Louise Eldridge, CORE Policy and Communications Officer
The protection of human rights and the environment from corporate abuse is a serious challenge in the 21st century. But will redefining the “purpose” of corporations ensure that their actions align with the interest of people and planet?
Last Thursday, I joined over a hundred others, including Will Hutton, Lord Myners, Dame Frances Cairncross and Lynn Forester de Rothschild at the Guildhall in central London for the launch of a new British Academy research report on the “Future of the Corporation”.
Professor Colin Meyer opened the floor by describing how mistrust in business had become “profound, pervasive and persistent,” as Milton Friedman’s doctrine that the sole purpose of business is to increase profits for shareholders had come to dominate economic thinking over the last 60 years. This doctrine, Meyer argued, ignores the Roman origins of the corporation: an instrument for bringing people together for a collective endeavour.
Building on this history, the Future of the Corporation project proposes reconceptualising the corporation, so that “the purpose of business is to produce profitable solutions to the problems of people and planet, never to profit from creating the problems in the first place.” The project report sets out a new framework for the corporation based on three principles: reforming corporate purpose, embedding a commitment to trustworthiness and ensuring an enabling culture throughout the organisation.
The paper notes that shifting to this new framework will require coordinated action using five levers:
- Equating ownership with defining and implementing public purpose, rather than property rights of shareholdings;
- Linking corporate governance (decision-making power and influence within the corporation) to the implementation of corporate purpose;
- Making regulation work through shifting the onus from regulators to firms themselves (to combat “regulatory lag”) and ensuring businesses’ corporate purpose aligns with public purpose in circumstances where they perform a “social function”;
- Reforming corporate taxation by encouraging corporate purpose to include a willingness to pay a “fair share” of taxes;
- Reframing investment around a corporation’s purpose in order to shift from short to long-term investments, particularly where corporations deliver public services.
It is certainly positive that the report recognises an urgent need for reform to the dominant business framework, which currently overwhelmingly promotes the interests of shareholders above citizens and other stakeholders. The research makes several novel propositions regarding reforms to ownership and corporate governance, which are much needed.
Judging from the people in the audience and the make-up of the steering group and the corporate advisory group, the project has attracted significant high-level engagement. The notable absences are civil society organisations and academics whose work focuses on addressing the adverse effects that business activity can have on people and the environment.
Additionally, as one of the panellists commented, the audience was not particularly diverse. As the project moves into its next phrase, it should seek to engage with the next generation of business leaders from a range of backgrounds, and with organisations who work with workers and communities affected by corporate abuse.
Secondly, the concept of accountability was noticeably absent from discussions. The paper suggests that regulation cannot keep up with rapid technological change and puts the impetus on the corporation to align itself with the public interest. But changes to corporate law requiring companies to pursue a purpose will work only when backed by a robust regulatory framework to ensure that companies and directors are held accountable for serious misconduct.
Aligning corporations’ activities with the public interest is a challenging proposition and will be even more difficult if our politicians do not recognise the urgent need for change. In this context, it was unfortunate to hear Greg Clark MP, Secretary of State for Business, Energy and Industrial Strategy defending the Friedman doctrine and offering “words of caution” against changing the corporate status-quo.
Ultimately, we need to ensure that the focus on “purpose” does not become another corporate buzzword – but leads to significant changes to corporate governance with accountability at their heart.