Taxed more, served less: Time to redefine the social role of business

Pay more tax, get less services. This is the new penny-pinching routine haunting Western democracies. Central and local governments have found themselves heavily indebted following the pandemic, with debt-to-GDP levels reaching record highs. 

So good luck getting substantial help on childcare, social care or even getting your bins emptied, as has been the case in England’s second city, Birmingham (link). 

The pressure is very much on the workers and tax-payers, a shrinking demographic in places like the UK where worklessness has become its own career (link). 

The end result is an unattractive mix of rising inequality, a generation of workers being ‘sandwiched’ between childcare and social care (link) and a retirement age now heading towards 70. 

If you look at the ONS’ own analysis, adulthood – leaving home and having a full-time job – is now around 30 (link). People are naturally asking questions of the politicians and civil servants, the functionaries of the state.

But now should also be a time to re-imagine the role of corporations in society. They are after all quasi-social institutions who support millions of workers and their families. In many ways they provide services which the state either fails to provide or just can’t deliver.

It was the business community which re-shaped its employee benefits programmes, work-from-home policies and stance on overall remuneration in the wake of the pandemic. 

Your major life milestones, including marriage, having children and buying a house, are arguably more influenced by your clients or employer rather than the state. 

But despite their potential vast contributions to civilisation, corporations are increasingly viewed in simplistic and purely financial terms. 

This is the result of the ‘shareholder value movement’ of the 1980s, which overemphasised maximising returns for shareholders. The SVM was itself a result of a febrile takeover culture, where corporate governance priorities and accepted management practices had to shift amidst the liberalisation of the equity markets. 

It was the era of full-blooded capitalism, encapsulated in the Barbarians at the Gate, Wall Street and American Psycho. Times have changed, with a drift back to welfarism, but SVM has stuck around. 

It has become a go-to for the activist investor, who can glance at a stock price chart and decry “shareholder value destruction” against an incumbent management team. Sometimes they’re right, other times the detractors wilfully fail to factor in all of the other ‘stakeholders’ a business might serve. 

Even though this is made clear in law via the Companies Act, where a director of a company “must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”, the SVM narrative has won out. 

The ESG movement of the noughties tried to shift the goalposts. But as SEC Newgate’s research has found (link), the acronym has faltered under its own ambiguity and it’s now treated with confusion and suspicion. 

We have even got to the knotty moral point where hedge funds are trying to get defence companies on ESG lists. Presumably there are ‘good’ and ‘virtuous’ war machines?

It’s clearly time to re-base our definition of corporations and what we expect of them as well as their directors. They should work in the interest of shareholders, but of clients, employees and wider society too. 

And in this era of high indebtedness and a fragile stake, they should seek to extend corporate membership, promoting the great benefits it can bring to the world.