Expert Blog

What will make capitalism work? Profit and virtue

George Osborne felt able to boast about higher living standards and stronger growth recently as he delivered his last Budget before May’s general election. But the fact is that the contract between capital and society that sustained for the latter part of the 20th Century and into the early years of the 21st has been destroyed. The public is denying permission for a return to business as usual. The debate about inequality rages. Fringe parties are on the rise. Capitalism is on the ropes.

But the vast majority of people also know that, in the end, the liberties, innovations and prosperity that come from a liberal capitalist economy are essential, and proven. There is no great national appetite for the interventionist solutions of the left.

This leaves us with what is arguably the most important question of our age: how do we refashion that contract between capital and society? How, in doing so, do we make it better, more sustainable, more in tune with a century in which people’s expectations and desires are being transformed?

If you think back to the 1990s and early 2000s, the term ‘corporate social responsibility’ was often uttered with a wry smile and a wink. It was something every company talked about, and some even took seriously. But for most, it was little more than a buzzphrase that acted as a useful piece of compassionate window dressing around the usual practice of making as much money as possible.

In 2015, we are going back to the future. Across the corporate world there is deep thought being given to the function and purpose of a company. The idea of maximising short-term profit for shareholders at any cost, of incentivising your employees to achieve this, of a harsh, arid, devil-take-the-hindmost working environment, suddenly seems a rather silly, outdated and inhumane one.

I’ve talked to a lot of business leaders about this in the past few months, and have been taken aback by the energy and commitment many are devoting to what we might define as the new double bottom line: profit andvirtue. Building public trust, deeply rooting yourself in the community around you, looking after and listening to your staff, being a good corporate citizen not to tick a box but because it is in everyone’s interests that you be one. Companies, in this view, are cultural entities as well as economic ones. The way they behave sets a tone and speaks to the nature of our wider society.

Here are some examples of thought-leaders in this area:

SSE. In September 2013, the energy giant was accredited as a Living Wage employer, the largest FTSE 100 company with that status at the time. SSE has also implemented a Living Wage requirement in every service and works contract in its supply chain, which is worth a colossal £2.5 billion. The company has similarly been given a ‘Fair Tax’ mark, again a FTSE first, which is based on significant changes to its reporting and accounting to shareholders, including disclosure of all its tax liabilities and country-by-country reporting of revenue and tax paid.

Standard Life. In 2011, with the economic slowdown at its peak, Edinburgh City Council found that more than 500 school leavers – more than 17 per cent of the total – were going straight into unemployment, unable to find a job or secure a college or university place. It came up with an idea, the Edinburgh Guarantee, which brought private and public sector together to tackle this blight.

Standard Life, the savings and investment business, discovering it didn’t employ a single person in the UK under the age of 21, signed up. Since then, it has brought 20 school leavers into the business every six months, and has expanded the programme to include London, Glasgow and Dublin. They are given a six-month internship on the living wage, assigned a mentor and put through development modules. At the end of the process most find themselves kept on in full-time jobs – and of those who have left, 100 per cent have gone into a job elsewhere or further education. There is a focus on finding disadvantaged children with potential.

Nationwide Building Society. Nearly a quarter of staff take advantage of the Swindon-based mutual’s offer of part-time and reduced hours. Sabbaticals and career breaks are also available. Everyone in the company is eligible

for a performance-related bonus, the majority are happy with their pay and benefits and more than a third have been at Nationwide for 10 years or more. 74 per cent of staff say the organisation makes a positive difference to the world.

American Express. Parents get 20 weeks' maternity leave on full pay plus 13 unpaid and a paternity policy allowing up to 26 weeks of unpaid leave after an initial paid fortnight off. There are employee groups on personal matters, such as the parents and carers network which offers resources on pregnancy, fatherhood, childcare and care for the elderly.

There is a basic human need to believe in what you are doing, that your efforts have a worth beyond the paycheck. It is the difference between Adam Smith’s Wealth of Nations and his Theory of Moral Sentiments, the latter of which begins: ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.’

Here are my basic rules for good businesses. Pay the taxes that are reasonably due rather than nickel and diming your way to public infamy. 

Knit yourself into the communities where you’re based – pay for a community centre, sponsor a school, take a chance on poor kids with potential. 

Be transparent to the maximum degree possible: it is anyway difficult to keep secrets in a highly interconnected world. Avoid cartels and monopolies and pursue genuine competition and innovation instead. 

Treat workers fairly; if you can, pay the living wage. Keep an eye on the executive-to-employee pay ratio and ensure the rewards for those at the top are tied to sensible, sustainable incentives and can be justified under critical scrutiny. 

Put your customer first.

So, there you have it. Profit and virtue: the double bottom line.


Guest Blogger: Chris Deerin. Columnist for the Scottish Daily Mail and works in Communications

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