With pressure mounting on both sides of the Atlantic for business to look beyond the bottom line, Professor Colin Mayer talks about his new book and how business can be improved.
In August, Business Roundtable, a lobbying and discussion group comprising some of America’s top CEOs, announced a sea change in attitude: they were no longer going to put shareholders before everyone else, and instead pledged responsibility to their customers, workers and communities, helping to “set a new standard for corporate leadership”. It’s been seen as a response to a changing world, one in which businesses are expected to do more than just maximise profits. It will have struck a chord with Professor Colin Mayer, formerly Dean of Saïd Business School, and now Peter Moores Professor of Management Studies.
Mayer is an expert on corporate finance, governance and taxation. His latest book Prosperity: Better Business Makes the Greater Good has been called “a radical reformulation of our notions of business, its roles and responsibilities, and the way it operates”, and it argues that corporations can create both wealth and social wellbeing. “Business should be a force for social change and for social good,” he told BBC Radio 4, “but increasingly over the last few years it has been the cause of inequality, environmental degradation, and growing mistrust in business.” Lysanne Currie talks to him about his vision for the future.
What’s your opinion on Business Roundtable’s call for business to look beyond profit, and to purpose?
It’s a landmark moment in the debate. Because it marks a point of US capitalism moving away from the notion of shareholder primacy to purpose primacy. There’s no doubt it’s a firm statement of commitment on the part of prominent business leaders. The question it raises is the implementation, what these leading companies will do to make it a reality.
What practical steps would you hope to see beyond a simple rewriting of their values?
There are a series of policies that need to be followed to implement this. I’m working on a big programme called “Future of the Corporation” at the British Academy, the national academy for the arts, humanities and social sciences. We’re looking at the way business needs to reform in the coming decades to address the environmental, social, political problems it faces and take advantage of technological opportunities. We have a specific set of policies around four pairs of areas: law and regulation, ownership and governance, measurement and performance, and finance and investment. We regard them as key policy instruments needed to reconceptualise business around the notions of purpose, trustworthiness, and enabling values and culture.
The primary advice I give to people setting up businesses is: think about development on a very sustainable long-term basis
Out of those four, which is going to be the most challenging to embed?
The most significant and challenging on a number of scores will be changes in law. Companies are essentially created by corporate law, so it can really define the nature of the corporation. Law is currently predominantly formulated around the notion of the duties of directors to their shareholders. If directors are to be able to give effect to the importance of purpose over shareholder primacy then that legal conceptualisation needs to change.
This is a radical change of business purpose. Would you expect it to be a culture shock for those in charge of business governance?
Yes, in the sense that it requires a change in their mindset. In many cases companies are inclined in the direction of promoting the notion of purpose, but feel constrained by the requirements of investors who are focused very much on delivery of financial returns. It is the duty of directors to uphold the interests of their shareholders, and in the process promote the wellbeing of employees, and of community, of the environment. This creates greater shareholder value, but to the extent that it’s in conflict with shareholder value, then it’s not the duty of companies and boards of directors to promote that policy. That is perceived to be the proper role of governments, not business.
The British business environment is currently facing greater volatility. Would you expect businesses here to be more cautious, rather than just following the US lead?
Actually, from the time of the Brexit vote, British businesses have been more prominent in expressing concern about the way capitalism
is operating, and Theresa May placed a lot of emphasis on trying to reform business in Britain. Indeed, since July 2018, there’s been a marked shift in the nature of corporate governance in British companies, away from solving what is traditionally known as the agency problem of aligning the interests of management with their shareholders to the idea of promoting corporate purpose. So there’s been more of a move in this direction in the UK than in the US. The US has been seen to be a much tougher market in which to crack this particular nut, where there is more innate opposition to the notion of anything other than promoting the financial benefit of shareholders. It’s very striking that this statement is coming from the leaders of predominantly large US corporations, because that will have a very significant influence on the attitudes and behaviour of those in Britain and many countries around the world.
When did you first have the idea for the book?
This is the second book I’ve written on this subject: the first book, which I started shortly after I stepped down as Dean at Saïd Business School in 2011, was called Firm Commitment. That posed questions and dilemmas I felt needed to be raised; such as why the traditional notion of business did not seem to be delivering the results that were needed, particularly in terms of
the role of business in society. I was then engaged in a number of research projects and programmes after I wrote it, including the Purposeful Company project, run by Will Hutton, and the British Academy programme, Future of the Corporation. And I began to see potential remedies for questions I had posed in Firm Commitment.
Which companies would you hold up as role models in this respect?
One I refer to quite a lot is the Danish pharmaceutical company Novo Nordisk, which produces insulin, and which has reinvented itself over the last few years. It recognised it was failing to provide insulin in many parts of the world where type-2 diabetes was most prevalent, namely low- and middle-income countries, so it looked to find ways of addressing that. But it then went on to think very carefully about what the purpose of the business was, and concluded its purpose was not just to produce insulin but to prevent people getting diabetes in the first place. That very much illustrates the notion of what the purpose of a business should be. The way I define purpose in the book and in the research programme is as producing profitable solutions to the problems of people and the planet, and not to profit from producing problems for the people or planet. Another example I frequently cite is the very successful Swedish bank Handelsbanken, one of the fastest-growing banks in Britain. Again, what distinguishes it is its clearly defined purpose of not only putting its customers first but also being very humane in terms of the way in which it treats its employees. It places a lot of trust in them, as well as its customers, and in addition it places a lot of emphasis on being the lowest-cost provider of any of its competitors.
The Financial Times called your book a radical roadmap towards the bright future for corporations and capitalism. Do you still feel optimistic, and sense that business is perhaps grasping the nettle?
I think there has been a faster rate of acceptance of many of these ideas than I anticipated when I wrote the book in 2017, and there are a number of reasons for that. One is the rapidly accelerating recognition of the urgency around the environment. A second reason is the fact that there is so much political disruption going on, particularly in the UK and the US – the countries clearly most directly affected by the financial crisis, and the consequences of that for their societies. So there’s no doubt that one of the reasons why the Business Roundtable has reacted at this point is in response to potential political developments in the US and the UK.
Do you think the rise of Generation Z has been a factor as well?
Very much so. That generation is rightly concerned about what’s happening, and there’s also not dissimilar levels of concern among millennials. The influence they’re having is equally pronounced, because in many significant family-owned firms – and family ownership is the most dominant form of ownership around the world – the new owners are only willing to assume responsibility for them if there’s a significant change in their purpose. So a lot of the pressure is coming not just from mass movements, such as Extinction Rebellion, but also from people who are in a position to influence the behaviour of their companies going forward.
What would your advice be to new entrepreneurs who want to create this new form of capitalism?
The primary advice I give to people setting up businesses is to think about development on a very sustainable long-term basis. What is it that you’d like your business to be doing or looking like in 20 to 30 years, not just five years’ time? Focus on what type of business you want to create, what the purpose of that business should be, and what it means in terms of its ownership and the governance going forward. That will give rise to very different behaviour, in particular in how you think about selling it, and to whom.
Read: Prosperity: Better Business Makes the Greater Good by Colin Mayer (Oxford University Press £16.99)
This interview originally appeared in the Annual Review 2019.
