We need a new corporate landscape

By Prof Charlotte Villers, Professor of Company Law, and Ms Nina Boeger, Senior Lecturer in Law (University of Bristol Law School–Centre for Law and Enterprise).

© Childs & Sulzmann. Artist’s impression of Boxworks at the Engine Shed
© Childs & Sulzmann. Artist’s impression of Boxworks at the Engine Shed (Bristol)

Our corporate landscape has relevance for our post-Brexit future. Yet deep public distrust exists not just with regard to our politicians but also with regard to business. Recent debacles involving the now defunct British Home Stores and Sports Direct are just the tip of the iceberg in what is widely seen as a broken economic and political system that has given precedence to the leading market actors.

Corporate governance is the key means by which global wealth is distributed but that wealth is not distributed fairly. Two stakeholder constituents are prioritised: boardroom directors who frequently enjoy eye-watering pay and perks, and shareholders, at least in theory, through the profit maximisation imperative. Both groups have focused on making a quick buck rather than the long term interests of their companies. Workers, at the bottom of the corporate hierarchies, have little chance of improving their means of living and face greater levels of insecurity in their working and home lives. Workers further down the supply chain risk their lives trying to scratch a living in countries only too glad to gain trade from the powerful multinationals.  Consumers lose out as product quality and services are whittled down and the environment, as a natural resource constituency, barely gets a look in.

This state of affairs arises from an empty economic model which favours profit-oriented individualism. It demands reflection on what reforms our corporate landscape needs in order to become fairer, more sustainable and more human. A conference held recently at the University of Bristol Law School offered us some hope, showing there are alternatives and things we can do to take steps towards resolving the problems.

First, we must insist on our companies having the objective of producing goods and services that will benefit society and they must recognise the interests of all stakeholders through the whole supply chain. Accountability should be relational. In order to see companies for what they are in our societies, reports and explanations should be given to those impacted on a daily basis by a company’s activities. The structures have to change too from hierarchies to flatter, more “holarchic” structures that give an opportunity for all participants to be involved in the decision-making and production processes. What better resource have we than the workers with their knowledge and experience and their invested livelihoods in the process? Companies must focus on the importance of the relationships that hold them together and on the interdependencies that nurture them.  Companies that value their relationships would have greater emphasis on fair sharing of the ownership and of the gains.

We should also think more proactively about the benefits of enterprise diversity and the emergence of alternative corporate forms to the traditional shareholder company. Good current examples could lead the way towards better corporate practice and governance. 1,700 Benefit Corporations (or “B-Corps”) exist globally, aimed at developing a social economy.  In the UK there are 12,000 Community Interest Companies whose profits are reinvested into the business. Social enterprises have been created, based on compassionate motives of trying to resolve social problems and in which women feature much more strongly than in our leading FTSE companies and their average pay ration is 3.6:1, much better than the 150:1 in the FTSE 100 companies. Scaling up social enterprises and making them profitable is challenging, but not impossible. New ways of raising investment capital, from community shares to social impact bonds and cooperative banking facilities, are more widely available today, easing some of the pressure for social businesses to obtain affordable finance.

Finally, a corporate governance and company law system that is light on enforceable directors’ duties, but heavy on shareholder primacy has to be reformed. A new corporate governance code and new accounting rules that recognise the interests of all stakeholders would be important first steps, alongside a new employment law that protects employees genuinely from exploitative contracts.

There is a real appetite for change in our corporate governance system and already a lot of positive activity is under way. We need to build on that activity.  There is a role to be played here collectively between the universities, the socially-focused business actors, activist bodies such as the TUC and even those “establishment” bodies such as the Institute of Directors who are waking up to the fact that the tired neo-liberal system has had its day. Shared ownership is more positive and good for business and society. The initial economic impact of Brexit tells us that the Brexit landscape is not just about our relationship with Europe but it demands also change in our corporate landscape.

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