The Purpose of Business
Written by James Kirkup Photography by Samson
In March, Boris Johnson’s cabinet announced the biggest government bailout scheme the UK has ever seen. The Chancellor, Rishi Sunak, declared that there would be no cap on what the government would spend to support UK businesses. And businesses were quick to take up the offer: around 140,000 companies applied for the government’s furlough scheme in the first few hours after it was announced, and one million people were placed on furlough that very day.
A justifiable use of taxpayers’ money in order to save the UK’s economy but how will the favour be repaid? The Social Market Foundation’s James Kirkup explains the think-tank’s new proposal to create a fresh social contract for UK businesses that will lay out a code of conduct to ensure their relationships with the public and the government are protected.
What is the purpose of business? What are companies for?
Those are old questions but after the coronavirus crisis, they will need new and better answers.
In response to the virus and the economic damage done by the measures deployed to manage it, governments are using huge sums of taxpayers’ money to support businesses. That is sensible and necessary, since it will support employment and productive capacity.
But it will also change the political landscape faced by business of all kinds. Simply put, the public, via its government, is offering a large helping hand to business. After the crisis, business must be seen to return that favour, or face malign political consequences.
This is the foundation of a recent Social Market Foundation report on the need for a new social contract between business and society after the crisis. The SMF, a cross-party think-tank, supports a vibrant market economy, but we know that requires public consent. To use the language of Larry Fink of Black Rock, we know business needs to renew its, “social license to operate” – and we want to help make that happen.
The 2007/08 financial crisis offers a troubling template here. The financial services industry is still paying for the bailout of the banks – paying a price measured in public distrust and resultant political challenge. Voters just don’t think the banks repaid the favour of that rescue.
Even before the coronavirus crisis, business had a trust problem in Britain. Numerous surveys show voters doubt whether business is good for them and their country. If you wonder how such sentiment translates into policy and politics, reflect on the fact that we have a Conservative Prime Minister whose response to commercial concerns about his Brexit policy was: “F*** business”.
So, if business is seen after the crisis not to reciprocate the support shown by taxpayers during that crisis, it will be easy and unsurprising for politicians to adopt policies that are equally unsympathetic to business. Our report offers a way to avoid such an outcome.
Our overall recommendation is a new social contract for business. This means establishing a broad new understanding of what we all expect of business – a new set of principles for the conduct of companies operating in the UK.
Companies’ conduct should then be measured against those standards on a range of metrics, including:
— League tables of companies’ tax contributions, with public ‘naming and shaming’ for those who pay least – and official accolades for biggest contributors to the public finances.
— Companies should face new independent audits of their treatment of workers
including spending on training and how they involve employees in leadership and decision-making. This would clarify and expand obligations under Section 172 of the Companies Act 2006.
— These audits should also use existing law to scrutinise companies’ support for communities. In an effort to rekindle the spirit of Victorian ‘home town’ philanthropy, the best companies should be honoured with a new ‘Investors in Places’ accolade.
— Government contracts and other procurement should be open only to companies whose conduct meets an acceptable standard.
— Millions of pension savers created by auto-enrolment should get clear information about the conduct of companies their savings might be invested in, and the chance to insist that only companies with high standards get their money.
This is a pro-business agenda and one that goes with the grain of what many of the best firms already want to do. Our report shows how some big businesses and investors are increasingly taking the view that the purpose of business is to do more than simply produce profits for shareholders and should also be about supporting the people and places where business operates. On that basis, we believe, many businesses will welcome the idea of a new social contract as an opportunity to demonstrate their contribution to the country that has supported them through the coronavirus crisis.
These are grim times for us all, and there will be many challenges ahead. Companies that are seen not to return the favour to taxpayers will pay a heavy price. But good news is that those businesses that demonstrate that they understand the new context in which they operate – and act accordingly – will be rewarded by customers, investors, and wider society.
James Kirkup
James Kirkup is the Director of the Social Market Foundation, a cross-party think-tank based at Westminster. He is a former Political Editor and Executive Editor of the Daily Telegraph and still a regular contributor to publications including the Spectator and the Times. He can be contacted at director@smf.co.uk.