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Anthony Hilton: Business should benefit society and not just make profits

Business shouldn't be just about greed
Business shouldn't be just about greed /
10 September 2019

harles Wookey is the CEO of A Blueprint for Better Business, a charity which holds that business has lost its moral compass. If there is any hope of creating a sustainable society, it needs to return to a core sense of purpose for all.

He has been running it for some time but in the past couple of years he has being getting much more traction. The problem though is that chief executives and boards may pay lip service to the idea that stakeholders are every bit as important as shareholders, but then do nothing about it. Their belief fundamentally is that business is there to make profit, and everything else is secondary.

Wookey in contrast thinks business should benefit society, because business is a collection of people, As a child onwards people believe in fairness, even if they don’t always get it. Why should business be any different?

Wookey believes, however, that two things must change. The idea that business should only maximise profits is one; and that people are entirely interested only in themselves is the other. Wookey says, moreover, that business has to change its way of thinking if it is to become trustworthy again, and to be able to respond to the issues of the next decades. Capitalism as a shareholder model is already less relevant as more businesses do not want to go public, and many also need less capital anyway.

Of course fairness is not fair to everyone, and at times neither is business. Decisions have to be made which may hurt, but the key is what frame of mind does business adopt when it approaches such an issue, and is the result consistent with that fairness? Fairness should be embedded in purpose; if all the staff, suppliers, customers and tax authorities think the business is doing the right thing, even if they themselves occasionally get hurt, then profits should flow too. But business has to look through its lens as a human being, rather than, as now, looking through it only as disembodied facts and figures. That way it can at least avoid manifest unfairness.

Some ceos accept this but they don’t do anything as they tend not to want to stick their necks out. Middle management can also be guarded. Generally they are comfortable with what they are doing and can’t envisage anything different. They are reluctant to change because it might make them vulnerable.

CEOs can of course become vulnerable themselves: witness the fate of Paul Polman, former chief of Unilever, who was one of the good guys but found a private equity fund snapping at his heels. To escape he was forced to change strategy to enhance short-term returns.

There is also pressure within boards and executive committees. It is often observed that the heads of human resources, legal services and finance tend to be risk averse. A ceo might well be reluctant to antagonise all three departments at the same time by changing to really embed a sense of purpose in the organisation. These cohorts tend to give the business stability.

And in truth there is also lack of support from institutional investors. Although some really do try to focus on the long term, they are few and far between. The vast majority simply want the shares to go up as quickly as possible so they can sell and move to the next one. That way they think they will also get more money from the public. But in the past year there has been a significant shift in thinking.

For example the US Business Roundtable, a serious if worthy organisation, decided last month to embrace purpose as a core value. You can criticise it for being no more than a talking shop, and many do, but the fact that so many of its executives put their names to the initiative must mean something.

Wookey certainly thinks so. In the FT at the end of August he quoted a letter of 10 years ago, in the aftermath of the financial crisis, headlined “Business leaders pledge excellence and integrity”, where these leaders stated “without the development and inculcation of a more enlightened culture, regulatory actions alone will not suffice”.

Since then, however, they have rowed back a very long way and their fine words have been honoured more in the breach than the observance. This is why it is so remarkable that US business leaders now state that people “should live a life of dignity and meaning”.

Needless to say the Council of Institutional Investors said the Roundtable statement “undercuts notions of managerial accountability to shareholders”, so there is still a long way to go. But then American institutional investors can be dinosaurs so it may take them for ever to catch up.