138 MarkCarney BlueprintRAC 4Jul18 1200x799 1

Written by Charles Wookey

Blueprint for Better Business challenges companies to be a force for good and contribute to a better society. Such a system is fundamentally about delivering a basic social contract comprised of relative equality of outcomes; equality of opportunity; and fairness across generations. Blueprint’s Five Principles provide guidance for businesses and reflect the foundations needed for responsible business: honesty and fairness; good citizenship; responsible employment; guardians for future generations; and a purposeful business that delivers long-term sustainable performance.
Mark Carney, Governor of the Bank of England, July 2018

If any one word sums up the pervasive societal distrust of big business, it is “unfairness”. Whether the issue is pay, tax, environmental harm or the growing share of corporate earnings going to capital rather than labour, this word underlines a now chronic dis-ease.

Whose problem is this? One predictable answer is that it is not the role of business to seek particular societal outcomes: the purpose of business is to maximise returns to shareholders within existing law and ethical custom. By this logic, any unfairness that arises from doing this responsibly is just the outcome of market activity in a particular context. By extension, it is up to government to regulate to curtail excessive unfairness so far as society demands it.

We know where this has led. A key factor in the financial crisis was a mindset that legitimated the denial of any wider responsibility of business beyond making money within the law. We are still living with an unhealthy relationship between business and society, where business is often a contributor to rising inequality and government is seen as the chief means to curb it.

The regulatory approach is essential in tackling abuse of market power and in setting and enforcing basic minimum standards. But the reality is that regulatory remedies tend to deal with the last problem, not the next one, and appealing only to the fear of sanctions does nothing to promote a shift in thinking and approach.

Can rising societal distrust of business, and public anger at perceived unfairness be channelled more positively? The truth is that even within existing law and the capital markets, business leaders have a choice about how they think about what the business exists to do, and for whom. These choices are plain to see in the very different approaches businesses take in practice on a range of issues including fair pay, environmental sustainability, taxation, customer service, supplier payment days, and pension scheme contributions.

But on what basis are such decisions to be made? A good starting point is a simple recognition that any business is first and foremost a set of relationships between people. We don’t stop being human when we go to work, and it is possible to consider all the relationships a business has – with employees, customers, suppliers the communities it is situated in and its investors – through a human lens. Looked at this way, the question of fairness naturally arises in every core part of a business. How are your relationships? Are they mutually beneficial and respectful? Where there is an asymmetry of power and knowledge, is that being used to exploit, or to provide benefits that people desire and value but cannot expect or demand? As leaders think about AI and machine learning, is their question how can we make the most money, or how can we create the most meaningful work for people, and help retrain those whose roles are no longer needed?

This way of thinking about a business fits naturally with the growing recognition that a business can and should be inspired and guided by a purpose that respects the dignity of people and benefits society. Purpose – if it is shared and lived out – provides the unifying glue bringing people together and signals that the business cares about people not because it is a smart way to make more money but because they are people. Blueprint’s Five Principles, which offer a picture of the relationships a purpose-led business might have, mentions the word ”fair” five times. A growing body of evidence and business practice shows that doing this also appears to enable higher long-term sustainable performance as well – helping create a better business and a better society.

Rightly, investors of public companies are increasingly using their power to question management on a broader range of issues than just financial return. While there is more the investor community can do, accountability to investors alone does not represent the range of responsibilities businesses have. In a world of weakened unions, often weak consumer pressure, and divided governments we do not have the countervailing powers which might otherwise act as a check on what companies do. Thoughtful CEOs and boards, recognising this and wanting to foster companies characterised by genuinely fair processes, and contributing as best they can to fairer societal outcomes, have the agency to change the status quo without waiting for regulation to do it for them. They can decide what scrutiny they should have beyond what the law requires, and governance and accountability they need beyond accountability to their investors alone. We need innovation in best practice here if the opportunity of purpose-led businesses is to become embedded, with more structured employee engagement as a crucial feature.

When the joint-stock company was first created no-one envisaged the huge role this legal construct would turn out to play in the life of the world. They were never designed to do it. The construct is not fit for purpose, but it is perhaps the least-worst option available. So like NASA and the crew of Apollo 13, who managed to use the lunar module as a lifeboat to get them back to earth, we have to find a better way to deploy the vehicle of the joint stock company to help address the crucial issues facing us all. Not least climate change, systemic inequality, and harnessing the wave of new technology to be at the service of humanity rather than exploiting people. The trick is to adapt what we have to deliver better on the needs of society to meet the basic social contract which the Governor of the Bank of England pointed to in the quote above. On that journey, which will demand a sustained collective commitment of business leaders and investors, embracing a fairness test for a range of decisions, and welcoming scrutiny against it, is a good place to start.

As part of Blueprint’s Principles of Purpose event series we are collaborating with the RSA on a deeper exploration of fairness which will result in an event in spring 2019. If you would like more information contact us at enquiries@blueprintforbusiness.org