Private decisions have now gone public

UK
companies can not be expected to behave decently without strong leadership from
Government, argues Will Hutton.

Corporate
UK has had a salutary six months. Railtrack and Corus may have found themselves
in the eye of the hurricane of public scrutiny, but Vauxhall and the oil
companies have each had parallel stories to tell.

Chief
executives and directors may insist that they have the right to take their
decisions privately and that the only audience that requires consistent and
transparent fair-dealing is their shareholders and creditors – but they are
hauled up by the brute realities of modern democracy together with the speed
and depth with which information is communicated.

The
public consequences of private decisions cannot be wished away; we are being
sharply reminded that the public corporation is just that – public.

But
the belief in corporate privacy, discretion and secrecy together with the
accompanying dismay that any other standard but loyalty to shareholders might
apply to corporate decision-making runs very deep.

If
Sir Philip Beck, the chairman of Railtrack, feels able to say that the
government has no right to interfere in Railtrack’s decision-making –
notwithstanding the billions of support for rail investment and the public
outcry post-Hatfield – then that stands as a proxy for the way other boards
feel in companies less exposed than Railtrack to the demands of public
accountability.

Sir
Brian Moffat, chief executive of Corus, was certainly within his rights not to tell
even the Prime Minister the details of Corus’ redundancy programme beforehand
on the grounds the information was price sensitive. After all there are no
legal obligations to consult and inform government. But his action speaks
volumes about UK plc’s attitude to the public consequences of private
decisions. Quite simply they are not a public corporation’s first concern. It
would be better not to suffer bad PR, but the order of priorities is clear.

But
it is not just a question of poor PR. The occupation of Vauxhall’s chief
executive’s office was certainly bad PR after workers learned the news of
Luton’s closure in the media, but the legacy of distrust and bitterness,
however, lives on. Decades of winning the trust of the workforce were dispelled
in one afternoon. Vauxhall may have suffered a leak about their intentions, and
were more the victim than the designer of their situation – but the lesson was
brutal. Private decisions have never been more subject to public scrutiny.

The
best companies are already responding by taking corporate social responsibility
more seriously, and the government is making concessions to the same trends.
After a decade of promoting codes for corporate governance the next likely
development will be a Companies Act requiring companies to publish an operating
and financial review.

This
will include mandatory sections outlining the companies purpose and a review of
all the competitive drivers that explain trading performance over the year –
and non-mandatory sections setting out how future markets and products might
develop, how the company manages its key relationships, notably with employees,
the targets it sets for sustainable growth, its investment in community, its
ethical standards and so on.

Together
with a broadening of directors obligations beyond the maximisation of
shareholder value and the requirement on pension funds to disclose what policy
(if any) they have in their investment approach about corporate social
responsibility, the environment and ethics the direction of policy is clear. It
is to prod the British corporate sector into accepting a wider definition of
its responsibilities and to equip it with a better framework to meet the
emerging new pressures for greater accountability – but at a pace and manner
that wins the acceptance of Britain’s corporate leadership rather than its
opposition.

The
approach is minimalist; keep regulation and legal direction to a minimum and
allow pressure to build on companies through benchmarking, investor pressure
and the emergence of win/win solutions that other companies choose to follow.
It is a softly, softly approach in which the government moves stealthily and
gradually, determined to retain is pro-business stance and not to frighten any
corporate horses.

However
a progressive government needs to be pro-business, certainly, but it needs to
do more than simply argue that good business is just business. The criteria by
how a pound of profit is made is a building block in the creation of a just
capitalism; progressive profitability must replace simple financial
profitability as the sole yardstick of business success. Plainly there are
limits to how far this conception can be pressed, but it should be the starting
point for a public conversation.

In
other words we need to get beyond a debate in which we appeal to companies to
behave well because it will be in their best interest. It will be to some, like
the recently privatised utilities or the oil companies. But others will want
the markets to rate their shares as highly as possible so they are the
predators rather than the victims in the great game of takeover – and that
means a relentless and unambiguous quest for shareholder value. For them
exhortation and the new operating and financial review will be little more than
good intentions to which they genuflect with little commitment; the real
business is as it was. If we want different, then we need leadership from
government and the business community alike and adherence to genuine universal
rules.

The
government should put corporate Britain on notice. It should declare that it
expects the culture and attitudes inherent in triple bottom line accounting,
corporate social responsibility, community investment, ethical practice and
sustainable growth to be embodied universally by the business community within
5 years. It expects company accounts systematically to report these concerns.
And it expects corporate boardrooms to walk the talk by injecting a real
concern for accountability and some responsibility for how a pound of profit is
made into their day to operations and culture. If not, it will legislate its
intentions in a new Companies Act.

For
its part corporate Britain should respond by meeting the challenge rather than
disputing it needs to be made. It should accept that it is proper that the
public conversation moves in this direction – and that in the twenty-first
century the public will demand that public companies are public. In short
Britain’s business leaders should accept that in the future a public company
will need to be seen to make its profits in ways that the public accepts as
meeting the highest standards of probity and integrity. In short we need to put
the P back in PLC – and the business community should lead in this process
rather being forced into its acceptance by legislation. We will see.

Will
Hutton is chief executive of the Industrial Society. A fuller version of this
argument appears in his essay for the Society’s leadership week –
Putting
back the P in PLC
, published on February 27th 2001. www.indsoc.co.uk

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