‘Business leaders clearly have an increasingly fraught relationship with government. They are quick to blame government for being overly critical, failing to stand up for business against a hostile public. At the same time, they are deeply skeptical about government taking on a more interventionist role, suggesting that government efforts to intervene tend to be clumsy and contrived. Our interviews with the political elite highlight the discord: most political respondents would welcome more business input and a greater sense of joint effort.’
The picture painted by the 2016 Rebuilding Trust in Business report, released last month in collaboration with The Oxford University Centre for Corporate Reputation, is not a happy one. Far from a community of leaders awake to the need for a stakeholder economy, findings instead suggest a serious mismatch between the ‘elites’ of Big Business – increasingly positioned as ‘the enemy of the people’ in the midst of ‘a widespread backlash against globalisation [which] continues to shake the governance of modern societies’ – and the standards of society and government they are increasingly accountable to.
Trust is a business imperative: not just to maintaining a licence to trade, customer loyalty and a steady share price – but to self-determination. ‘In the current highly charged political environment, public outrage can be quickly transformed into radical changes in government policy, as governments seek to demonstrate to their voters that they are taking charge.’ As the report observes, ‘[b]anks worldwide have been fined more than US$300bn since 2010.’ In this reactive environment, trust in one is trust in all.
The paper tests three major hypotheses: Business networks are too closed; Business suffers from negative narratives; Business is slow to align with changing social norms, especially around taxation and executive pay. Networks, especially, continue to present a serious challenge to business. Of 289 FTSE 100 executives who lead as Chairman, CEO or CFO, just 12 are women; more than half of FTSE100 companies (53) have entirely white board level leadership.
And yet the study’s respondents disputed the link between trust and diversity, citing their use of social media and many worth community activities. They expressed deep disappointment in the media, which they saw as stoking cynicism around CSR engagement and executive pay. They believed they were in touch with the desires of their shareholders. And when challenged on the idea that ‘business should think more in terms of a “social contract” with the public’, ‘a surprising number of the business leaders… responded to this suggestion by paraphrasing Milton Friedman’s 1970s assertion that the only responsibility of business is to make a profit for its shareholders’ and expressed a sense of scapegoating by a clumsy interventionist government.
These findings reveal a critical failure of understanding on several fronts. Firstly, in terms of the meaning, and urgent need for, real network openness – both in terms of wider stakeholder networks (NGOs, consumer advocacy groups) and employee and leadership representation at the highest levels. Secondly, in the role of this openness in building positive narratives through employee ambassadors and community experiences – thus escaping the media tyranny. Thirdly, in the need to create a truly sustainable business, in which the social contract is ‘mainstreamed into the core of a business, not regarded as an optional extra’, in the manner of B-Corp certified businesses or those who use the External Rate of Return. Finally, in the need to publicly recognise and proactively reflect the changing norms of society (enabled by true consultation with open networks) – before hefty government intervention is delivered.
Part of this recognition involves rethinking the damaging shareholder focus. While this generation of shareholders have been largely happy to let sleeping dogs lie (as the FT notes, ‘more than a quarter of shareholders in FTSE 100 companies make no use of their voting rights at all. In June just a third of shareholders in WPP, for example, voted against the £70m pay package of Sir Martin Sorrell, the chief executive.’) the new generation of millennial shareholders are unlikely to follow the status quo. As The Spectator reports, ‘[i]n the view of Leslie Gent, head of investment products at Coutts, ‘The main shift in recent history has been from negative screening to positive screening. Today, it’s not just about ruling out a few companies; it’s about incorporating environmental, social and corporate governance factors into the investment decision-making process, in the interest of long-term sustainable returns and risk mitigation.’ The studies bear this out: the US Trust recently found that 67% of the millennials considered investment ‘a way to express social, political or environmental values’, verses 34% of baby boomers. The Shareholder Economy is on borrowed time: time for Big Business to take the leap.
