Martin Wright reports on an ambitious British Academy initiative to restore trust in capitalism by redrawing the contract between business, investors and society
The world’s mighty companies are facing challenges as never before: a breakdown of trust with consumers; growing public scrutiny via the lidless eye of social media; populist politicians on left and right threatening to upset the corporate applecart; and, running through it all, the waves of disruption brought about by AI, automation and the so-called fourth industrial revolution (see First, do no harm: regulators and tech industry scramble to tame the AI tiger). All this at a time when business is increasingly expected not just to turn a profit for all its shareholders, but to "do the right thing" by wider society and the environment into the bargain.
So, amid all this turbulence, how can companies best respond? What can and should be the role of government, investors and civil society? How, in short, do we make corporates fit for the future?
Colin Mayer of Oxford University - exploring the purposes of business. (Credit: Purpose Economy)
Those questions are at the heart of The Future of the Corporation, a major new initiative led by the British Academy, a fellowship of around 1,400 leading academics from the humanities and social sciences. Led by Professor Colin Mayer of the Said Business School at Oxford University, it sets out “to explore the purposes of business and ask what its role in society should be”. And it has given itself an impressively broad remit, looking at everything from corporate culture and governance, leadership and trust, through to questions of ownership and investors, the role of regulation and civil society, and issues of responsibility and sustainability.
It’s not the first such attempt but, Mayer insists, it’s “much more ambitious than anything attempted in the past”, bringing together leading academics and researchers from across the world, tempered by an advisory group of senior business leaders, among them Adrian Montague, chair of Aviva, and Peter Norris, chair of the Virgin Group. And Mayer is keen to stress it won’t be a theoretical exercise: its outcomes will have “real impact on business practice and policy formulation”.
Every company must not only deliver financial performance, but also show how it makes a positive contribution to society
But is there really an open door for fresh thinking in this area? Yes, says Mayer: several of them, in fact. First, there’s growing pressure from government. In the UK, the Companies Act of 2006 broke with tradition by requiring directors to move beyond a narrowly defined duty of maximising benefits to shareholders, towards a wider responsibility for the overall health of the company, including its employees, suppliers and customers, while “having regard” to issues such as “the impact of [its] operations on the community and the environment”.
Fine words on paper, but in the wake of incidents like the collapse of Carillion, critics have pointed out that implementation seems to be lacking. Now, however, says Mayer, a new Green Paper on corporate governance is exploring how to toughen up those provisions, and the Financial Reporting Council is likely to play a much stronger role in compelling companies to report on them.
Investors, too, are making waves, Mayer says, citing Black Rock’s Larry Fink, who, in his latest annual letter to CEOs, states that “every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” And Fink goes on to insist that “without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.” Coming from one of the world’s most influential asset managers, this was seismic stuff.
This combination of tougher legal requirements on companies to embrace a wider purpose, and growing pressure from investors to do so, “will be really influential”, Mayer believes.
A wider political shift is having an impact, too, he argues, with the rise of a populist left posing an existential threat to the way modern business operates. “If you’d suggested even a couple of years ago that the UK might elect a party committed to renationalising swathes of British industry, you’d have been laughed out of court. Yet it’s now a serious possibility. And that has shaken business out of its complacency.”
Technology is fundamentally reshaping business models from transport and energy, to food and financial services
So much for the external, political and regulatory pressures bearing down on business. There are also strong internal drivers of change, notably the disruption brought about by technology. “It’s fundamentally reshaping so many business models – everything from transport and energy, to food and financial services,” says Mayer. Take banks, for instance. They have prospered forever by being, essentially, a safe repository for money. Now, says Mayer, they have to be a safe repository for information as well. It changes the competition landscape, so “HSBC will find it’s no longer just competing with Credit Suisse, or whoever, but with Amazon and Facebook too.”
Put all that together, Mayer concludes, and it’s clear that “the model that business has taken for granted for decades needs to change”. How it does so, and what the results might be, will be central to the Future of the Corporation project. It’s kicking off with a series of “landscape reviews”, to be published later this year. If the outcomes match up to Mayer’s ambitions, it could be the most influential exploration of the future role of business this century – so watch this space.
Martin Wright (@martinfutures) is a writer, adviser and public speaker specialising in environmental solutions and sustainable futures. He is a former director of Forum for the Future.
Main picture credit: Brian A Jackson/Shutterstock
This article is part of the in-depth briefing Future of Capitalism: See also:
'The pursuit of results trumps everything': UK business leaders speak
Sharing the benefits: the rise of the B Corps
SSE, Persimmon and BT 'best plcs for building an inclusive Britain'
CEOs and investors unite to tackle trust crisis at heart of capitalismBusiness corporate culture governance British Academy AI Carillion Financial Reporting Council Black Rock Colin Mayer