Tag Archives: systems change

GOVERNANCE TOWARDS RESPONSIBLE CAPITALISM

A guest blog from Patrick Andrews, friend and colleague.

Patrick is an ex-corporate lawyer and co-founder of the Human Organising Project, which is exploring more human ways of organising. He is running a workshop in London on Friday 20th January entitled The Future of the Corporation. To find out more and book your place, go here

It is a rare thing, to hear a Conservative Prime Minister call for more responsible capitalism. Theresa May’s remarks at the Conservative party conference last month are a sign that large corporations are breaking the unwritten contract they have with society.

The regular corporate scandals (most recently Sports Direct and BHS, but there’s a long list stretching back centuries) are just the tip of the iceberg. It’s the routine, day–to-day greedy and destructive behaviour that is most alarming; the tax dodging; the excessive executive salaries; the steadfast resistance to regulations designed to improve societal or environmental well-being. Most of all, it’s the remorseless urge for growth that drives a never-ending cycle of consume and throw away, leading to widespread societal and environmental dis-ease.

We can’t eliminate greed and selfishness from human behaviour. What we can do is design human systems to encourage people to behave more in line with the dictates of their conscience and less likely to strive to please their corporate masters or satisfy their own egoic desires.  And company law, which governs every company in the UK, has a big role to play.

Company law has changed very little in its essentials since the 1850s, when the Limited Liability Act was passed. That was a very different age. English society was stratified by class and only a minority of men (and no women) could vote.  The slave trade had only recently been abolished. Elsewhere in Europe, there were still serfdom, which was abolished in Russia as late as 1861.  There have been many transformational changes in human society since the 1850s, such as the invention of cars, telephones and the Internet, splitting the atom and gay marriage.  Yet the fundamental structure for a business hasn’t changed.

A company still comprises members with “limited liability” meaning no liability for the actions of the company.  Every company also has a board with responsibility for the day-to-day activities of the company. Such a structure would have been familiar to the powerful men of that age, many of whom owned vast tracts of land. Often living far from their estates, they relied on local managers who were incentivised to pursue profit for their masters. In essence, it was a feudal system.

I learned in the very first tutorial of my law degree that British law is rooted in feudal thinking. This applies to property law (every bit of land in the UK ultimately belongs to the Crown) and even to human beings (we are subjects of the Queen, protected only by human “rights” that can be removed by Parliament).  Likewise company law is based on feudal thinking, dividing the world into:

  • an absolute authority (shareholders);
  • subjects (staff) to be used (employed) in service to the ultimate authority; and
  • overseers (the board) who watch over the subjects.

Because it’s lasted so long and has become so pervasive, it is tempting to think that the limited company represents a universal pattern that can’t be improved upon. Yet it a man-made, and relatively modern, contrivance and it’s ripe for change. It is time to start treating large companies not as the property of shareholders (a fiction that is used to justify a lot of the worst corporate excesses) but as institutions that exist to serve the common good.

To implement this, the following could be considered:

  1. Professionalise the role of a director of all public limited companies (plcs). There would be compulsory training and exams to be taken before anyone could be a director of a plc. This is not so radical – to become the company secretary of a plc (a far less powerful or responsible position), you need a formal qualification.
  1. Change the law to clarify that the ultimate duty of a director is to serve the common good. Directors of a plc should be treated as public servants, not as servants of shareholders. This idea of a higher duty is familiar in professional practice – for example, a barrister’s highest duty is to the court, not her client.
  1. Appointment of directors should be more transparent and participatory. This could be achieved by setting up a panel to approve appointments, with representation from different constituencies such as staff, customers, government etc.
  1. Task the company secretary to act as the “conscience” of the company, with the right to attend board meetings and to speak at the annual general meeting. The difficulty with this is that the secretary, who is appointed by the board, risks losing their job if they speak out – a significant dis-incentive.  To safeguard the secretary’s integrity, we would require a government minister’s approval for their removal, mirroring the sort of constitutional arrangements commonly used to protect the integrity of the judiciary.

We would see lots of benefits from such innovations. I even believe, surprisingly perhaps, that they would have a positive impact on corporate profits. This may sound like wishful thinking. Yet the fixation on shareholder value that is characteristic of British companies, and embedded in section 172 of the Companies Act, has hardly turned British companies into world beaters. There is some evidence (for example from Scandinavian companies) that adopting a wider purpose that includes social and environmental well-being can lead to enhanced financial returns.

Ultimately, what is needed is a change of mindset. We need government to stop trying to control or lecture from above (itself a symptom of out-dated thinking) and instead to focus on enabling corporations to be truly self-regulating, for the common good. This would indeed be a revolution!

Footnote: the above is an edited version of a submission by the author, Patrick Andrews, to the UK Parliament’s Business, Innovation, and Skills Committee which is running a consultation on corporate governance.

 

 

Scaling disruption

There are multiple ways we can intervene in the current business system in order to support change toward better environmental and social outcomes. One of these ways is to scale small initiatives that have the potential to create significant change in the current ways business operates. This is particularly effective where these ‘disruptors’ also act as commercial demonstrators to traditional organisations and inspiration for other emergent entities by proving the case for alternative forms of business.

I have a portfolio of these ‘disruptors’ that I currently coach from seed stage until first significant funding. This means taking them through a structured programme of business development, drawing on IDEO, LEAN and my own start-up experience across multiple sectors and stages of new business building.  The programme is underpinned my three key principles: fail fast, engage early and rapidly build credibility. This means we work closely together to:

  • Identify and engage potential customers to establish and build the business toward meeting real needs,
  • Set-up of a series of experiments where the team can quickly configure and test different operating methodologies, and
  • Understand how the market operates, where the gaps are and which organisations could inform and, even better, certify the set-up.

This is underpinned by regular ‘pivoting’ as we reconfigure the business model to meet emerging needs and cost structures. It is supported by work around vision, team dynamics, business basics and fundraising.

Two oranisations in my portfolio are currently seeking an extension of their seed funding. They are:

Clotho London: The destination for sustainable fashion. http://www.clotholondon.co.uk/

Set-up by two recent graduates from Imperial College (who worked together as Chemistry lab partners) this business aims to create a secondary market for good, used clothing. It is a simple technology platform built on the principle of clothes swapping. It provides young women with a more sustainable option for quality fashion choices. Clotho thereby works towards preventing new purchases of high-street brands and reducing the 350,000 tonnes of used clothing that goes to landfill in the UK every year. They currently operate collections at 3 UK Universities and are rapidly growing a loyal customer base. They are looking to raise investment to fund operational costs as they scale their service.

Vesco: Developing sustainable feed systems. https://vescofeed.wordpress.com (under-development)

Vesco has been set-up by four classmates from the Imperial College Environmental Technology MSc programme.  They are developing a sustainable ‘insect-based’ animal feed designed to mitigate the environmental and biodiversity impacts of contemporary soy and fishmeal-based feeds. They aim to harness the efficiency of insects in converting organic waste into high-quality nutrients and are running a number of experiments to rear  fly larvae on a variety of organic wastes. They are working closely alongside high-profile potential customers to co-develop product specifications and a unique, ‘circular’ offering and are in the process of organising trials for pilot products. Vesco is looking or funding to allow further development of the concept by paying a base wage to the team. 

Both these worthwhile organisations will effect change in the existing systems they operate within – clothing and food – through demonstrating initiative, possibility and trialing new business models.  Any funding or other suggestions to scale and support these worthwhile organisations would be appreciated.

Alternatively, if you are a young enterprise with a good idea towards a positive shared future or an investor/accelerator/incubator with disruptors in your funding portfolio  that need help in clarifying their business models towards delivering scalable impact –  please do get in touch.

For further information or to arrange a meeting, please fill in the form below: