The 2008 banking crisis and its aftermath revealed serious problems in the operation of the economic system. This has led to widespread criticism of flaws that were previously tolerated or only recently revealed. Problems like corporate tax avoidance, excessive executive pay, and payday lending appear to evolve because there are no limitations on business practices that do not break laws or regulations, although they are widely regarded as socially unacceptable.
At present it takes a long time to address such problems; they are often tackled in a piecemeal fashion, or not at all. There are many reasons for this, but, however it occurs, the result is poisoned and polarised relationships between government, business, and society. Indeed, a recent (April 2014) opinion poll, carried out by Populus for the Financial Times, showed that the majority of voters distrusted big business, and wanted tougher action taken against irresponsible corporate behaviour.
Doing nothing will not help business. It will not make politicians’ lives easier and, above all, it will not solve problems. Nevertheless, tackling mistrust will be difficult. For that to happen, we need a new forum for looking at policy and individual cases. In the following paragraphs, we outline how this could be established.
Awareness of the need to improve some corporate behaviour is, of course, not new. Investigations have usually followed crises, and subsequent recommendations have normally been, at least partially, implemented. The measures taken to improve governance and oversight have not, however, prevented or anticipated the banking crisis, the phonehacking crisis, or the meat adulteration scandal of 2013. There have also been many initiatives over the years to try to define and implement corporate social responsibility, and to codify good corporate governance. These undoubtedly provided some benefits, but did not prevent major problems.
We therefore propose to start from the opposite end, to see if one could define what is clearly unacceptable or irresponsible. The advantage of doing this is that defining the limit of acceptability enables business and society to have a rational discussion about addressing existing problems, and to anticipate and avoid future problems.
Over a period of some six months, we examined, with a group of colleagues, several examples of business behaviour that have been criticised, such as payday lending, corporate tax avoidance, high pay and private equity takeovers of care homes, and measured them against the following definition of unacceptable capitalism:
Unacceptable capitalism is action or inaction relating to the operation of individual capitalist enterprises or the oversight of such enterprises, by individuals, companies, regulators or legislators, which involves significant, foreseeable risk of material harm to the interests or wellbeing of stakeholders including shareholders, employees, customers, suppliers, the host community, and the environment.
The common feature of the cases we examined was a serious mismatch between the formal regulations and legislation governing the behaviour of companies, and the social acceptability of that behaviour. We also found that the definition of ‘unacceptable capitalism’ provides a useful litmus test of what business behaviour is socially acceptable, and what is not.
Using a multi-skilled team, including lawyers, accountants, economists, tax experts, academics, and people with experience in management or employee relations, proved effective in quickly analysing issues that cross a range of legal, regulatory, and social boundaries. This approach, applied when a problem emerges, or even earlier, could therefore make any subsequent work by regulators and legislators easier and more efficient, by providing a concise, objective summary of a problem, with recommendations for further regulatory, legislative or other action.
We therefore propose the establishment of a Standing Commission on Responsible Capitalism. It would look at existing and emerging problems, and decide whether the activities involved were socially unacceptable. In cases where an activity failed this test, the commission would try to help those concerned to come to some accommodation. Where accommodation proved impossible, it would set out concise arguments for legislative or regulatory interventions. Once in operation, the commission would, ideally, be able to address problems as soon as they arose, and help to find constructive solutions. The establishment and operation of the commission would incur some costs, but we consider it important to avoid creating a large, bureaucratic organisation.
Such a commission would bring many very positive benefits. These include the provision of a constructive, impartial framework for problem-solving, which would enable companies to address problems such as high and low pay and corporate tax avoidance in a neutral setting. It would provide policymakers with analyses of problems, and recommend a basis for action, without taking away the scope for further scrutiny. Furthermore, it could give advance warning of problems before they became significant, and facilitate improved governance, to help business and society work together more closely and more productively.
Assuming further work being done during 2015 and with government, or other civil society, backing, we believe the commission could come into operation in 2016.
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