Vol 11 (2014) - Issue 4

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Transforming Capitalism from Within: A Relational Approach to Company Management and Operations

The corporate world is under pressure. It may be the repeat of the so-called ‘shareholder spring’ when shareholders in listed companies exercise their voting rights against the remuneration packages of executives. It may be zero hours contracts and low pay rates generally, long working hours and stress on employees. It may be the reality of companies consciously paying suppliers late in breach of contract terms with dire cash flow consequences for the suppliers. It may be payment of little or no tax in the UK by multinationals who generate significant taxable profits here. These are just some of the matters which exercise the minds of the Government, MPs, the media, academics and opinion formers on a daily basis.
It is not surprising that society as a whole has generally lost trust and confidence in the business world. Yet we all rely on companies for research and development, the manufacture of products, the sale of goods and services, jobs, including career progression and status, and, in many cases, our pensions. The cry frequently is that it is largely the fault of the short-term demands of investors in listed companies and their hunger for ever increasing dividend payments and capital growth. Many of us have investments in these companies through our pension funds and other monies yet we have no knowledge of the companies in which our funds are invested nor how they treat their employees, suppliers, customers and other stakeholders nor even how responsible they are to the society in which they operate.
Does the corporate world need to be like this, with society generally having to accept the status quo so long as good enough profits are earned no matter what impact company operations have on employees, suppliers and others? The current sticking plaster approach of more and more legislation and regulation imposed on companies to address particular aspects of corporate behaviour does little to bring effective and lasting change. This can often be put into practice by a formulaic box-ticking approach and it can stifle innovation and the entrepreneurial spirit of executives who want to develop companies. So perhaps the time is ripe to look at a different and refreshing approach which should benefit all stakeholders, as well as the company, and transform the view of society about the behaviour and standing of the corporate world.
In our next two issues of International Corporate Rescue, Jonathan Rushworth, a retired City corporate lawyer, and Dr Arad Reisberg, reader in law at University College London, will assess the current unsatisfactory nature of corporate behaviour and analyse some of the underlying causes. They suggest that the introduction in mid Victorian times of limited liability into company structures and the development of share trading markets, with no responsibility by shareholders for the company and its operations, is at least partly responsible for the current concerns.
They explain how the narrow shareholder focussed approach which company directors feel compelled to follow could be changed to embrace more directly the interests of all stakeholders, including shareholders, employees, suppliers, customers, regulators, lenders and the local community. This is not just a matter of improved corporate governance, through transparency by disclosure or ethical standards, they argue, but a plea for a complete change in culture from a largely financially-driven focus to a social capital approach. By putting the interests of stakeholders at the heart of company decision making and operations, they suggest that companies will become more competitive, stable and successful and generate greater returns for shareholders. Examples are given of the benefit of paying employees generously, ensuring they have time off to be with family, friends and the local community and recognising their contribution with bonus payments to reflect the success of the company. Engaged and incentivised employees are more likely to be more productive and loyal to the company and less likely to take time off for illness and other reasons. Similarly, if suppliers are treated fairly in negotiations of supply terms, and are paid on time or early, they would have greater commitment and loyalty.
Closer engagement and dialogue between shareholders and directors and other stakeholders, e.g. employees and suppliers, will, it is argued, lead to a sense of community so that all those involved with companies will respect the interests and concerns of others and help to generate more of a partnership approach within the corporate structure. This does not mean that difficult decisions will have to be avoided but they would be approached in a way which looks at the consequences on all stakeholders and not just on the financial driver.