governance. Addressing inequality arising from our endowments needs primarily to be by “levelling up” in terms of investment in education and social support, particularly in early years, and widening opportunities, but in relation to inherited wealth is a proper area for taxation. Addressing inequality arising from investable wealth is also clearly an issue for taxation and also needs international solutions, but is a complex matter not least because of the risk of creating perverse incentives and unintended outcomes. Taxation has its place in addressing inequalities in income, but as with addressing issues surrounding taxation of wealth and wealth transfer, is also fraught with difficulty. Piketty raises these issues quite correctly.
But addressing inequality arising from market power and the ability to extract economic rent is a proper matter for better corporate governance and regulation to address market failure. Piketty fails to recognise the role of market failure and consequently the need to address this, and also the problem of the increasing ability of corporate management (and some of the services that support them), to extract economic rent (ironically, at least in part, at the expense of the owners of investible wealth), and that this is purpose behind the need for reform of corporate governance. His own prescription, worker representation on boards, is not the solution for reasons that I have argued elsewhere. Rather, and this comes back to his underlying thesis around ideology, there is a need to widen the understanding about the proper purpose of the company (the core of the Escondido Framework), and an improved understanding of the role of boards in serving them.
[1] Acton P (2014) Poiesis: Manufacturing in Classical Athens. New York: Oxford University Press
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.
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.
