Businesses need to lead

Not-for-profit think-tank Tomorrow’s Company has released a report outlining the need for business to take a greater role in social leadership. The report contents that businesses have collectively lost their voice because people sense that they have no stake the current system.

The report, entitled The need and opportunity for business to lead post Brexit, furthermore states that many of these concerns are justified, but that Brexit offers the opportunity for business to show leadership and regain the public’s trust.

As a background, the report notes that despite many warnings to voters from businesses and business organisations about the risks of a ‘Leave’ vote, the voice of business was largely ignored, and the report speculates (not unreasonably ) that news of BHS, Sports Direct, tax avoidance, wage stagnation, low investment, and high executive pay may have added weight to a lack of trust of business leaders.

But if people are to feel that the system is working for them, and boards and investors have to make long-term decisions that are calculated to meet the future needs of shareholders, staff and society, and not simply the present and often conflicting demands of current shareholders or serve the interest of current executives.

The report recommends the following actions:

1) Reduce dividends and buybacks, not investment, wages or employment

2) Make a public commitment to increase investment in the economy and skills

3) Make a bold and public commitment on executive pay

4) Support community initiatives

5) Shorten supplier payment terms

6) Build overseas connections

7) Form industry collaborations to tackle joint problems

8) Articulate a clear purpose that is embedded throughout the organisation

9) Reform governance structures, including stakeholder representation

The report also calls on investors and financial intermediaries to help with containing executive pay, making long-term investments and asset allocation – in this case ensuring that companies do not overly return cash to shareholders or reinvesting in bonds, rather than higher growth small companies. The report asks asset owners, such as pension funds, to invest their capital to meet the needs of the economy, rather than only to meet regulatory requirements and match liabilities.

The full report is here.

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