The figures must add up, but it's people who count

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Can sustained business success be delivered simply by satisfying shareholders? The launch of a fund last week which invests in companies taking an "inclusive" approach suggests a renewed belief that more is needed.

Essentially, being inclusive means adopting co-operative rather than antagonistic ap-proaches to business. It aims to show that paying attention to one group, typically shareholders or executives, does not mean the wider community or employees have to suffer. Indeed satisfying or, better still, impressing customers is likely to be to everybody's benefit.

But this is not meant to be just "touchy-feely" stuff. There is a strong business case for examining the way companies operate. With developed countries seemingly set on achieving negligible inflation and restraining gross domestic product growth, it is clear that only exceptional organisations are going to produce significant returns for investors. What is less certain is how to create such businesses.

The Royal Society for the encouragement of Arts, Manufacture and Commerce published a report on the subject last year and believes it has at least partly found the answer with "Tomorrow's Company". This model makes more than a passing nod in the direction of "stakeholders" - about whom the business community has heard so much from the Labour Party and others.

But as well as setting out a requirement to work in partnership with all those with an interest in the business, this framework includes such elements as defining and communicating purpose and values, placing a positive value on relationships with customers, suppliers and employees, and maintaining a healthy reputation.

Some of this has been dismissed as too wishy-washy to work. More damaging, perhaps, is that some of the companies associated with the report have not adhered to such principles as building long-term relationships with their employees.

Although those in charge of the inquiry have said the object was to encourage organisations to change their ways in future, it was hard not to conclude that the report was well-meaning stuff which would be forgotten once the next difficulty arose.

However, Kleinwort Benson Investment Management's new fund could change that impression. Building on a model which, it claims, shows companies that adopt the inclusive approach have outperformed the market as a whole between December 1992 and June 1996, it is adding a hard edge to the case for changing the ways in which business works.

Besides the usual analysis of financial performance, fund manager Paul Sheehan and his colleagues will assess the extent to which management meet the inclusive criteria before making any investment decisions.

Mr Sheehan insists this more rounded approach is indicative of the way the City is going. Earnings per share is no longer the key measure it was, he says. Investors and researchers are more intent on finding out the sources of value.

Furthermore, just as environmental issues are now taken seriously, it is not inconceivable that analysts will see the value of loyal customers and keen employees. After all, there is no point making perfect products if staff don't bother to answer the telephone.

Brennan Hiorns, Kleinwort Benson Investment Management's chief investment officer, told those attending the fund launch last week that the keys to a company's success were its employees and their skills and know-how. Cost-cutting had been a necessary cleansing process in the 1980s, but had destroyed a lot of intellectual assets, he added.

While the City just might be catching on to this sort of thinking, policy makers and academics have been examining competitiveness for years. Even accountants have begun to talk of adopting a "balanced scorecard" in performance assessment and to describe relying on financial measures as "driving while looking in the rear-view mirror".

And last week, in another contribution to the search for Britain's answers to such long-term success stories as Hewlett-Packard and Sony, management consultancy Kinsley Lord published a monograph saying that companies must set their sights above cost-cutting and downsizing and start dreaming again.

Having a dream that goes beyond making profits to encourage self-belief in employees is the only way to secure strong long-term performance, says the firm in its publication, Deliver the Dream.

Stephen Taylor, one of the founders of Kinsley Lord, says: "A great deal of powerful research carried out in the 1990s has shown that the difference between companies which win and those that are merely players is due to the winners' ability to renew themselves as outside forces change."

Moreover, successful organisations tended to have distinctive cultures characterised as being tough - they focused on business achievement and setting high standards; and tender - they cared about people.

The language is not dissimilar to that used by Kleinwort Benson. But that does not mean the firm's venture will be a success. Whether it is taking a chance or simply reflecting a change of thinking in the City will be demonstrated by how it fares in achieving its investment target of pounds 50m to pounds l00m for the first year.