Mistrust of business remains “profound, pervasive and persistent” and we need to reframe business for the 21st century around its purpose, commitment to trustworthiness, and its culture and values.
This was the central message from Colin Mayer, the Peter Moores Professor of Management Studies at the Said Business School at the University of Oxford, who spoke at our ‘Future of the Corporation, Economy and Society’ debate held in association with The British Academy.
Prof Mayer put much of the blame for the present mistrust of business with the Friedman doctrine which he said states that the only purpose of business is to “increase profit so long as you stay within the rules of the game”. “The doctrine is reflected in business practice, business policy and business education around the world,” he said. “But this increasing focus on profits has led to growing inequality, environmental degradation and mistrust of business, and it is going to get worse. While technology offers tremendous opportunities for enhancing the wellbeing of society, it also poses serious risks not just in terms of jobs, but in terms of inequality.”
Instead Prof Mayer said the purpose of business was “to produce profitable solutions to the problems of people and planet”. “Anyone who runs a successful business knows that to be the case, and there are very many purposeful businesses which do exactly that.”
He said employees at such companies also commit to this corporate purpose. “That gives rise to reciprocal relations of trust which create mutual benefit both for society and employees, and for firms because it creates more loyal customers, more engaged employees, more reliable suppliers, more supportive shareholders and society. And that creates greater revenues, lower cost, and more profits for business.”
His comments were echoed by fellow speaker Sir Paul Collier, Professor of Economics and Public Policy at the Blavatnik School of Government at the University of Oxford. He added: “Capitalism needs a future because it is the only system we have that is capable of delivering rising mass prosperity. But capitalism does not work on autopilot. What has happened in recent years is that one of the ideologies that has captured public policy is a market fundamentalism which believes that capitalism does work on autopilot. But it never has.”
Prof Collier said the class divide today was no longer around inherited status and wealth, but around education and skills. “Some people are on a skills ladder going up, but those who aren’t and who have manual skills are on a downward escalator. This is a rift that has been neglected.”
He added that the ideology of individual achievement was at the root of many of the problems. “Instead of success being about meeting obligations to others, fulfilment is personal achievement. At the level of the firm you have incentives tied to performance which people think solves the problem of compliance, but it doesn’t. People are no longer responsible for meeting a set of obligations, they are automator incentivised by bonuses and trapped by contracts.”
Fellow speaker Juergen Maier, UK CEO of Siemens and an honorary professor of engineering at the University of Manchester, said the majority of businesses did have a strong corporate purpose.
“I think there is an increasing understanding that business cannot continue in the irresponsible way that some have, but we are probably missing the fact that the majority are actually naturally quite purposeful in what they do. Also, what doesn’t get talked about is the massive amount of corporate responsibility that does take place.”
He added that the myth that profit is a bad thing needed dispelling too. “Siemens could not be as purposeful as it is if we weren’t sustainably profitable. It is only because we are profitable that we can put so much back into society. What is bad is greed, and of course sometimes greed and profit gets slightly mixed up.
“Right at the top of our company purpose is that we create societal value. As our global CEO says, any business that doesn’t deliver its ultimate responsibility towards societal purpose will probably not be in business in the long term. I think that the message of businesses needing to be more responsible and needing to have that purpose is clear, and many are starting to get it and we do need to call out the few that don’t.”