Burgess COMMENTARY

Peter Burgess

Good corporations should drive the economy

If effective, they make a positive contribution to the social and physical environment

We will cut spending but not as fast or as nastily as the Conservatives; we be­lieve in a market economy but not very strongly.” These were central elements of the Labour party’s economic policies in last week’s UK general election. They do not constitute a persuasive narrative and they did not persuade.

The European left has been in intellectual disarray since the collapse of socialism. The threadbare content of Labour’s economic thinking echoes similar weaknesses in the French (not very) Socialist party and Germany’s Social Democrats. In Greece and Spain, the extreme parties of the left are gaining electoral ground by promising things they cannot deliver. The third way of Tony Blair, former UK prime minister (and Bill Clinton, former US president ), who saw the need for fresh economic thinking back in the 1990s, has collapsed into vacuity.

So here is one idea to start Labour’s rethinking of economic policy. The profit-making corporation is, should be and will remain the central institution of the modern economy. But that does not mean the purpose of a profit-making corporation is to make a profit; we must breathe to live but breathing is not the purpose of life. The purpose of a corporation is to produce goods and services to meet economic and social needs, to create satisfying and rewarding employment, to earn returns for its shareholders and other investors, and to make a positive contribution to the social and physical environment in which it operates.

Mr Blair flirted with the idea that the purpose of the corporation was a central issue when he embraced “stakeholding” before his election in 1997, but the debate died, partly through the opposition of businesspeople who thought stakeholding meant trade unionists on company boards. It may be an idea whose time has come again.

The usual objection, that an organisation cannot have more than one objective, can be swiftly dismissed. The statesman must balance competing pressures and interests, and every household must manage the sometimes incompatible demands and needs of different family members. Likewise, the job of the professional manager is to balance sometimes complementary, and sometimes conflicting, claims.

Similarly, the good school imparts factual information while stimulating critical thinking. The good smartphone compromises between portability and battery life. We recognise good schools and smartphones when we see them, and we know a good company in the same way.

The good corporation — like the good smartphone or the good school — can be identified by what it achieves. It pays workers a living wage; it does not engage in aggressive tax avoidance. It develops the skills and capabilities of its employees and does not bewilder customers with complex tariff structures. It earns profits, reinvests some and pays a dividend to shareholders. Its executives spend more time walking around offices and shop floors than sitting in the meeting rooms of investment banks. The good corporation contributes relevant expertise to the formation of policy but does not engage in lobbying on a scale that corrupts political decision-making.

The political and social legitimacy of the market economy, and of the corporations through which it functions, cannot simply be asserted — as it has been in the market-fundamentalist rhetoric that has dominated economic policy for the past three decades. Its legitimacy has to be earned by the behaviour of the leading economic institutions. That social contract has too often been broken in recent years. And drawing attention to that breach, and the measures needed to regain trust, is an agenda that is not hostile but rather friendly to the long-term interests of the business community.

johnkay@johnkay.com  . . . 

Letter in response to this column: Social message is clearly heard in developing world / From Seamus Gillen Aim the ‘good corporation’ mantra at the owners / From Robin Hindle Fisher Corporate governance,United Kingdom,Labour Party UK,UK economic growth,Capitalism Copyright The Financial Times Limited 2015. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web. Newest | Oldest | Most recommended

fiatsceptic 3 days ago JKay shows no sign of escaping the left's intellectual disarray – as drawn out in good comments from *theschaff* and *MarkGB*. Kay's attempt at remedial education of the economically vacuous reverts to the view that private enterprise should (continue to) be a docile statist pet. “Sit... stay... good corporation” says Kay's unidentified governing owner/elite, patting crony heads. Corporate guff has contributed to the general muddling of the corporate purpose issue. “Shareholder value”, for example, is a poor expression of the underlying idea of free association of individuals for a common purpose. But this doesn't excuse Kay's offering an over-processed derivative in place of real appreciation of enterprise. As with its freeze-dried individualism, the 'market economy legitimacy' flavor crystals served up by the FT are unfit for purpose. ReportShareRecommendReply

Sarah Hancock 3 days ago Having spent the past several years immersed in the not-for-profit world, it's hard not to be cynical about this idea, though it would be delightfully ironic if it caught on. Organizations that are supposed to exist solely to do good seem to be even more rife with selfishness and bad behavior than the supposedly evil for-profit entities. Nowhere is it easier to exploit the worker when the worker is motivated by a sense of 'selfless service' or the chance to engage in a creative endeavor. ReportShare2RecommendReply

fiatsceptic 3 days ago Thanks... that was needed here. The official exclusion of self-interest from organizational purpose creates a vacuum which -- at least at larger scales -- almost inevitably draws out illicit, hidden and deceptive pursuit of self-interest. With institutional snowballing over time, the corruption often evolves into some truly hideous forms which transparency about profit motive would tend to preclude. ReportShareRecommendReply

Manatee 3 days ago Interesting ideas. It's being achievable is another matter. It will need far more institutional investors (who are in the view of many too passive as owners generally) to see ethical ownership - as JS Mill would put it - as part of their 'maximising their total utility' as a growing number are, particularly, large, public sector pension funds such as CALPERS. To most though total return is the be and end all and will stay that way. The other factor that occurs is that there is a kind Maslow hierarchy of needs (with people you first need security, shelter, health, food etc until you reach the tip of the pyramid of 'self actualisation') such that if you have steady profitability and market share. e.g. Apple, MS, Google, you can afford to add on these other admirable goals. If you are in a cut throat competitive sector fighting for your life, forget it. Supporting green policies does - and should - go out the window if you are fighting to avoid bankruptcy. ReportShareRecommendReply

Agnostic12 3 days ago It is interesting to note that a number of those who decry John's helpful thoughts tend to refer to profit and capital as things in themselves, when of course they are not - they are human, social constructs, and how they are regarded depends on how we regard them. In the same way that we have disastrously accepted the link between executive pay to share prices (did anyone think that short-termism would not prevail?), we have seemingly accepted the inevitability that profit has an unassailable paramountcy in considerations of what businesses actually do. Before the market in joint-stock companies was born, businesses were set up primarily to do something socially useful, be it production, manufacturing or the provision of a service, and remunerate the people doing that thing - not to enrich transient investors. Now the importance of satisfying investors has overtaken the primary object of businesses at the cost of their customers and those who rely on the business for jobs (which, from even a hard-nosed point of view, rather diminishes the pool of consumers and therefore future profit - but of course, the long-term is of no consequence to those fixated on quarterly figures and daily share price fluctuations). I sincerely pity those who share Kevin's viewpoint that profit makes us care. It denies our basic humanity, and his insistence that it is absent in non-profit organisations such as the NHS indicates a personal experience of life which is painfully short on compassion, empathy and other beneficial human qualities. Operating efficiently, with a focus on quality and the ways in which we can through our endeavours improve people's lives - not just our own - is a reasonable starting point in thinking how corporations can reclaim their purpose as good citizens, and earn the trust of those who depend on them as employees, consumers and investors. ReportShare2RecommendReply

Kevin Alexanderman 2 days ago @Agnostic12 --'It denies our basic humanity'? Patently false, and a fundamentally ungrounded concept. What to you is a 'basic humanity'? Presumably a person who subscribes to a particular human-invented moral code called altruism, which has nothing whatsoever to do with human nature, and is only promoted and indoctrinated in others for malevolent political reasons. And I didn't say it was absent in the NHS--there is plenty of altruism in the NHS--but that doesn't mean they empathize or have compassion, which are qualities distinct from altruism as a moral code. My experience with the NHS is that they are bureaucrats punching the clock, and don't do more than they have to, with a 'Get in line and take a number' approach to customer service. You don't pity those who share my view, you are simply misrepresenting your opinion. ReportShareRecommendReply

Dhako 3 days ago I think this is a well-argued article, but, I think, as many commentators have already cotton on to it, it's rather bit vague of the route to which one could take, politically, to the 'summit'. (to use the Tony Blair latest advise to the labour party, which was that: 'the route to the summit is through the centre'). In other words, granted, a good corporation is what most politically engaged society should strive for. And, for good measure, those businesses ought to be the partners of the society foundational stone of social-contract under liberty. But, the problem is that, ever since the Market-base revolutions of Mrs Thatcher and Mr Reagan, helped by the intellectual genius of certain Milton Friedman, have been enacted, the notion of society, state, and where the market fit in, has been appended. And, it has been appended so profoundly to the point whereby knowing which of those 'three pillars' of any nation comes fist before the others is not a settled argument as of now, at least in the most developed economies in the West; and in particular the Anglo-Saxon's political-economy sphere. Hence, to business, particularly, those who have swallow Friedman's prescription (which mostly are multi-national corporations) their first take will be to say, it's market aided by libertarian direction of the 'political state' not much interfering with profits is the first principle of any nation. Or at any rate they will say, the classical economical liberalism of 19th century (stuff of which J S Mills was familiar with) ought to be the first animating concept of any nation wishing to be a prosperous. On the other hand, societies in the developed world, who are still wedded naturally to kin, kith, and a historically-given localities, their sense of what makes the first organizing principle of nation, largely begins with reciprocal obligation in which their version of social contract begins, In other words, their sense of themselves would not allow themselves to think that they are merely 'economical agents' out to maximize their utility against others in a 'Zero-Sum-Game' of competition before all comers. And, by that I mean, to them, the idea that says a company they have worked for 20 years, through thick and thin, and they gave their all as well as their loyalty may consider them to be no more humanly important to the company's bottom line than what accountant of the company says they are worth, comes across to them all that comprehensively 'alien' of what makes a good society as well as a good corporation. Consequently, if by cold logic of libertarian-version of a 'society conceptualization' (I know it's an ugly word), aided by reigning globalization of the current world, there could be other 'economical agents' much more cheaply than them, then their loyalty will not be reciprocated at all. Now, these dichotomy, in which what an organised society ought to be established it around being unsettled argument, it just means that it's the state (broadly defined) who then should 'mediate' that excruciating dilemma. And, in a way, you could say, Tony Blair stakeholder idea was an honest and perhaps uncoordinated stab it, or even haphazard grope towards it. But, nevertheless it's was in one piece of an attempt to resolved this acute dilemma. Moreover, ever since the increase of our interconnected world with its global-scale corporations genuinely meant that state can't regulate their way into a better corporations or even a better stake-holder settlement between society and market. And, the reason is, of course, the corporation have larger power vis-a-vis the nominally-state-bound-politician, who could only affect their country. And as a result of it, if their action is not to the liking of those corporations, then they will simply seek another place under the sun in which their libertarian-concept of corporation can be at ease with. Hence, unless there is a global scale understanding of these interlocking problem and therefore the solution is sought from that angle, I fear, no single nation can achieve a meaningful recreation of what we all want, which is that 'good corporation' at ease with their local community, even, if (from time-to-time) the profit margin could be less than what it could of been where these corporations were more ruthlessly focus on their bottom line. Consequently the tragedy of the left-of-centre parties in the developed world is that they have gone along with the idea of denuding the state of real power with a regulatory teeth to 'politically incentivise' the corporation to act in a nearest way an stake-holder corporation should conduct itself. Particularly they did this during the 1990s when these parties who were at power then could of insisted that the 'emerging globalization paradigm' should be established - at least at the WTO level - a way that could be conducive to the chance of a good corporation being in business. Or at least the profitability of good corporation must not be penalize at the global level in the way the WTO laws were written, which at the moment, simply means a 'race-to-the-bottom' is the surest way you can stay in profit, And that of course, is detriment to the nations who wants a good corporations in their own countries. On the other hand, the Centre-right parties, like Conservative in here in UK and the Republican Party in the US, they simply accepted the 'new normal' in which society well-being must not come before the profit-making of the corporation. Hence, the idea of good Ethical Corporation doesn't get to be that much important in their view, if it will make the bottom-line that much less of a stellar one. Consequently, they have little emotional upheavals in their mind, since, from their point of view they put 'individual self-realization' (another ugly word) far head of the social harmony. And, therefore, they simply upscale that 'individual self-realization' into a corporate profit-centred interest, and say, since the individual prerogative must not be abridge by society impediment, so long as it's legal, then, by the same token, corporation (who are essentially, at least in their reading, an amalgamation of individuals share-holders) must not also be inconvenience by even a well-meaning social impediment against their will. Hence, from right's point of view State is a 'reactive agent' who simply ought to be out there “guarding” the liberty (of individual and of share-holders alike) , whereby the left think that the state should be an 'active agent' who is 'partner' with society, with market, and with corporations. However, be that as it may, the problem is that, to be an 'active agent' that can mediate these conflicted forces within each nation requires powers that the modern western developed states no longer have. And, there lies the dilemma (an acute one, it has to be said) of the Left when it comes to “re-imaging” what a good society should be about, or how to bring about one; much less how to 'condition' the ground-level for the market-forces, so that they will act in a manner that is “conducive” to the reality of a good and ethical corporations. ReportShare1RecommendReply

Dhako 3 days ago Part II: - On China. And, finally, those of you who always wanted to know why China will not go down this road in which the West have travel on ever since the end of the Cold War, should know by now, or at least understand that for the Chinese the notion of keeping the SOEs (State-owned-enterprises) is not about something that is a hang-over from a bygone era. No it's just that the Chinese have seen what happens when the state (i.e., regulatory state) is either gets to be disarmed or is being 'captured' by corporations acting behind their lobby groups who fund a politicians running for office. Hence from their point of view, these SOEs in China provide a 'governmental tool' in which the state can create a market ground-level in which the well being of society comes first. And this is another way of saying that if there is conflict between profit and number of staff that a particularly SOEs corporation has, then in Chinese context, it will not necessarily be (or at least automatically) that always the casualty of the situation will be the staff of the corporation, as the case is, unfailingly in the West. Moreover, the Chinese state can easily see you can't create 'good Corporations' if you do not set the ground rules first. And, if the state is 'toothless' then you will get the likes of Google, BP, and many other Anglo-Saxon multi-corporations. But whether they are 'good corporations' is either by chance or it's something that was inherently borne out of that corporation business model. But the state (in the political sense) has no 'leverage' to either force it, or even to bring about in the first place; much less to be said the state has the means to 'incentivize' the possibility of those behemoth acting as a good corporation if their 'profit-motive' dictates for them to act otherwise. This is the reason, and the only reason, in which China will always guard rather jealously it's 'State-led-capitalism' and will make the continuation of that concept it's 'organizing principle'. Since that version of capitalism affords her the 'tools, the philosophy foundation that brings about their version of social-contract, and finally it gives her, the ability to pragmatically calibrate, at every given year which of these three pillars (society, market, regulatory muscle) be emphasize more importantly than the other two, so that cumulatively their interaction will could enhanced optimally, for the greater good of the nation. In other words, one year, the regulation will be less important than market-forces (like now). And, another year, it could well be that a society (in the civil sense) can be given a larger lee-way in experimenting with all sort of stuff, like new having less restrictive social formation, like housing, marriage and divorce, or even registration, and one child-policy. And, another year, the state, will see it's important to 'crack' the regulatory whip by way of enforcing all manner of 'dirigisme laws' on shadow banking, or property market, or even on an environmental terrain. Hence, the state in China is 'unrivalled power' at the centre of the nation, adjudicating, incentivising, and regulating the interaction of these three pillars of the nation. This is the definition of what China means, her 'state-led-capitalism'. And so far her version of capitalism is singularly winning against the Anglo-Saxon's model of capitalism. ReportShare1RecommendReply

Janet Mackinnon 3 days ago I agree with much of this article and can remember a time when the good corporation was indeed at the heart of the local economy. However, this seemed to change in the 2000s for a variety of reasons: globalisation; take-overs which replaced good companies and local management with distant bureaucracies and head-offices; a fundamental shift in business philosophy (some kind of Dawkinsianism?) which saw paternalism as fundamentally for corporate wimps on the verge of extinction etc. It will be interesting to see whether good corporations of the kind described by John Kay can make a comeback. ReportShareRecommendReply

Groucho Marx 3 days ago My great grandfather (Karl) suggested that 'bad companies drove out the good' - that companies (for example) paying lower wages would drive higher wage payers out of business. Thought on this subject has advanced in the last 150 years and many good companies thrive.... but it would be naive to believe that this is universal. In many areas 'bad practice' still competes away 'good practice'. How to achieve this? Regulation is a start but on its own is destined to fail... Prof. Kay identifies that it is a political question.... and that is a start. Excellent article. ReportShare1RecommendReply

Patricia Hamzahee 3 days ago Surprised to see the negative responses to John Kay's reasoned argument in support of profit-making where good business is better enabled by doing good. While it is true companies' primary responsibilities are to their shareholders, they are also accountable to their employees, customers and wider society -- not just for jobs, but also for taxes, health, safety, fair trading practices et al. It is how these are balanced and sustained over the longer term that brings success or failure. Mohammad Yunus, the godfather of microfinance, shares a telling anecdote about support he received from Danone for an innovative 'feed the poor' initiative in Bangladesh. The investment amount needed received shareholder approval while Danone employees wanted to be included and also contributed. The end amount committed was much more than originally envisioned. Grameen Danone shows how a profit making company can marshall its commercial capabilities for social benefit. We should celebrate the many examples of conscientious capitalism that exist rather than argue that business should only work for selfish ends. ReportShareRecommendReply

MarkGB 3 days ago 'The political and social legitimacy of the market economy, and of the corporations through which it functions, cannot simply be asserted — as it has been in the market-fundamentalist rhetoric that has dominated economic policy for the past three decades' To avoid being rude, I think I must say that I live on a different planet to you Mr Kay. The one I live on has had its free markets perverted by 'bought and paid for' politicians, governments who buy votes with promises they can't keep, a monetary politburo known as 'the Fed', and a cabal of investment bankers who've turned the market into a casino. We don't have market economics or capitalism on my planet Mr Kay - we have cronyism and socialism for the rich. On my planet I still hope for a truly free market economy, under the rule of law. This offers many of the benefits you are espousing, but with one difference - it isn't created by politicians, defined by control, and subject to the manipulation of elites; it is created by people, defined by freedom and subject to the rule of law. ReportShare4RecommendReply

theschaff 3 days ago Companies already make three valuable social contributions by virtue of generating a profit: jobs, tax and desirable products and services. Succeeding in these three alone is a high bar, as the long list of once- loved but now defunct companies shows: ICI, Marconi, Woolworths, to name but a few. Contributing through additional altruism is neither necessary nor sufficient. ReportShare6RecommendReply

Kevin Alexanderman 3 days ago UK society is so indoctrinated with the leftist anti-profit mentality they do not question its legitimacy. Firstly, what is profit? Profit is the goals scored by teams coached by CEOs or MDs. When your favourite football club scores a goal, do you bemoan how goals are basically evil, and that the real purpose of the football club is to play fair and pay the footballers, managers and back staff, and entertain the fans, but not to score goals? Who roots for the limp football club that loses game after game, ad infinitum? Profit in a company allows the company to give greater security for the future of the team, the ones that are good enough to keep their places through their performance in the process of creating and delivering genuine value to customers—those that aren’t competent enough have to change their game, or up it. Profit allows improvement in products, improvement in the capital used to create them, which in turn allows greater productivity and wages to rise naturally. Without profit products are unlikely to improve. Where does profit come from? Profit is the result of good planning, innovative thinking, self-discipline, practice and outstanding performance. Profit is aided by rational persuasion, but before that, discovering what is truly of value to the client. Profit in modern society causes people to give a damn. Profit at a restaurant motivates people to actually care about their service to a client—if they don’t please the client with their performance, the client will go elsewhere—they can’t fake it, it has to be genuine enough to get the worker off their duff and care more about serving the client than doing nothing. Consider: the NHS hates profit, opposes it, and they generally don’t care about their clients (in spite of the political rhetoric to the contrary), who must come to them whether they want to or not, as their government monopoly has basically wiped-out the competition except for the very wealthy who can afford private care, which in turn is more expensive as it cannot benefit from economies of scale. When you retire, reader, it will be in the interest of the NHS for your early demise, as you will be a cost centre, not a tax payer. Who roots for the organization that always operates at a loss? Few, even when that organization is a government. Governments only rarely score a goal with a budget surplus, instead losing year after year after year. In UK society, who roots for profit? Only a handful of investors, while everyone else condemn the goal scorers. The anti-profit bias has been delivered to the general populous by a government-monopolized education system because governments do not profit by earning money in free exchange. They confiscate money from people who do not have a choice. Teachers are paid by the government, and necessarily have to justify their employer’s MO and bad-mouth the competition—which are organizations who compete with one another in free exchange. Not free exchange you say? That is supposed to be the government’s primary job—to defend free markets—if they are not free, it is because governments are not doing a good job, and the society’s intellectuals can’t figure out what is important. ReportShare5RecommendReply

Dhako 3 days ago @Kevin Alexanderman I am afraid, like most libertarian fantasist, you have more of a theory than a real world experience. In other words, if for-profit-health-care could delivers wonders better than a nationalized health-care, then American's health-care system, in it's Pre-Obama-Care version, would have the goods to show how for-profit-health-care beats all comers before it. And as anyone who reads the OECD health-care outcome comparison can tell you America spends much more on it's health-care provision, and still all that 'buck' doesn't get them any where near of a decent outcome in which some of the 'tightly-regulated' health-care in some of the Scandinavian nations have easily achieved. So, please lay off the regurgitation of the glib-libertarian-nirvana without having so much of a data to back it up your assertions. Furthermore, the issue is not about denigrating profit-making, per-se as a wholly legalized exercise. But, rather it's about the criteria withing which corporations should do so. Or even, whether society should have any say as to the method and terrain in which those corporations should seek their profit on it. Of course, you are entitled to say, corporations should not concern themselves with anything that strictly doesn't enhance their share-holder bottom-line or their profit. But, others do think that society acting through their democratic state must have the means to balance between the profit-motives of their corporations on one hand against the meaning of a good life in which society should strive for, on the other hand. And, just because things have gone out of kilter in-terms of how this sort of balance ought to have been struck in the first place, doesn't mean that there is no case to make against the way the political right in the West (particularly in America and in UK) have essentially set the argument about where precisely a profit-making motive fits in the larger scheme of things. Of course, it could well be that the forces of the left (broadly defined) have no meaningful way (or actionable program) that can act against the way corporations in the Anglo-Saxon's world perceive their role to consist of. So, all of these 'stake-holder-arguments' could well turn out to be nothing but academic and a futile exercise. Since, it could be rather late in the day and therefore we are essentially looking a situation whereby the current globalized Multi-National behemoth corporations are essentially a granite mills around Anglo-Saxon's world, whereby the 'reform' in the direction Prof Kay would want is well-nigh impossible to enact. And the reason could be that these behemoth have cleared all before them, politically, or at least they have 'captured' the political terrain of their nation, comprehensively, particularly by way of essentially sponsoring any politician who could spire any role, and, therefore, ensuring no politician who could advocate a different 'paradigm' in their relationship with the society and state, could never amount to anything politically. Hence, if that is the case (and I suspect, that may well be the reality) then you can say, spare your breath, chaps, for the 'game' is being done and dusted with. However, granting you all of that as a likely possibility, doesn't as of itself mean that there is no 'cogent arguments' to which one can't make against that state of affairs. ReportShare1RecommendReply

Kevin Alexanderman 2 days ago @Dhako @Kevin Alexanderman , I am afraid, like most leftist fantasists, you have more of a theory than a real world experience. You state: “if for-profit-health-care could delivers wonders better than a nationalized health-care, then American's health-care system, in it's Pre-Obama-Care version, would have the goods to show how for-profit-health-care beats all comers before it.” Firstly, in your fantasy world, America is a “capitalist” society. It is nothing of the kind. It is an altruist-collectivist state that allows businesses to operate because that provides more income for the government. The legal system is a shambles, controlled by leftist-educated fools who want to prove that rational government is not possible. Under such a legal system, insurance pay-outs are not reasonable, as the courts are irrational. The leftists are fully aware of the scam. They have been after nationalizing the healthcare industry for decades. Again, it is in a government’s interest, when paying for nationalized healthcare, for every retired person to die as soon as possible. Maybe they haven’t figured it out yet down the whole NHS line, but they will eventually. A retired person, ill or not, is a cost centre, even for normal check-ups. When they become ill, it will not take long for a fully socialized society, as that is where you all are aiming, to realize declining lifespans again. I expect them to one day deny that humans ever lived more than 1 or 2 years past their retirement age. Today’s nationalized healthcare systems benefit from the many decades of technological advance that occurred in the private healthcare world. A person today goes to the NHS and leaves healthily and then misattributes it to the wonderful NHS. They are not aware that the technology is a result of private firms in mostly other countries, who have developed products for a private hospital system. Their thanks should be properly directed not just to the operators of the equipment, but to the inventors and producers of it. ReportShareRecommendReply

skeptic01 3 days ago @Kevin Alexanderman In an ideal world, profit should represent the difference between the value created by a company, and the value of the resources that it consumes. To be in favour of profit then simply means to believe that companies and organisations ought to create net value and not simply destroy/consume resources. But in the real world not all value can be monetized. For example Mozart was unable to monetize the value of his music either to his own or future generations. He did not make a profit and died in poverty. ReportShare1RecommendReply

Kevin Alexanderman 2 days ago @skeptic01 @Kevin Alexanderman , In an ideal world there would be no economists except those who were successful entrepreneurs first. Your view of an ideal world was invented to justify your political views, and has nothing to do with reality. You call it ideal because it is impractical, but that is a euphemism. Your view is not ideal, just valueless. Profit is why people start businesses—so they can make more money than they spend. That many like doing it because they are good it only attests to their good character. In the real world, a corporate head has to accomplish objectives with the help of his paid teams in a constantly changing environment. In addition, there is competition and thieves, not to mention ever-increasingly oppressive regulation and taxation. Customers generally do not provide a guarantee that they will buy a company's goods and services, and often after they've received them they pay late and sometimes not at all. Raw material prices vary, and capital is not always available, and when it is, the terms often make investing it impractical. Profit results if the price offered and received is higher than the eventual costs, which are generally out of a company's control—but achieving the profit is the purpose for which the business is established in the first place. When a company makes a profit, it should be celebrated by not only a company's team, but the society where it functions, as the additional revenue is made available not only to owners and investors, but to borrowers through banks, and governments as tax. Profit is a noble achievement—that the financial press and academic world spend much of their efforts deriding profit is an affront to rational adults, and a disservice to everyone. ReportShareRecommendReply

pseudonym 3 days ago But do you have sanctions on 'bad' companies - in which case you are viewed as anti-business? Otherwise this is worthless. In fact, I would argue that there are hardly any policies in the last Labour manifesto that were really anti-business but that in 2015 it is too easy to depict any policy, including those in this article, as being so, mainly because commentary continues to be dominated by ultra free market views. ReportShareRecommendReply

kodojin 3 days ago Frankly this is just pie in the sky.The purpose of Capital is profit.All the rest is lipstick on a pig. Do I really have to cite the banks frauds,the way Amazon treats its workers,the tax avoidance of multinationals etc etc.? The profits belong to Capital,the losses go to the state. ReportShare3RecommendReply

HopeSprings 3 days ago This is all great. Difficult to disagree with anything. But at the same time as all this, I'd reiterate that the corporation still belongs to the shareholders, and that there is no basis for the execs and staff to help themselves to the equity of the business. That way, we can maintain the principle that the company is run for the long term interests of the shareholders. Having established that and understood it, we can get on with the inclusive, non-greedy, way of operating that cares about doing whatever for its customers as well as possible for its own sake, as well as developing the capabilities and fulfilment of the employees, also for its own sake. John's book Obliquity is a nice read, and he's obviously not going to push it himself. Today's business imperative seems to be to push the share price up at all costs, in order to justify ever-greater greed by the few at the top. It's no fun for anyone, it doesn't make anyone happier, and you need to be pretty inadequate for status to be everything. John Kay's description of a better world is good and helpful, but getting there is a huge challenge. I pray that regulators don't come in and steal the agenda, because unsubtle regulation's just not going to cut it. ReportShare1RecommendReply

clogblogger 3 days ago @HopeSprings The corporation does not 'belong to the shareholders'. They have simply bought a right to a share of the earnings, when it suits the board of the said corporation. So 'we' have not 'established that'. ReportShareRecommendReply

rzb 3 days ago @clogblogger I am sorry where do you get the idea that 'The corporation does not 'belong to the shareholders' where is your evidence? When I buy a share in a corporation I become a part owner in that business. I would only choose businesses to own where the imperative of the management is NOT to 'push the share price up at all costs' as mentioned Kay's book obliquity describes that is a dubious way of running a business. There are many excellent businesses in the Uk that could be models for how this is done e.g. Spirax Sarco, Rotork, James Fisher and yes I too pray, ' that regulators don't come in and steal the agenda, because unsubtle regulation's just not going to cut it'. ReportShareRecommendReply

unconventional wisdom 2 days ago @HopeSprings@clogbloggerrzb Law Professor, Paddy Ireland explains all in 'The Myth of Shareholder Ownership' (https://kar.kent.ac.uk/1939/ ) This is essential reading for all shareholders; they do not 'own the company'. If directors understood this (their fiduciary duty is to the company as distinct from shareholders), Shareholder Value Theory would not direct company activities so 'short termism' would not prevail and customers, employees, suppliers and the environment could be given due attention. The widespread belief in shareholder supremacy is a major reason why there are so few 'good' companies. ReportShareRecommendReply

Sceptic 3 days ago Sounds good but smells like snake-oil to me. ReportShare3RecommendReply

Poorbuthappy 3 days ago Thank you, John, for bringing us back to earth with your commonsensical article... ReportShareRecommendReply

Paul Kearns 3 days ago John, at the Maturity Institute we set a single, over-arching goal for executives of creating maximum societal value, which incorporates everything you have itemised above. We define value as the best possible quality (product or service) at the best cost (for the market being served - with no undue damage to the environment). There cannot be any conflict between executive remuneration, shareholder value, customer expectation and employee engagement in this version of capitalism: a common understanding of value is the only coherent concept that binds the whole system together. If there is any conflict (as there often appears to be between the first two stakeholders and the second) then you are absolutely right - the intrinsic legitimacy of the system is lost. Indeed, the current 'system' is flawed for this very reason; skewed as it is towards shareholders and supported by a broken executive reward mechanism rather than driving whole value for the benefit of society at large. ReportShare2RecommendReply

HopeSprings 3 days ago @Paul Kearns Skewed towards shareholders? I'm not so sure. Skewed to shareholders who care about short term share price movements yet, but that's not the way to maximise shareholder wealth in the long term. For that you have to develop your relative competitive advantage for the future, and doing that involves all sorts of things that can't easily be measured and which may show up adversely rather than positively in financial statements in the shorter term. Agreed that the exec reward mechanism is a disaster. The challenge is to do some really fresh thinking. We can't start with today's rates of pay as a default position. ReportShare2RecommendReply

gaston lagaffe 3 days ago I am very sympathetic to the substance. But I am not too sure from the article how to achieve it? Many of the points raised are more easily addressed through culture change than through law. I am not sure how to promote a discussion on culture change in UK business, although I am sure it could do some good. I suspect the Labour party is not best placed to broker the discussion. But thanks for an interesting article. ReportShare1RecommendReply

NBeale 3 days ago A lot of good sense here - and nothing that a Conservative could not agree with. ReportShareRecommendReply

Inarticulate ramblings of a management consultant 3 days ago I think there is real relevance to this discussion...and one thing is for certain. The new employees will look at the reputation of future employers with more than just a career path in mind. They and their peers have no fear around making decisions on a broader basis...you can see that the move to self-employment and the general level of employee engagement demonstrate that corporates need to offer that breadth in order to succeed. http://bendehaldevang.com/2014/09/11/the-perfect-storm-which-has-the-potential-to-challenge-the-corporate-world-as-we-see-it-today/ ReportShareRecommendReply

Bekin 4 days ago Let’s assume that Labour were to put the ‘good corporation’ at the heart of its economic policy. What then? In a world of multi-national corporations that are used to the rents political lobbying reliably delivers, how would Labour induce them to be good when so many venal politicians in the world are content for them to be ‘bad’, as long as their campaign contributions are generous? The ‘good corporation’ is a commendable ideal, just like the ‘good citizen’ and the ‘good politician’. The key question is: how do we induce corporations to be ‘good’? There is, of course, no easy answer. Many corporations are effectively stateless, dictatorially governed and economically more powerful than some of the countries in which they operate. The reformation of the international ‘corporatocracy’ is beyond the power of Labour or any single political party or even any single country. The western version of capitalism is beginning to look as though it’s become a victim of its own success. ReportShare1RecommendReply

Guido G. 4 days ago @Bekin I think you are right in the idea of being 'victim of its own success', but the idea should be applied not so much to Western capitalism, rather to Western cultural identity. It is a truth of life that when success is there, everybody tends to give everything for granted and to forget the deep reasons upon which this success was originated. So we have to dig deep under layers and layers of globalization and recover - if we still can - our cultural identity. Then it will be a matter of recognizing it and sticking to it: by companies, on one side, and by investors on the other side. ReportShareRecommendReply

Guido G. 4 days ago Very interesting article... and very agreeable indeed! Thank you. There are VALUES which are not just 'economic' values and these VALUES are hierarchically higher than 'economic' values... This should translate into a new, better way of looking at investments: a way in which investment targets are selected on the basis of a variety of indicators - not only earnings or the like! It might be interesting and useful to develop a debate about the availability of these indicators and - if they are not yet available - how we could define them and measure them. ReportShareRecommendReply

ceteris paribus 4 days ago Historically, a flourishing and diverse SME base is what drove growth in Western Europe and North America and if you look at employment statistics, large corporations account for a small share compared to SMEs. 'Good' corporations will never 'drive' the economy as long as global transfer pricing schemes allow them to avoid taxes legally. if you want them to drive growth (which I doubt they ever can under any circumstance), for starters you need to tear up the tax rule book and start over. When. Pigs. Fly. ReportShare3RecommendReply

Adrian Costain 3 days ago @ceteris paribus If society needs a flourishing and diverse SME base, then it likely needs a flourishing and (geographically) diverse retail banking sector. I think John is stretching reality with his expectations for a 'good corporation' applied generally - but, agree governments must ensure (and it is only good bargaining practice - given the level of support the sector receives) that we have good banking corporations (and auditors). ReportShareRecommendReply

DougHuggins 4 days ago Kay appears to want to resolve a dilemma that in practice doesn't exist. There is widespread agreement in every western society about the role of commerce in general. Specific structures, including various corporate structures, exist within specific countries to facilitate legal personhood, limited liability, etc. Kay is merely listing a set of business values that he characterizes as being 'good'. This hardly seems the basis of a program with which address the 'intellectual disarray' of 'the European left.' ReportShare1RecommendReply

Michael McPhillips 4 days ago @DougHuggins and @ceteris paribus But what he says makes excellent sense and for economies that rely on investment it's the only way to go, which leaves taxation as the impediment to corporations being as he describes. Governments have to realise that while taxes are too high to keep corporations investing in their economies they won't and since high taxes enable high public sector salaries etc. and thus high bank credit that takes investment from the real economy and raises rates for companies and workers in the private sector whose taxes have to pay for that bank credit, corporations with investment capital are going to look to lower labour cost and lower taxing economies to make profits they can't make in their own. Experience shows that the more taxes they pay the higher go public spending and public sector salaries and thus the more bank credit that goes to raising taxes for companies, borrowers, and savers in the private sector. When banks only lent to commercial companies and those who worked for them or to those with liquid assets to cover loans, they grew and prospered. The more that government and its workers earn the more free bank credit they get and when government borrows the wages and pensions it pays from foreign banks, investors, and lenders, and it and they still get bank credit the banks and economy can't win. That's the handicap the new government will have to lighten if the economy is to be fit for purpose. ReportShare1RecommendReply

daviddunn 4 days ago In recent discussions with entrepreneurs, especially in the US, I have detected a new idealism, recognition of the need for ethical business standards etc. I hope that translates into new business practices generally. This article was helpful in setting out such aims. ReportShare1RecommendReply

E. Scrooge 4 days ago @daviddunn Most entrepreneurs expect ethical behavior, or they take their business elsewhere, where they can find and do business with ethical people. The slimey, and slipshot are soon found out, and with social media, it is much easier to out those that have no ethics or deal in a marginal way. I find only in larger markets where the slippery and slimey have such a larger market place in which to engage in less ethical practices that they are able to thrive for any length of time. Much harder to hide in smaller markets. The real slimesters are usually out of business in short order. ReportShare2RecommendReply

Stevie Brown 4 days ago Inspirational ReportShareRecommendReply

SMWard 4 days ago Examples please. What is the nearest thing in the real world that matches the ideal of the 'good corporation'? ReportShare2RecommendReply

IRLecon 4 days ago @SMWard VW? ReportShare1RecommendReply NYC's Finest 4 days ago @SMWard Berkshire-Hathaway, Google, Volkswagen, Microsoft, Disney, BMW, Apple, Daimler-Benz, Sony, Colgate-Palmolive and LEGO to name a few. ReportShareRecommendReply

Horriblehenry 4 days ago @NYC's Finest @SMWard Oh my gosh half the corps on your list have practised aggressive tax avoidance, mass layoffs, have failed their own mantras not to be evil, relocated to ever-labour-cheaper countries, etc. The good is like happiness, or 'a-Pee-niss, as a movie said once: they are hard to find. ReportShare2RecommendReply passionate crusader 3 days ago @SMWard John Lewis ReportShare2RecommendReply