A fair society needs fair business

This is the text of Tom’s keynote speech to the ‘Fairness, Sustainability and Wellbeing’ event at Portsmouth Business School, 21 April 2016. Tom was their keynote speaker as part of BITC’s Responsible Business Week.

A fairer society needs fairer business because business is so big, so influential in everything we do – whether we like it or not – so damn powerful that we can’t have a fairer society without business being on board.

If by a fairer society we mean one that rejects self serving behaviour in favour of the common good; one which promotes both the physical and mental health of individuals and the health of communities as political and moral goals; and one which wants to be around in 50 years time,

– then, unless the values of that society and its businesses are aligned, we will fail.

To those who see business as a barrier to achieving such goals, I say: ‘don’t let the Devil have all the best tunes!’

Those tunes, the tools of business, are values-neutral.

They can be used for good or ill: so let’s make sure, as we work for a fairer and more sustainable world, that we use those tools to create public good – and encourage businesses to do the same.

It will be worth their while.

So, does business need a fairer society?

My family all worked in the public sector.

My father was a university lecturer: his passions were theatre, Jane Austen, Beowulf.

My sister’s a serial museum administrator.

And my mother was a social entrepreneur who set up six voluntary organisations.

As a 21-year old poet with a science degree I followed in my mother’s footsteps – as a school teacher and councillor – then I became a Member of Parliament.

In Government in 1997 I believed that the state had the answer to everything.

The relief of poverty required Government to shift wealth and power from those who could live on less towards those who needed more, through taxation and public services.

A safe and sustainable environment needed proper regulation, forcing those that abused people and planet to desist.

And personal fulfilment, democracy and human rights relied on people being free from exploitation by an economic system which saw them as mere pawns.

So business, especially big business, needed to be kept in check by Big Government.

I now believe that fairness, wellbeing and sustainability in society and the environment can – maybe can ONLY – be achieved by business being a force for good.

And that there’s a business case for being a force for good.

Four swords of Damocles hang over mankind:

SLIDE 2 Global issues1604 Social Business Portsmouth2

  • poverty and hunger, essentially issues of fairness and wellbeing;
  • climate change and the depletion of the planet’s natural resources, issues of sustainability.

These great existential challenges have arisen because of the way we managed the earth’s resources over centuries – carbon-based energy, the exploitation of empire, failure to plan the world’s food and water economies – and an increasingly short-termist approach by both business and government.

But allocating blame for these crises is a waste of energy.

Let’s agree: that the world’s 100 biggest economies have had a huge impact on our planet; and that the solutions to these global issues lie in the hands of those same 100 biggest economies.

It’s they who determine the planet’s direction of travel.

In the 1940s those economies were countries, brought together in the United Nations to tackle these problems.

1604 Social Business Portsmouth3But things have changed over 70 years

SLIDE 3 40:60 split

Of the world’s 100 biggest economies today 60 are not countries – but companies.

With globalisation, which is neither inherently bad nor inherently good, those 60 corporates have taken upon themselves, wittingly or not, some responsibility for tackling those four great evils:

  • poverty and hunger, because poverty is the enemy of the market which needs people who can afford to consume goods and services;
  • climate change, because the years of cheap, carbon-based energy are over;
  • and resource depletion, because the inefficient use of valuable resources – from the rare metals demanded by new technology to water itself – can no longer be tolerated.

The world demands a new, circular economy approach to resource management.

SLIDE 4 Development Goals

1604 Social Business Portsmouth4Indeed, the eight Millennium Development Goals, launched in 2000, were very much an agenda for global governments; so much of the content of the 17 Sustainable Development Goals, launched last year to replace the MDGs, is business-focused, reflecting this new balance of power.

There are solutions to all of these issues which the toolbox of business must be used to address.

Such solutions demand coordination and collaboration, qualities in which business lacks experience; thankfully, some international business people are now prepared to take these responsibilities seriously.

Returning to that Levitt family philosophy of the 20th century: responsibility for individual and community wellbeing lay, at least partly, with the public sector.

That’s government, national and local, supplemented by the voluntary sector – people who, freely donating their time and money, allow communities to function:

  • who give support to individuals facing particular disadvantage;
  • and who help salve the conscience of the nation.

Individual responsibility and enterprise were welcome, but those people and communities with the biggest disadvantage needed most help from the state.

Working together, public and voluntary sector provided essential safety nets and talked about ‘hand ups, not handouts’ – but did that work?

Did those facing the greatest disadvantage get the help they needed?

Did their communities become more coherent?

Lifestyles less chaotic?

Approach to risk more realistic?

Was reliance on outside help reduced?

By and large, especially in the most deprived areas, ‘no’.

For example, one adult in six in Britain is too poor to be granted access to conventional banking services.

Let’s consider power.

SLID1604 Social Business Portsmouth5E 5 – Charities

There are about 165,000 registered charities in this country, that’s fewer than 300 per Parliamentary constituency, on average; three quarters have an income under £100,000/year and HALF are run on under £10,000/year.1604 Social Business Portsmouth6

SLIDE 6 – Businesses

There are about 5 million businesses in this country, 7,000 per Parliamentary constituency, of which three million are employers.

Their average turnover is £500,000.

1604 Social Business Portsmouth7SLIDE 7 – £1m per day

Think of one million pounds per day.

It’s the turnover of the world’s fourth largest football club.

It’s the 15th biggest charity (of 165,000), Oxfam.

It’s one large supermarket – not one supermarket company; one large store.

Tesco alone has over 3,000 stores.

Turnover is not a measure of an organisation’s impact on the community.

Turnover tells you very little about an organisation.

But it’s one way to compare charities and companies.

If just one per cent of the turnover of companies was acting as a ‘force for good’, then the collective positive social impact of the private sector would make a real difference…

If we make a business case for ‘doing good’, convincing shareholders, owners, bosses, that doing good would make their company more efficient, create more profit and sales or improve its reputation –

  • then we’d make good itself sustainable and could build it into business models – as 70,000 social enterprises have found.

Then we could make doing good sustainable from a business perspective.

And then, by collaborating with others such as charities, businesses could provide leverage to multiply the ‘good’ they create…

Let me say three things about charities – I’m a trustee of four, including my third role as a national chair.

First: if you ask smaller charities what they most need they’ll probably say ‘money’.

They’re wrong.

They need skills, capacity, social capital – the ability to make money go further, grow sustainably, do more good.

These are skills that business has – and can help charities create.

Secondly, this misunderstanding means that charities approach businesses in the wrong way: they beg for donations when they should be selling a relationship based on mutual benefit.

And thirdly, governments don’t get this, either.

When David Cameron introduces his promised 3 days of volunteering leave for every employee in companies employing over 250 there’s a great danger that opportunities to create capacity through skills transfer will be missed.

This is because employee volunteering infrastructure is weak – there aren’t the opportunities for a massive influx of ‘volunteers’ to do good, so they’ll do what they’ve always done – paint walls, bake cakes or cycle in lycra.

These do not build relationships, deliver new capacity or help charities become financially sustainable.

An Australian bank recently decided to end ‘team volunteering days’.

These were great team building exercises for the company; but the bank concluded that they were ‘damaging their reputation’.

Such days started well, with productive morning exercises, but after long lunch times with the traditional consumption of Aussie ‘amber nectar’ those who did return for the afternoon were, let’s say, not operating at maximum efficiency…

What does doing good in business look like?

Fairness, Wellbeing and Sustainability

The most quoted recent example of the fairness agenda is corporate taxation.

I simply say: ‘Google’.

And ‘well done’ to Facebook for anticipating a change in the law that’ll  stop the arbitrary offshoring of profit centres within the EU – in their case routing UK trade through Dublin where corporation tax is lower.

Multinationals do this because they can – when their values are inadequate to stop them.

I heard a swingeing attack on such international corporates:

‘We pay our UK tax on what we earn here,’ he said, ‘why don’t you?’

This was the then chairman of BT, putting the case for fairness because unfair practice makes all businesses look bad in the public eye.

It sows division between the conscientious and those so fickle as to divorce themselves from the culture in which they grew – by going wherever short term gain takes them.

The average salary of a FTSE100 CEO in Britain in 2016 is £4.96 million – 400 times that of their average employee – yet studies suggest that this multiple is many times greater than what’s needed to incentivise business leaders to improve performance: it’s a waste of money.

The optimum ratio to promote efficiency, motivation and team ethos is thought to be between 15 and 20.

The 400 multiple is both obscene and counter-productive, alienating stakeholders and customers and leading to unforeseen consequences.

It’s hardly ‘we’re all in this together’.

Here’s another example of lack of fairness:

Slide 9 – BrightHouse and Fair For You

1604 Social Business Portsmouth9BrightHouse is a company that allows people on very low incomes to purchase washing machines when they have no access to mainstream credit – cash, overdraft, loan finance or credit card.

Such a machine might cost £10 per week, which is cheaper than a launderette (if you have three children).

But do you really want to pay £10 per week for three years?

£1,500 for a washing machine that costs £250 in Curry’s?

Hundreds of thousands of people have no choice… trapped by ‘the poverty premium’.

That’s why some of us set up Fair For You, a social enterprise owned by a charity: to lend to people to whom others will not lend fairly.

In this example we charge £7 per week for one year, saving the customer over £1,000 on that BrightHouse washing machine.

Fairness is sustainable.

Fairness wins friends.

Fairness is at the heart of ‘shared value’, the business philosophy coined by Michael Porter in 2011, the idea that business works best when it’s based on ‘win:win’.

 

Fairness, Wellbeing and Sustainability

Staying with indebtedness, the average employee misses work for three days a year for debt-related reasons.

Some of that’s time spent sorting out debts, paying bills.

But largely it’s a smaller number of employees taking significant amounts of leave through stress-related illness caused by indebtedness: victims of exploitation, personal catastrophe, negative equity.

Unplanned ‘time off’ is a huge burden to employers: zero productivity, disruption to routine and often extra costs.

Should employers make financial advice – even responsible, low cost loans – available to employees?

It would reduce unplanned time off and make employees feel more wanted, and that’s good for the business.

Over the years we’ve raised productivity through improving work-related health and reducing days lost through industrial unrest.

Now’s the time to invest in wellbeing – to generate sustainable productivity gains for employers, better life quality for employees and lower demands on public services.

Poverty pay damages wellbeing: working long hours in multiple part time jobs creates stress and low self worth as people fail, in their own eyes, to provide for their families.

Paying a Living Wage – a proper Living Wage, not a Government smoke screen – is not just a financial decision.

It reduces employee stress.

It enhances the esteem in which employees hold their employers.

Volunteering does the same: we know that people who volunteer suffer less from stress and loneliness; we know that the chemicals produced in the brains of volunteers are the same as those we create when having sex – or eating chocolate.

A young woman in Manchester found herself running her ailing father’s steel stockholder company with six middle aged, male employees.

Come Christmas the charities came with their hands out: ‘No,’ she said, ‘Go away – anyway, how can a steel stockholder help?’

Then one person asked her for material to repair a storm-damaged fence at a children’s nursery.

‘Take this lot,’ she said, ‘I could do with the space.’

An employee overheard and said ‘Me and my mate aren’t doing anything on Saturday, we’ll come and mend it for you.’

On the Monday he said ‘Boss, that was great – what can we do next?’

I met the woman when she addressed 60 small businesses, speaking in public for the first time in her life.

She said:

‘That weekend changed my company for the better. It made it a better place to be, gave people another reason for coming to work.

‘Since then we go looking for things we can do to help in the community.’

So employee wellbeing is not just about health or money, it’s about purpose; it’s about employee engagement.

Engagement – created more effectively, by the way, by utilising work-related skills in a good cause than by any number of cake bakes – is linked to greater motivation at work, greater productivity (again!), less time off sick and greater informal ambassadorial activity by employees.

There’s therefore a business case for promoting employee wellbeing – and those employers who go further, making canteen food more healthy, creating communities around payroll giving and encouraging fitness through subsidised gym membership – also reap what they sow.

Fairness, Wellbeing and Sustainability

Finally, sustainability.

A hundred years ago the owners of family firms had a common goal: to hand on to their children a company in at least as good condition as that which they’d inherited from their forefathers.

We’ve lost that generational perspective.

Families no longer run bigger companies as they used to.

Share ownership has become a transaction and not a commitment.

Most shares are now owned by institutions, not individuals.

The typical time a share is owned before being sold has fallen from years to months.

Now it is often not minutes but seconds.

And the average tenure of a FTSE chief executive has fallen from 7 years to five in the last decade alone.

There are exceptions: look at Wates, the construction company – promoting social enterprise, basic skills, community cohesion and prisoner rehabilitation.

It’s owned by a family trust which sets a generational perspective for the company.

Take climate change: companies spend millions combating, adapting to and mitigating climate change.

Yes, if you invest in green technology it will cost your company money – in the short term.

In the long term that investment could more than pay for itself, but if you can’t see beyond the year-end you’re never going to make the changes necessary to help save the planet, let alone save your business.

If a year is a long time in business: three months is too short.

Why on earth do companies and investors insist on quarterly reporting?

Since Unilever abandoned the practice, in favour of annual, the proportion of its shares owned by short termist hedge funds has halved and its share price has become more stable, allowing the company to better plan its investments for the future.

Unilever is one of the world’s biggest companies, delivering a ten-year Sustainability programme for zero waste going to landfill and zero carbon footprint, champion of the Sustainable Development Goals and a lot more – creating a circular, shared value economy.

Embodying the business case for sustainability.

I think that business has three duties, made up of six responsibilities.

SLIDE 12 Duties and responsibilities1604 Social Business Portsmouth12

The first two responsibilities make up the ‘internal duty’, the duty to the company itself.

You can’t survive without making money, said Milton Friedman, nor without creating something that the market wants, said Adam Smith.

Every business would agree with them.

The ‘external duty’ is a duty to stakeholders; it’s about fairness and wellbeing – addressing the legitimate needs of employees, customers, the supply chain – and contributing to the workings of the state.

Business provides almost half of government revenue directly and much of the rest indirectly.

We know that a responsible approach to taxation is a hallmark of a responsible company.

There are global duties too: to future sustainability, which is more than just environmental, though climate change is at the heart of it – and to your neighbours.

A ‘company citizen’ is concerned about the physical and community environment in which it dwells and it behaves collaboratively, supporting its neighbours in need, collectively and as individuals.

Most companies have moved on from the bare bones of Friedman and Smith; most have taken on board those external duties – to some extent.

But few have really seen the business opportunities that committing to the global values of future and community can bring – not just ticking CSR boxes or pursuing a green fad – but making money out of investment in the future and the greater productivity that, as we’ve seen, having a fully engaged and purposeful workforce brings.

That’s the business case for being a force for good.

The Government recently announced an enquiry into the role of mission-led business.

It must be wide ranging, not simply confined to the wrongly-named ‘not for profit’ sector.

I commend to the enquiry the work of Tomorrow’s Company.

They’ve concluded that purpose, missions and values, supported by appropriate structures, are vital to any business seeking to be both a good business and a business doing good.

We’ve seen these values espoused –

  • by George Cadbury, over 100 years ago – ‘I would not want my workers to live where a rose cannot grow’
  • by the inspirational leadership of Paul Polman and Unilever today, helping to eradicate waterborne disease in children
  • by Wates, Boots, Jaguar Land Rover, Ben & Jerry’s, Adnams Brewery, McQuarie Bank, Timpsons, Andrews the estate agents and many more…

I hope the study isn’t confined to corporates but includes the vast majority of business, SMEs, which I’ve studied at length – but about which there’s no time to speak today!

Committing a business to being a force for good isn’t an easy option.

It involves strategies, actions, leadership and cooperation, not just words – but it makes business sense.

Above all Government, charities and communities alone cannot construct the wholesome, dignified, stable society that we need to collectively fight those four evils – poverty, hunger, climate change and resource depletion.

It’s not choice that leads me to conclude that we must work with businesses and encourage them to become forces for good: we have no choice.

Although my parents weren’t around to read my book, Welcome to GoodCo, I think they would’ve been convinced by my stories.

Certainly my daughter is trying to live those values both inside her workplace and outside it.

And if she, as a banker, can do that – we all can!

ends