In 2013, I deserve Good Business

“Business is not just about making money, vital as it is, it is also the most powerful force for social progress that the world has ever known.”

In 2012, David Cameron issued a fairly robust defence of business in the UK. He warned against the “anti-business snobbery” culture that he said was creeping into the national debate about wealth creation. It was a spirited and rousing defence of business. He’s right to point out some of the good that business can do. There are loads of opportunity for business to make a positive difference to our societies, including in his own ‘The Big Society’ (even if no-one really knows what he means or whether it is good or bad).

And he’s right to say that the reach of business in doing good is almost limitless. Most countries actively facilitate things like cooperatives and B-corporations. You can even see how much more progressive B-corps are than Ordinary Businesses. But I have two problems with what he is saying.

Problem One – The Extrapolation from Example Problem

Mr Cameron, is inviting us to conclude, on the basis of some good examples, that all business is therefore doing good. It’s rather like saying that, on the basis of a few good seafood meals, that all seafood is good for us. Trouble is, some seafood will kill you.

Even if we conclude that the vast majority of businesses are palatable, there remains the few naturally toxic ones that we should never ‘eat’. There are also several more (businesses and sea critters) that will remain innocuous most of the time, but we shouldn’t ‘swim’ with them because they will deliberately or inadvertently harm us. We should particularly watch out for ones that look pretty and appear to be doing good, but which can kill.

We should also be wary of our own ability to over fish and to pollute oceans meaning that normally safe seafood has become toxic because of the accumulation of chemical and elemental waste. And business has played its part in poisoning our oceans, along with consumers like you and me.

Problem TwoThe Ultimate Straw Man

I’m not sure I know anyone that is engaging in the sort of snobbery or bashing of business to which he refers. Well OK, I know a few, but they are about as effective and coordinated as the Occupy movement. And so I find myself concluding that he is tearing down a strawman that doesn’t exist. Which means he is making business sacred and telling us we must uncritically accept it. I’ll return to that thought.

The people critiquing (which isn’t the same as criticising) business that I listen to are the ones who are pointing out examples and practices where wealth creation has become anti-social and where business is out only for itself. Mostly they are addressing the simple issues of the effects of businesses in their communities, both good and bad. They also recognise that not that all businesses are doing bad things.

Many people highlight good business for others to strive for. For example, good businesses do things like pay a ‘Living Wage‘ to its workers.

Every now and then, I even see companies addressing the controversial Executive Pay issue. I’ll talk soon on this blog about another issue that I think we as a society need to address, the amount of tax that companies pay, but even that issue has already been addressed by companies and CEOs (like Andy Street, CEO of John Lewis).

Bashing Business

Business is certainly one of the greatest forces in our world today, and some companies have higher revenues than the GDP of quite large countries.

Global Corporate Revenues - top 10

By way of scale, the GDP of the UK for 2012 was approximately €2,500 billion USD

Whether you think business is doing good or not probably reveals more about you than it does about business. David Cameron is unambiguous in his support of business, and I think that is highly problematic. Now I’m not saying that businesses aren’t doing good, nor that if they are doing good they shouldn’t brag about it (quite to the contrary they should!); but where they are doing harm, then let’s not pretend that the bad things are outweighed by your own good, and it’s a bridge a long way too far to rely on someone else’s good to cancel out your bad.

And let’s especially not pretend that if you have done harm, that you can escape fixing that harm by using volunteering or charity and a splash of PR.

Good Business -v- Bad Business

Mark Price, Chairman of Waitrose and colleague of Andy Street in the John Lewis Partnership, makes a useful distinction amongst types of businesses. He carefully refers to ‘good’ business in his comments against ‘sniping’ and ‘business-bashing’, which echoes David Cameron’s words. I’m not sure to whom he refers when talking about people ‘sniping’ at business, but the distinction he makes about good and bad business is useful. (Perhaps that means that I am one of the snipers? If I am, take this post as my way of standing in the open and asking questions about the sort of business that I think we need.)

So I will proceed on the basis that:

  • Not all businesses are good nor are all businesses bad
  • No-one is seriously bashing business per se
  • Critiques of business, like Mark Price’s, are usually focussed and articulate specific reasons why businesses need to improve
Armed with those three assumptions, we can discuss the relative merits of business as a whole and also of individual operations, business units and corporate entities. I think that if we are to have the sort of business that David Cameron talks of, we need to increase public dialogue about which businesses are good and which are bad.

The Bad that Business Does

Perhaps nowhere is the ‘bad’ that business does more shockingly evident than in a UNEP Finance Initiative / PRI report, which concluded that environmental externalities are equivalent to 11% of global GDP. Many companies have profit margins much less than 11%, meaning that when environmental factors are taken into account, the planet is worse off. If you believe the estimates by Trucost (and KPMG does in its Expect the Unexpected report), then environmental externalities average 41% of revenues and virtually every sector is making profit at the expense of the planet.

In what seems to many a surprising development PUMA’s environmental profit and loss report indicated that in 2011 it had cost the planet €145 million in environmental damage and costs. That was in context of profit in the order of €230 million in what was a relatively profitable year compared to recent history and the likely result for 2012. It was also made on revenues of nearly €3 billion. The honesty of PUMA is admirable (even if its estimate of about 5% of revenue is low compared to the two estimates above) and recognises that if companies had to pay the real value of environmental externalities, most would go from being profitable entities to only barely profitable or worse, loss making disasters.

The really terrifying thing is, none of the other externalities, such as social externalities are included in the analysis. It isn’t all that difficult to imagine all corporate value being wiped out if companies had to make good the damage they are causing to our environment and our societies. It also needs to be said that the rich (and on any reasonable global analysis, an average income earner in the UK is certainly a member of the global rich list – see below) and their consumption patterns are part of the pillaging of the environment in order to improve their lifestyle.

Global Rich List - Average UK incomeI’m not sure that either David Cameron or Mark Price would support business that charges 16,000% interest, and I think I support capping the amount of interest that any entity can charge on loan transactions. I’m also not saying that business is doing anything illegal, but since when did we, as a society, decide that the limits of laws define good and bad.

The Good that Business Does

Mark Price makes the argument that businesses discharge a responsibility to society by paying tax. His argument is subtle and he highlights that the obligation is two-fold; taxes paid through indirect taxes (like on salaries and broad-based goods and services taxes (GST and VAT)) and direct taxes (on profits). So implicitly, we have at least one type of culprit, one type of bad company – companies that don’t pay taxes on their income earned in normal tax jurisdictions (in relation to the UK, I’m looking at you Google, Amazon, Starbucks and maybe even Boots).

We need more businesses like Marks & Spencer. It is doing an awful lot better than many companies and on many issues, but it claims that it is only 10% along the journey to being a sustainable (good?) business. I’m not sure about their math, but I am confident that even M&S (BITC’s 2012 Company of the Year and winner of many awards for its CR strategy and reports) has quite a way to go. InterfaceFlor thinks that it might be 60% along the same journey, having embraced closed loop manufacturing. Once again I’m not clear on their math, but it’s fair to say (and I think most of the Doing the Right Thing team at M&S would agree) that they are doing a few more good things than M&S. Both of those companies are so far in front of many companies that it is conceptually difficult for many of us to imagine just how much work is needed to make other businesses good, or at least on the path to being better.

Using the yardsticks of justification of business from the 1950s (business employs people, business pays tax, business makes a difference to some social issues) doesn’t really work in the CSR era. That is especially true if you believe that business should pay the minimum amount of tax possible, employ the minimum number of people possible and make the minimum contribution to social issues possible to keep operating. Some of the more important questions to ask are:

  • How well does business treat people prior to and after employment, as well as during employment?
  • How much tax does business pay and does it make societies in which it operates stronger (including with stronger governments with appropriate tax revenues)?
  • How much difference does business make to the social issues it seeks to address?
  • How much damage does business do through externalities?
  • What is business doing to arrest the trend toward a richer top-end of society?

Ultimately, I would like to wholeheartedly agree with Cameron, and while I understand that business has created a lot of jobs, and done a lot of good, his failure to acknowledge the bad things that business does cannot be the way for us to achieve a more sustainable society. If that means we need to work out how to do business in a de-growth environment, then let’s do that. If it means we need to ensure that companies pay fair tax on their income where it is earned, then let’s do that.

If that makes me a basher of business, then in spite of the lack of resources available to me (compared to that of the business world), then I shall continue to bash, or as I’d like to put it – to speak out in support of business that does good and against business that is doing bad. We deserve a business community that universally lives up to David Cameron’s ambition for business.

We need critical dialogue about things like banking reform and other limits on ‘bad’ business. Business leaders aren’t doing enough to name and shame companies that are doing bad and telling people and investors why their company is doing good. In particular, we should be hearing a lot more from companies that pay taxes in countries where income is earned and specifically target paying a ‘fair’ amount of tax. I’m going to encourage M&S to do better (and they have plans to achieve ‘better’), and for companies that aren’t even near M&S to strive to be more like M&S. It is my personal mission to ensure that business is not just about making money.

In 2013, I deserve Good Business.

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