If business is to move the dial on today’s big-picture social agenda and support capitalism, we should start by reminding ourselves about S.172 of the Companies Act 2006, which enshrines the principle of ‘enlightened shareholder value’.
It enables the board to act in a way that is most likely to promote the success of the company for the benefit of its members as a whole and, in so doing have regard to the interests of stakeholders (customers, employees, suppliers), community and environmental impacts – and all while maintaining high standards of business conduct and with regard to the long-term. It is not well known and predates the financial crisis in 2008.
The British Academy is carrying out a major research project into the future of the corporation and how it is regulated at a time when investors, customers, suppliers and communities are questioning critically how business is run on a number of fronts. The project will look at how businesses should be structured, controlled, managed, measured and evaluated – and senior management rewarded. The research will make a real contribution to policy setting that is designed to make capitalism fairer and more inclusive.
Diversity and inclusion in the workplace is something I am involved in exploring through a programme of activity in the City that I started as Lord Mayor under the title ‘The Power of Diversity’. Our work there showed that 84% of workers felt that their senior leaders were fully engaged on this agenda, doing all the right things, but, curiously, only 27% felt under any pressure to do something about it.
This seems to indicate that the way most businesses measure individual success today, and how they incentivize their staff, is, perhaps, out of step with their aspirations to be a responsible business and their desire to take decisions for the longer term and that benefit wider society. Income generation and profitability are still the primary drivers despite the adoption of a balanced scorecard approach.
There are ways to measure individual performance and good, workable ways of embedding positive values for which everyone will feel accountable. A company can transform its mission on different terms based on a rethink of how capitalism can work to serve society better.