Reform capitalism to put people before profit, major new report urges

UK’s ‘extreme’ pattern of company ownership can prevent clear, purposeful social leadership by firms, says expert

'Profit should be a product of a corporation’s purpose, not the purpose of the corporation,' say researchers (iStock)

Corporations must attempt to solve societal problems and put the needs of the planet ahead of making money, experts have said.

In a new report, the British Academy argued for a new breed of “purposeful” company in which directors focus more on social issues ahead of paying off shareholders.

It said directors must take account of the communities in which they operate, and workers in their supply chain they do not directly employ, as a matter of course and not just when it benefits their shareholders as UK law currently stipulates.

One senior researcher told The Independent Britain’s “extreme” pattern of company ownership did not lend itself to these goals and left firms open to takeovers.

Oxford University’s Colin Mayer, the project’s academic lead, said: “The way in which it differs from most countries is that while there are also lots of institutional investors in most countries, alongside these institutional investors are, in general, people who hold substantial blocks of shares in companies.

“The institutions hold a very small proportion. It is, in general, a family that has that block of shares. The importance of those holders of the blocks is that they are essentially investors who can influence the direction of the corporations.

“In Britain there aren’t these anchor shareholders. Anyone can come along, buy up the shares, take over control and try to change the policy of the firm. That’s the extent to which Britain has an extreme form of ‘market for control’.”

An example of a powerful block-shareholder might be Facebook’s Mark Zuckerberg, Prof Mayer said. The Wallenberg family in Sweden, which has investments in Ericsson, Electrolux and other big groups, is another.

The British Academy’s report – The Future of the Corporation: Principles for Purposeful Business – argues that regulators should push for high levels of care by company chiefs and oblige shareholders to support a business’s stated purpose.

And corporate social responsibility should be transformed from an often-peripheral feature of the economy to an integral one, the document from Britain’s national academy for social science and the humanities concluded.

Prof Mayer told The Independent: “The people who are involved in companies these days are often working in a very long chain of suppliers to firms, for example in relation to food and beverage companies, many of them are producing the raw materials – cocoa, coffee, et cetera – that are used by the food and beverage companies.

“Corporate social responsibility is usually about companies doing something good on the side, it’s not a core part of their business. They might do some philanthropic activities.”

“The argument that we’re putting forward is that a core part of the business should be about solving problems” in industry, society and the natural world – particularly climate change, he added.

The British Academy is not arguing for an end to profit, but it does hope to “prevent businesses from profiting from harm”, its report said. “This new corporate purpose should be the reason for a corporation’s existence and its starting point. Profit should then be a product of a corporation’s purpose, but not the purpose of the corporation,” it says.