Lorena Papamanci is a researcher for ResPublica

British consumers have lost their trust in businesses. Only four per cent of Britons feel proud of British business according to a recent poll by Ipsos MORI. This matters, and it has mattered for a while. It has been more than ten years since Watson Wyatt’s study which revealed that high-trust organisations out-performed low-trust organisations in total return to shareholders by 286 per cent. This means trust can be measured in business terms, and it is taking a serious turn on profits. Businesses know this and regulators know it too.

It is not, then, surprising that trust in banks and businesses has been one of the hottest topics on the political agenda recently. Fuelled by increased media scrutiny on issues such as executive pay and corporation tax, public trust in business is at an all-time low.  According to a recent poll by British Social Attitudes, only 19 percent of people believe that banks are run well. Unfortunately, this is just one of the manifestations of the ‘trust crisis’ facing the British private sector as a whole: 52 percent of Britons no longer hold trust in business.

According to the 2013 Edelman Trust Barometer, trust in business leaders was lower in the UK than in France, Germany, the US, India and China. Of those surveyed, only 48 per cent of British people trust in business, 18 per cent think businesses are incompetent and a mere seven per cent trust corporate leaders.

Following Ed Milliband’s speech on the need for banking reform and an ethos-driven economy, the latest publication from the think tank, ResPublica, argues that a radical change in attitude from our businesses is needed if the private sector is to regain the trust of British consumers. ResPublica’s publication The Virtue of Enterprise: Responsible business for a new economy calls for an improved model of corporate governance and responsibility that ushers in a new era of accountability and transparency.

Whitehall has not been deaf to this debate either. Set out as one of the key economic policy objectives for the Coalition Government, responsible business practice was at the centre of the 2011 Budget. Moreover, a survey published by the All-Party Parliamentary Group on Corporate Responsibility revealed that 98 per cent of Parliamentarians believe it is important for UK companies to effectively manage their responsibilities to society.

After the UK-led discussion on trade, tax and transparency with the G8 in June 2013, ‘Transparency and Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in Business’, a BIS discussion paper, emerged from Vince Cable last July. The publication coincided with an in-depth inquiry launched by BIS on the topic of corporate responsibility. The call for views will outline the Government’s role in fostering the policy environment for good, responsible businesses and it will conclude with the publication of a ‘Framework for Action’.

However, this is not enough. While marking an important change in political attitudes towards business, these efforts risk becoming another box-ticking exercise if not accompanied by a radical shift in business culture – a renaissance of the virtue of business.

Britain demands an ethical economy and policy-makers need to understand that. The Virtue of Enterprise urges for this radical change, if the private sector is to regain the trust of British consumers. The collection argues the case for companies following the spirit rather than the letter of the law. Good business practice recognises that organisations formed by, run by and answerable to people cannot function outside of a framework of morals and values. Formalising values, responsibilities and obligations reduces risk and provides a model that places the corporate sector at the service of a much wider community.

Without a new moral framework for business that commits to producing long-term value, the mismatch in expectations between consumers and shareholders will inevitably lead to even lower levels of public support for business.  This is increasingly evident in the current context of technological progress and increased public scrutiny. The beginning of the twenty-first century has already marked a wave of remarkable transformations in social, economic and technological life. As a consequence, the public and political perception of the way in which capitalism and business should operate has also changed – and so should business practices.

And there are some good ideas out there, which the publication from ResPublica captures:

  • Baroness Lister proposes a concept of stakeholder capitalism which views the employee as a stakeholder and compensates them in recognition of this.
  • Andrea Leadsom MP argues for a business environment that allows free entry and exit by market players in order to ‘compete away’ the need for increased regulation.
  • Stephanie Elsy, consultant and ex-Senior Director at Serco – argues that Government can lead by selection, as opposed to regulation, and create a good culture across its supply chains. She calls for the state to adopt the role of commissioner of ethos and good practice, in the context of rising public procurement trends.
  • Prof Roger Steare of the Cass Business School refutes the argument that more regulation means less wrongdoing. Instead, he promotes the ideal of better regulation that encourages culture based on trust between companies, customers, colleagues and communities
  • Dr Shann Turnbull of the International Institute for Self-governance proposes a model of network governance that allows companies to involve wider stakeholders as economic citizens. This in turn would localise corporate accountability and increase self-governance in line with a human scale.

These ideas need to make their way into the political agenda, otherwise the Right will lose. Britain has already decided that it will no longer tolerate irresponsible businesses: either we have a good economy – or the Left will regulate for one.