30 June 2015

Business should never take the fertility of the soil in which it grows for granted


I loved Sajid Javid’s straight-talking speech at the CBI last night. I thought this passage about Britain’s EU renegotiation process was particularly good:

Does it really make sense to say, so early in the process: ‘the rules of this club need to change but don’t worry, we’ll always be members no matter what happens?’ …You know how negotiation works. You wouldn’t dream of sitting down at the start of a merger or acquisition and like a poker player showing his hand to the table – announcing exactly what terms you were prepared to accept. It doesn’t work in the boardroom and it won’t work in Brussels.”

Mr Javid, who spent many years brokering deals all over the emerging world in his pre-political banking life, was talking with some authority. His remarks could, of course, have been addressed to the prime minister (and, perhaps, sotto voce, they were). No EU leader thinks Mr Cameron wants “Brexit” and his negotiating hand is therefore weakened before he even opens his mouth – for the reasons Javid stated. But, explicitly at least, the remarks were directed at the leaders of the CBI and their repeated declarations of love for the EU. Mr Javid, who remembers the CBI’s ill-judged support for membership of the Euro fifteen years ago, worries that the organisation has become too unquestioning of Brussels. Perhaps the £800,000 of funding it has received from the EU over recent years might partly explain its position?

But this is not another article about the EU. I liked the idea of a Tory business secretary – who has been a successful entrepreneur himself – telling a home truth to a gathering of corporate leaders. Given the many things that this government has done for enterprise – including large cuts in corporation tax and the maintenance of historically low interest rates – it has some right to challenge the nation’s wealth creators where challenge is necessary. This is especially important now – just a few weeks after business escaped the election of an enterprise-unfriendly Labour government that might have saddled it with heavy-handed regulation and taxes. Business dodged a bullet but that’s no cause for complacency from corporate Britain. It would be wrong to assume that all of Labour’s concerns about “predatory capitalism” were unmerited. British business has at least five years to put its own house in order on a few matters before another general election risks the election of a less friendly government. There’s always a danger that a future left-wing government will bring a political sledgehammer to crack nuts that businesses were too lazy to address more precisely and voluntarily.

So what are the causes for concern? What are the other home truths that Mr Sajid might like to deliver to business leaders? Here are five questions I would pose:

Are you paying a fair amount of tax? Many businesses aren’t making a full contribution to the country from which they take so much. Starbucks, for example, is a notorious example of this phenomenon but only 34% of people think that big business, in general, is paying its fair share. Firms should consider following the likes of the energy giant SSE and the cosmetics company Lush which have signed up to the Fair Tax Mark. Transparency can be a two-edged sword – inviting extra scrutiny – but it can also generate a lot of trust.

Why do you pay telephone number salary increases to your top staff but penny-pinch when setting wages for your least well-paid employees? The remuneration of CEOs often bears little relationship to underlying corporate performance but business cites the free market when explaining the low wages of many employees. There are many advantages to paying all workers a little more. It can reduce absenteeism, for example, and staff turnover. Employees might be more rested if better pay means they aren’t working ridiculous hours in two or more jobs, trying to make ends meet. Adam Memon has already made the self-interested case for businesses paying more generously in this piece for CapX.

Are your employees, customers and shareholders your only stakeholders? What about the communities in which you operate? Some businesses are investing heavily in apprenticeship schemes. More could get involved in the University Technology College movement that the former Tory education secretary Lord (Kenneth) Baker is spearheading. UTCs are a way of ensuring a future supply of highly-skilled workers but are also a way of ensuring the well-being of the locality in which a business is based.

Some products may make you money but do they make you proud? Worrying about the sexualising nature of some clothing aimed at young girls was an early theme of David Cameron’s leadership. As football has proven with its campaigns against racism and homophobia, industries can play useful, culture-changing roles in delivering social progress.

Are you investing in the battle of ideas? Hardly a day goes by when left-wing politicians, ill-informed NGOs or trigger-happy journalists don’t make calls for bigger and bigger government. Who is speaking in the media for the superiority of self-regulation over statutory regulation? Or for the benefits of competition rather than state control? Who is warning that government meddling often creates as many problems as it solves? Who is arguing that lower tax rates can sometimes produce more tax revenues if they unleash enterprise? If you feel that there aren’t enough such voices perhaps you should be investing in pressure groups like Business for Britain, the TaxPayers’ Alliance and the Institute for Economic Affairs that aren’t afraid of the public debate. Business should never take the fertility of the soil in which it grows for granted.


The first purpose of a business is to make money. Loss-making businesses don’t last. They create unemployment and social misery. CEOs should never lose sight of profitability, therefore, but do they need a bigger, broader understanding of how to deliver a healthy bottom line? Do they need to think in longer-term ways – appreciating how a contented workforce, a strong local community and a dose of wider social and political goodwill – can help to sustain both individual businesses and a business-friendly culture?

Alistair Phillips-Davies of SSE certainly thinks so and he deserves the final word. This is what he said at a recent conference on good corporate citizenship:

“This is about legitimacy and the permission to be commercially successful within the society that enables business to exist… It seems to us, that if you pay people a fair wage, you contribute a fair share of tax and are transparent in doing so, if you invest in people and you seek to respond to society’s greatest challenges, then you might have a chance of gaining the trust from your customers that is so vital for a business to be successful.”

Tim Montgomerie is a columnist for the The Times and a Senior Fellow at Legatum Institute