Tag: Renewing Capitalism

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 21st 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.

“Irresponsible behaviour in big business” – “Unacceptable face of capitalism” remastered?

A new wind is blowing down Downing Street. The leadership of the Conservative Party has skipped back a track, with a generation born in the 1960s whose ideas were shaped by the Thatcher era replaced by one born in the 1950s that emerged into political consciousness in the years of Heath, Wilson and Callaghan. The young Theresa Brazier – later to become Mrs May – was studying for her A levels when the first of these branded Tiny Rowland as “the unacceptable face of capitalism”.

Tiny Rowland was engaged in a battle with his own non-executives at Lonrho at the time, dismissing them as “Christmas Tree Decorations”. Theresa May is now sharing the popular outrage at the conduct of Sir Philip Green and Mike Ashley and calling for changes to address “irresponsible behaviour in big business”, in particular to protect the interests of employees and to challenge excessive executive pay. It is interesting to compare the targets of the two prime forty three years apart: Heath was criticising the chief executive of a company whose non-executive directors were standing up to him, whereas Theresa May’s challenge is to behaviour exemplified by a former chief executive who owned, or rather whose wife principally, owned the company, and a second chief executive who is a majority shareholder but who appears to have the chairman and board in his pocket.

Mrs May’s pronouncements, aided by such high profile cases as BhS and Sports Direct, help to change the climate. But is this sustainable, and are the solutions being canvassed the right ones? Philip Augar, writing in the FT on 22nd August, noted

In her last major speech before entering Number 10 as prime minister, Theresa May eerily echoed remarks made by the former Labour premier Tony Blair 20 years earlier: “Transient shareholders are not the only people with an interest when firms are sold or closed,” she said. “Workers have a stake, local communities have a stake, and often the whole country has a stake.”

Mr Blair, in a speech delivered in Singapore shortly before he took power, asserted that it was “time to assess how we shift the emphasis in our corporate ethos . . . towards a vision of the company as a community or partnership in which each employee has a stake”.

Augar went on to point out that “what had promised to be a defining philosophy for New Labour was scarcely heard of once he was in office”. Admittedly, section 172 of the 2006 Companies Act did shift the ground by requiring directors to:

have regard (amongst other matters) to—

  • the likely consequences of any decision in the long term,
  • the interests of the company’s employees,
  • the need to foster the company’s business relationships with suppliers, customers and others,
  • the impact of the company’s operations on the community and the environment,
  • the desirability of the company maintaining a reputation for high standards of business conduct, and
  • the need to act fairly as between members of the company.

Nonetheless, Augar’s point about lack of delivery is well made, given precisely the types of issue that the new prime minister has declared that she wants to address.

Her ambition to reform corporate governance is admirable. But are they right solutions?  The FT reports today (25th July):

The prime minister’s allies say that a package of measures to improve corporate governance are being drawn up and will be published in the coming weeks.

Mrs May this month promised to broaden the pool of non-executive directors, so that they were no longer drawn from “the same narrow, social and professional circles as the executive team”.

“If I’m prime minister, we’re going to change that system and we’re going to have not just consumers represented on company boards but employees as well,” she said.

The idea is opposed by some corporate leaders, who fear that “worker directors” would end up being selected by trade unions. Mrs May’s team say they would act as a deterrent to the “appalling” working practices adopted by Sports Direct, which were heavily criticised by MPs this month.

Mrs May’s reforms are also expected to include a requirement for more transparency on pay, including making shareholder votes on corporate pay not just advisory but binding. “Pay multiple” data would also be published to show the gap between a chief executive’s pay and those of workers.

The new prime minister has also talked about toughening competition law to protect consumers and a further crackdown on corporate tax avoidance and evasion. “It is not anti-business to suggest that big business needs to change,” Mrs May said at the launch of her leadership bid.

There is some very good stuff here, including ideas about widening the pool of non-executive directors, but a lot more thought is required about how this should be done, and what would be the most effective way of ensuring that what is done addresses the problems identified. For example, appointing a token employee director may be a less effective way of addressing the need to represent employee’s interests than having an effective workforce or HR director on the board whose job it to take into account the need to meet the needs and desires of all the workforce, and couple this with greater protection of employee rights, not least around working conditions and pensions.

1993 Tomorrow’s Company paper and latest paper for Cranfield Renewing Capitalism project

Two papers setting out some of the key ideas in the framework have been added to the site.  A paper written for Tomorrow’s Company, when in its initial phase under the sponsorship of the Royal Society of Arts, can be found on the Origins page.  A recent paper written for the Cranfield Institute’s Renewing Capitalism initiative can be found on the home page.