Cost-benefit of purpose ‘off the charts’, says CBI chief, as Future of the Corporation project concludes
The president of the UK business lobby group urges firms to switch to positive purpose, as influential Future of the Corporation researchers provide perhaps the clearest roadmap yet to make that switch – including overhauling the role of company directors. But business leaders appear to be evenly split in the tug of war between business for purpose versus business for profit.
The head of the UK’s largest business association has endorsed the shift to purpose-led business saying its “cost-benefit is off the charts”.
Lord Karan Bilimoria, president of the Confederation of British Industry (CBI), was speaking on Wednesday at the launch of the third and final report of the British Academy’s Future of the Corporation programme, Policy & Practice for Purposeful Business. The research provides a series of recommendations on how to achieve the “principles of purposeful business” – where the role of business is creating profitable solutions for problems of people and planet, and not profiting from creating problems – outlined in the programme’s second piece of work published in 2019.
Employee engagement goes up, your productivity goes up, your performance goes up. The cost-benefit is off the charts
Bilimoria (pictured top) gave the example of mineral water brand Belu, a social enterprise that gives all its profits to the charity WaterAid, and whose success, he said, is directly linked to its mission, with customers flocking to the brand as “it’s a great thing to do”.
“The benefits far outweigh any costs… You're good to your investors, your customers and your employees as well. Employee engagement goes up, your productivity goes up, your performance goes up. The cost-benefit is off the charts,” Bilimoria said.
“I always say that it's not good enough to be the best in the world, you've also got to be the best for the world. And that is something that you can actually practice as a business,” he said.
Fellow speakers also backed the shift towards purposeful business. Jon Geldart (pictured), director general of the Institute of Directors (IoD), stated that “purposeful business is profitable”, and Mark Babington, executive director for regulatory standards at the Financial Reporting Council, said that while there were costs attached to the shift towards purpose, we should “think of it as an investment”.
Overhaul of directors’ role
The Future of the Corporation programme was launched in 2017 to look at the role of business in society, examining both its negative and positive impacts. The final report aims to set out concrete steps to drive a shift towards purposeful business, some directed at companies and others at policymakers.
One breakthrough recommendation calls for an overhaul of the role of directors in the company, making it their primary duty to determine, implement and deliver their business’s purpose, and no longer to maximise shareholder profits.
The report calls for directors to be accountable to their shareholders and stakeholders for fulfilment of the business purpose, and says company owners should use their power to appoint and dismiss directors so that the right people are in place to drive the business’s purpose.
Colin Mayer (pictured), professor of management studies at Saïd Business School and academic lead of the Future of the Corporation programme, said: “This report offers a clear route to making purposeful business effective by making directors responsible for the delivery of purpose, a strategy that ensures clear accountability.”
Geldart, who, as head of the IoD represents company directors in the UK, said: “Our own research of our members has shown that almost half of directors feel that companies should have a stated social purpose to help solve problems in society. This report sets out the practical steps and policies that need to be implemented in order to deliver this.”
Evenly split
Similar findings were revealed in a survey commissioned by the British Academy, also published on Wednesday. It shows that business leaders are about evenly split on the main role of a business: 43% of the 511 respondents agreed that the purpose of business was to “find profitable solutions to the problems of people and planet, not profiting from creating problems for either”, while 42% agreed that the purpose of business was “to maximise returns for shareholders/owners within the confines of the law”.
And while many businesses are moving towards having a more positive impact, a large proportion is still lagging. Almost two thirds of respondents said they were putting in place measures to make their business more “purposeful”, including devising a mission statement, changing the culture of the company in line with its mission and improving their non-financial reporting. Just under one in 10 go as far as amending their articles of association. However more than a third (36%) said they were not currently taking any steps towards a more purposeful business.
Limitations
Geldart said new regulation and legislation needed to be relevant not only to big companies but also mid-cap market businesses which, he pointed out, are the biggest employers in the UK. “I think it's going to be a real challenge,” he said.
One way of engaging with all companies was to highlight the greater resilience of purposeful businesses in the long term, he added. “It is very, very important that that is captured and brought into the debate, because so often businesses will do what is right now, at the peril of not doing what is right for the future.”
Catherine Howarth (pictured), CEO of ShareAction, also speaking at Wednesday’s event, sounded a note of caution too. While the benefits of purposeful business were very attractive for some companies (notably customer-facing businesses that would enjoy a major benefit to their brand), she said, for others, seeking financial profit was and would remain more profitable than pursuing purpose. In those cases, regulation and legislation would be needed.
Howarth also called for a broader reset of the system. A contradiction would remain if those with the power to appoint and dismiss directors still had profit as their main goal, she said.
I do think we need to get the whole system aligned
As long as big shareholders – in particular large institutional asset owners and asset managers – still have an obligation, per their corporate purpose, to focus on returns maximisation, “you've got a disjunction, a potential risk that the signals coming down from those with the greatest power to hold business leaders accountable are not themselves serving a broader purpose”, she added.
“I do think we need to get the whole system aligned,” she said, adding that the Future of the Corporation report needed to be part of a “slightly bigger landscape of reforms if we're going to achieve the outcomes and aspirations that have been outlined in this piece of work”.
Photo credits, from top: Lord Karan Bilimoria, courtesy of the Confederation of British Industry; Jon Geldart, courtesy of the Institute of Directors; Colin Mayer, courtesy of the British Academy; Catherine Howarth, courtesy of ShareAction.
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