The idea that business should create social value, not just shareholder value, is fast becoming the common sense of our time. One could interpret this as a delayed corrective to the crisis in capitalism brought about by the credit crunch. But there was no inevitability about it. Even at the start of the year, when Michael Porter published his Harvard Business Review article on creating shared value, his argument was greeted with scepticism as much as agreement.
Since then, we’ve had the Arab Spring, public disgust with the press brought about by the phone hacking scandal and now the Leveson hearings, riots in England over the summer, the Occupy protests, and the looming threat of financial and social collapse in the euro zone. These events have given voice to public unease with corporate elites who seem out of control and political elites who have no answers to our current predicament.
Business leaders sense the danger and are alert to their need to show a greater sense of responsibility for the fabric of society. Take, for example, Bob Diamond, chief executive of Barclays. Only eleven months ago, he was declaring that the time was over for bankers to show remorse for the failings – as The Independent put it – that dragged Britain into the worst recession since the Wall Street crash. Now, as he said in his Today Business Lecture, he believes that the continuing economic downturn requires “banks in particular to rebuild the trust that has been decimated by events of the past three years; and that rebuilding trust requires banks to be better citizens.”
His sentiments are supported by another captain of industry, Sir Richard Branson, who is in a fortunate position of influence over the ethics and values of Britain’s banking culture having just bought Northern Rock from the public at a knockdown price. He told The Telegraph:
“We need a new way of doing business to get out of the present crisis. Absolute greed has come close to bankrupting the world. Thanks to the crisis that certain businesses have dumped on everyone a lot of people are going to suffer on a global scale. All of us must learn. It is all the more important that those business leaders that are left standing try to be a force for good.”
Bob Diamond made a spirited defence of the social value of banks’ risk-taking. But there’s a gnawing doubt that the leaders of the old business paradigm are fully up to the challenge of the new. Hence Max Hasting’s note of scepticism in the FT:
“They will be judged by actions, not words. If the financial services industry continues to pay its employees grossly disproportionately while the rest of western society contemplates a shrinking pot of wealth, bankers cannot indefinitely escape legislative sanctions. Self-serving arguments about their economic indispensability will not suffice to protect them… Unbridled capitalism no longer seems credible as an engine for general happiness, if it ever was. The FTSE chief executives and bankers who continue to paint themselves in gold, even as the world economy totters, reveal almost demented political folly. The eyes of the people are upon them, and rage looks an enduring fashion.”
The challenge of the social value agenda is not to reframe the business practices of the past decades in a new, more cuddly narrative. It is to scrutinise the values and practices which have led to perverted outcomes and to recalibrate behaviour to produce more socially relevant ones. Political leaders grasp this and are competing to define a new framework for business that fosters greater social value.
But regulation is only a part of the answer. Corporate Britain can neither contribute to nor reap the benefit of shared value unless corporate leaders are prepared to put self-imposed boundaries around business behaviour. Instead of pushing self-interest to the limits of legality (and sometimes beyond), they need to discover their own bearings and their own sense of accountability to society. As the former financier, Ken Costa, has put it, this is about capitalism rediscovering its moral purpose:
“We all know that it is not the law that makes a good citizen. Rather, it is a commitment to honesty, fairness, trust, integrity, and so forth. In short, citizenship is a moral attribute. Our task is thus to build up trust, both within and beyond the financial world, a slow, bottom-up, trade-by-trade business. It is to rebalance the equilibrium between risk, responsibility and reward. It is to re-embed the financial spirit, our drive to do well, with the moral spirit, our desire to do good. Above all it is to reconnect the various different silos of our humanity – economic, moral and spiritual – so that we live as whole people all the time and not simply as money-makers on weekdays and morally concerned citizens at the weekend.”
Ken Costa is leading the St Paul’s Initiative to engage with the issues raised by the Occupy protestors. The easy part of the task that he identifies is that most businesses have a founding social purpose which informs their sense of trust, integrity and vision. The hard part is that the discourse of business over recent decades has pushed aside considerations of citizenship and moral purpose in many large corporations to the extent that they find it nigh on impossible to conceive of themselves in these terms. It will take business leaders characterised by openness, vision and humility – or else the inchoate rage of the masses – to bring about the necessary recalibration.
Image courtesy Nathan Meijer.