Shareholder Primacy and The Guardian
Katie Allen is the Guardian economics editor
Katie, in your September 11 article on corporate governance you mention that B Lab UK are calling on goverment to implement changes to allow directors greater freedoms when it comes to benefiting society and the environment.
Our experience illustrates how media partiality and exclusion can have tragic consequences including loss of life.
In 2004, when our for-purpose business model was introduced to the UK with a business plan to tackle poverty, it called on govcrnment policy support for such a model:
“Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”
It began two decades ago, in September 1996 with a voluntary role on the committee to re-elect the President, where founder Terry Hallman published his position paper.
In this paper, he argued that a corporation may serve the interests of the community as a primary purpose. If this is agreed by directors and shareholders and declared in the company charter there was nothing to prevent it.
“If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of corporate employees and community leaders.”
With her 2012 book The Shareholder Value Myth , professor Lynn Stout would validate this argument.
When people-centered business was first established in the UK our founder was interviewed by a diaspora leader about earlier work in Russia which delivered proof of concept and more recent efforts on behalf of Crimean Tatars. He described how the for-purpose business model was almost heresy.
In his 1996 paper, he’d warned of the risk of uprisings due to increasing inequality, making the point that the purpose of business is really about people.
Arriving in Ukraine in October 2004, he would step into one such uprising, the Orange Revolution. Connecting with local activists on Maidan, he’d warned of the danger of economic hit men, the surrender of state assets in exchange for international loans and again, that poverty and corruption would lead to violence. His article Really Betraying a Revolution was directed at Anders Aslund of the Carnegie International Endowment for Peace. He also drew attention to the relationship between BP and the Kremlin.
The primary focus of our work in Ukraine was the childcare system. Becoming aware of the plight of disabled economic orphans would lead to the series on ‘Death Camps, For Children’ in which he sketched out a plan to assist them in full public view.
This plan, described as a ‘Marshall Plan for Ukraine was delivered to Ukraine’s government in February 2007 and we followed up a year later calling for US government support, for this “new form of capitalism”
Others called on for support included BITC, The EU Citizens Consultation the APPG on Social Enterprise, and the Social Enterprise Coalition who told me it was beyond their focus.
B Labs were one of the groups I approached seeking collaboration in 2009, I described our work including the 1996 paper. They were not able to verify UK business.
The McKinsey Long Term Capitalism challenge gave me the opportunity to describe The New Bottom Line where people and their needs come before shareholder profit maximisation.
‘This is a long-term permanently sustainable program, the basis for “people-centered” economic development. Core focus is always on people and their needs, with neediest people having first priority — as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine’s poorest and most desperate citizens, rather than a “top-down” approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first — not secondarily, along the way or by the way. ‘
Fairtrade International and Coops Europe joined forces in 2013 to promote people-centred business in supply chains.
It was a Maidan leader who discovered my colleague’s body in August 2011 and wrote of his commitment to place children in loving family homes.
When violence erupted as predicted in 2014, the same Maidan leader wrote an appeal to the EU which included a ‘Marshall Plan’ strategy. I forwarded to South West MEPs, reminding them of the many instances we’d called on them for support.
At the same time at Davos 2014, a discussion at the Philanthropic Roundtable, chaired by Tony Blair, would go over precisely the same ground as the ‘Marshall Plan’ with the question of whether capitalism could deliver both financial and social returns.
Jeff Mowatt manages the Social Business and For Benefit Corporations group on Linkedin.
