From the steps of St Pauls to the pages of the Telegraph, politicians, economists, commentators and the public are questioning whether business as usual can deliver the social and economic value needed by our local, and global, society.
Charles Moore told his readership “that people in general have lost faith in the free-market, Western, democratic order…they ask the simple question, “What's in it for me?”, and they do not hear a good answer.” Peter Oborne berated the “feral rich of Chelsea and Kensington”. The Harvard Business Review says “The question becomes not whether capitalism is doomed, but rather how it will evolve away from its current form toward one more fit for a global economy,” and that “the financial industry must not be allowed to inhibit the evolution of capitalism.” Even Investment Manager David Blood added “The problem is that capitalism itself is broken or nearly broken…it is too focused on short- term gains and flawed incentives that are eroding trust in the system.”
Colleagues have weighed in, Matthew Hancock MP has written in The Times (£) that “it is not left-wing to criticise the moral vacuum at the top as well as the bottom of society." Elizabeth Truss MP has bemoaned the fact that "with shares largely in the hands of vast institutions, the scrutiny of public companies has been left to a small circle", and attacked “ballooning top salaries…attributable to the money-go-round in banking and other uncompetitive industries,”
It is increasing clear that public distrust in the corporate world is not going to go away. Whether it is short-termism, excessive debt, huge pay differentials or tax avoidance – these issues are not just being raised by the left, they are rightly being raised by those who place great importance in markets and private enterprise.
This is bad news. Faith in our institutions is the foundation of those institutions: as that faith falters, so do they.
We are never going to develop the spirit of entrepreneurship if business is seen as somehow dubious, selfish and looking only to the short-term.
Conversely talented people will want to work in businesses where they are appreciated and of which they can be proud. That is why I earlier this week, I joined Rt Hon. Stephen Timms MP in the House of Commons to launch Transforming Capitalism from Within: a Relational Approach to the Purpose, Performance, and Assessment of Companies.
Written by Jonathan Rushworth, retired partner in a leading City law firm, and Dr Michael Schluter CBE, former World Bank economist and social entrepreneur, the report puts forward the compelling case for contemporary capitalism and addressing distrust through developing relationships with stakeholders at the heart of their operations.
To drive this change, Rushworth and Schluter have published a Relational Business Charter and proposed a Relational Ratings Agency. Avoiding burdensome regulation or taxes, a voluntary ratings system would inform investors and encourage firms to adopt better practices.
The Charter evaluates companies against 10 criteria:
- Set relational goals.
- Create stakeholder dialogue.
- Demand shareholder transparency.
- Encourage long-term ownership.
- Safeguard work-life balance.
- Lower pay differentials.
- Build supplier partnerships.
- Respect customers & communities.
- Promote financial stability.
- Fulfil social obligations.
It should not be the role of Government to pick winners. But we can encourage companies to provide more information so that they can be better evaluated against these criteria. As Conservatives, the party of individual choice, we must ensure that we do not let the left dominate this argument. Promoting corporate responsibility and stakeholder engagement to deliver a modern capitalism is a vital step in rebuilding faith in corporate Britain and delivering economic growth.
If we do not engage with the issues Conservatives risk looking out of touch. Polling by Lord Ashcroft shows us already that 62% of people believe Labour is ‘On the side of ordinary people, not just the best off’, a figure which drops to 51% of the Liberal Democrats. Just 31% believe it of us.
The market needs to reward everyone, not just a few at the expense of the many. Transforming Capitalism from Within is, I believe, a very important and practical contribution to this debate.