Launch of Policy and Practice for Purposeful Business: How to enable purposeful business?
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Anne Simpson, Managing Investment Director, Board Governance & Sustainability, CalPERS, spoke from experience about the role of purpose in corporate finance. She said, "This is an extremely important report and it reminds us of something that Jonathan Charkham used to say many years ago, a close friend of Adrian Cadbury: ‘the company is a creature of statute not of nature'. That reminds us that we have designed companies in the same way we have designed a teapot or a vehicle or an airplane; we design it to serve a purpose. So this elegant formulation that Colin has set out about focusing on profit as a means not an end is extremely important."
She added "the power of the financial markets is going to accelerate, hinder or distract us from meeting [our] goals. There are rising societal expectations, for sure, but there are also planetary boundaries. This is where science is entering in – we have physics and finance in common here because regardless of what people think or want we’re going to have to attend to these planetary boundaries. So finance finding its proper role within this debate on corporate purpose is going to be transformative."
Catherine Howarth, Chief Executive, ShareAction welcomed the report, saying "I really want to commend all of the recommendations that are made as the result of Colin's amazing work, particularly the case for legal reform of directors duties. I think we must not let this moment pass today's publication of this report and the momentum it has created."
She urged government to act on the report’s recommendations, arguing "there's much for this government to gain by grasping the nettle and putting in place those really critical legal reforms that would create a level playing field between companies that have chosen to adopt a purpose and those that currently shrink away from doing so."
She added "I think the UK has an opportunity to be absolutely pioneering on the global stage and should look to be amongst the first major developed economies to put in place the reforms that Colin has argued for. Doing so would help make the UK more competitive, more innovative and help our companies to deliver more for all of us."
Mark Babington, Executive Director for Regulatory Standards, The Financial Reporting Council also commended the report, saying "I very much welcome this report as a terrific enabler. Quite often one of the challenges we face in the UK is that our regulatory and legal landscape is quite disaggregated. This report, I think, is an excellent one in pulling those components together."
He also highlighted the necessary changes to the UK’s legal and regulatory system put forward in the report, stating "the law is quite old-fashioned. In many jurisdictions, it focuses on the formation of capital rather than the allocation and the protection of capital. A number of things that are drawn to our attention through the report and the principles it sets out are very much intended to assist in preventing the destruction of capital and I see it through a lens of public value."
Julia Hoggett, Chief Executive of the London Stock Exchange pointed out that some elements of the necessary policy framework are already in place, but that there is insufficient take up: "a lot of the building blocks of this are actually in place in the UK and being built already but we don’t talk about it that way and we don’t talk about the holistic framing of it through that lens. In addition, you made the reference to the concern about the noise on either side of this debate, but there is a silent majority increasingly that believe in what is at the heart of this report."
Speaking from her previous experience as a financial regulator, she recalled, "we started encouraging investment banks to talk to their own staff much more about corporate purpose and one other really interesting thing happened – they attracted a much more diverse range of people to work for them. Actually, as a stereotypical pool, women weren’t attracted by making EBITDA but they were really attracted to helping the mortgage market work for the long-term so people can buy houses and the company was doing both."
She added, "If you think about it from a climate change point of view, the fact that you're a public company or a private company has no direct impact on the potential you could impact the planet."
Lord Karan Bilimoria, President of the Confederation of British Industry highlighted the shift in attitudes towards business during the pandemic: "in this COVID crisis I have seen that we all struggled so much, we have had to be resilient and adaptable. What is most important is that it’s highlighted more than ever it is how you behave – it’s not just what you do, but how you do it. It’s about business being a force for good. And let's be frank, business has not always had the representation of being a force for good."
"This pandemic has brought quite a few things to the fore. One is the huge power of business and government working collaboratively together and the huge disadvantage of government trying to do it alone. [There has been] example, after example right through this pandemic."
He also reflected on the progressive attitudes of young people, adding "so, when we talk about young people and going back to the lecture I gave at the Saïd Business School. They're ahead of the game in terms of this [British Academy] report. Two things matter to them more than anything else. Survey after survey proves this. One, they passionately believe in sustainability, in terms of the environment, climate change, biodiversity. And secondly, they really, really want diversity and inclusion."
He added "Congratulations again to the British Academy – ‘Policy and Practice for Purposeful Business’ – Music to my ears."
Jonathan Geldart, Director General, Institute of Directors, expressed support for the report: "are we likely to see our directors support this? The answer is yes. They do need guidance. In the business of today and the survival of COVID, in the coming out from what we call the deck-chair recovery, we are seeing a need for greater clarity around what to do."
He added "the world is changing and we need to catch up. Because young people and employees of tomorrow are already ahead of us. If we don’t catch up with them, we are going to see many more corporate failures mainly because people just simply do not want to work for organisations without corporate purpose."
Welcoming the report, he said: "I think this report is enormously helpful in distilling it into a few, key asks. Rather than rewriting the rule book and starting with a blank sheet of paper."
Andrew Edgecliffe-Johnson, US Business Editor at the Financial Times, who moderated the discussion said: "But the story of this research and this new understanding of corporate purpose – which [the Future of the Corporation] programme has done so much to shape – has really driven much of our coverage in the past few years. It has been the biggest story in business."
He added "We are seeing a real shift in consensus in the worlds of business, finance, and investment, but the scepticism, the inertia and the pushback are real too. A lot of our readers still see talk of corporate purpose as rather abstract or rather woolly or just less than urgent, and there is a definite sense of a backlash building. So today's report, with its concrete recommendations for making the rhetoric real, and its focus on implementation and holding people to account does feel very timely."
Moderator: Andrew Edgecliffe-Johnson
US Business Editor at the Financial Times
Managing Investment Director, Board Governance & Sustainability, CalPERS
Chief Executive, ShareAction
Executive Director for Regulatory Standards, The Financial Reporting Council
Chief Executive of the London Stock Exchange
Director General, Institute of Directors
Lord Karan Bilimoria
President of the Confederation of British Industry
Professor Colin Mayer FBA
Academic Lead, Future of the Corporation
Colin Mayer is the Peter Moores Professor of Management Studies at the Saïd Business School at the University of Oxford. He is a Professorial Fellow of Wadham College, Oxford and an Honorary Fellow of Oriel College and St Anne's College, Oxford.