Power and Accountability in British Business
Power and Accountability in British Busines
By Professor John Wilson, Pro-Vich Chancellor of Northumbria University Facutly of Business and Law and Dr Anna Tilba, Associate Professor in Strategy and Governance, Durham University Business School
Rebuilding trust and values.
Business is a profoundly important institution in our lives that provides an enormous contribution to economic prosperity and the growth of nations around the world. Although corporations’ foundations are embedded in delivering public purposes alongside commercial functions, over the past fifty years there has been a drastic intensification of the profit-generating motive at the expense of non-financial, social factors. Milton Friedman’s framework for business in which the social responsibility of business focused on increasing profits so long as the business stays within the rules of the game, established a conventional approach to doing business which focused on generating revenue and profits at the expense of the environment and other social purposes.
As a direct consequence of adopting these excessively commercial values, amoral management attitudes created bad management practices which led directly to the financial crisis of 2008 and persistent corporate scandals such as Enron, Parmalat, News of the World, American International Group, JP Morgan, General Motors and Carillion which have contributed significantly to the overall deterioration of trust and public cynicism in the abilities of corporate executives and senior managers to lead organisations effectively. The impact of recurring corporate collapses, especially the loss of pensions savings of employees, has raised questions about the social legitimacy of corporations, prompting further reconsideration of what constitutes good (even, best) corporate governance practices in the UK and around the world (Tilba, 2016).
Results from recent surveys suggest that society’s trust in business, government and some public institutions (e.g. media, political systems) are at a historic low (Pew Research Centre, 2013; Gallup, 2014).
According to the Edelman Trust Barometer, only a third of the informed public in large Western democracies trust business and government, respectively (Edelman, 2012; Beckmann, et al. 2015).
This erosion of trust has had a profound influence on the performance of business. The trustworthiness of an organisation is dependent upon cultural norms that promote high levels of integrity, clearly articulated values and a culture of honesty within organisations. In our developmental paper, we raise important questions about how trust in the management and governance of corporations can be restored now that it has been lost. This question is particularly significant in the context of Corporate Governance Code reforms and the ongoing work by the British Academy on the ‘Future of the Corporation’.
In particular, we argue that there is a need to reconceptualise the notion of business in terms of its economic and financial contributions, as well as investigating its social purpose and corporate values.
The purpose of something is why it is created, why it exists and what it aspires to become. We believe that the purpose of business is not simply to produce profit, but to produce profitable solutions to society’s challenges.
To achieve this, we need to ensure that corporations are trustworthy in upholding their commitments to those purposes. Crucially, trustworthiness depends on the values and the culture adopted by organisations, highlighting the vital importance of honesty, integrity and commitment to those common purposes. This is the basis on which we could see a re-conceptualization of the corporation in the 21st century, starting with a radical review of ownership and leading to fundamental revisions of corporate governance codes that currently lack any real edge.
The key to success is persuading businesses to adopt a range of values that positively influence organisational and personal behaviour, resulting in improved commercial and social performance and the restoration of trust in business. Achieving this would result in the realignment of corporate purposes with public purposes, focusing especially on companies with significant market power, such as network utilities, banks and other financial companies, and significantly influencing the future of the business corporation as society struggles to meet the challenges of the 21st century.