16th May 2016
Shareholder fragmentation, idiosyncratic legal and regulatory systems and a focus on short term profit is holding back companies from creating greater economic and societal value
A major report published today by a taskforce of FTSE CEOs, Investment Houses, leading Business Schools and Business Consultancy Firms, established by Big Innovation Centre and supported by the Bank of England, stated that if the pursuit of ‘visionary purpose’ is put at the heart of British business an additional £130 billion a year could be added to British company valuations.
The report finds that:
- Purpose is key to corporate and economic success. Great companies are enabled by the pursuit of a clearly defined visionary corporate purpose which sets out how the company will better peoples’ lives.
- British companies are currently inadequately organised to unite clear corporate purposes with the common goals and values of their stakeholders, an important reason for the decline in the numbers of great UK companies. Research demonstrates that the economic costs of this are huge, potentially exceeding £130 billion a year.
- Companies that foster company purposes are proven to innovate, invest, serve customers and engage employees better than those that do not.
- The British business ecosystem currently works against the creation of purposeful companies. UK companies have the most fragmented, diversified shareholder base with fewer large “block holdings” of any other major country. This interacts with a unique legal and regulatory system to impose short-term profit maximisation rather than the pursuit of purpose on company boards.
- Financial markets systematically underestimate the value of investments that purposeful companies make in the ‘intangibles’ of know-how, R&D and skills. This is an important reason for the halving of listed companies over the last fifteen years, surge in delisting and accompanying decline in public offerings.
- Even adjusting for the sectoral composition of GDP, British business R&D is static and below the international average. With the growing importance of intangibles in the 21st century, if Britain does not foster purposeful companies it risks becoming an economic backwater.
The Interim Report will be launched at 9am on May 16th 2016 at the Big Innovation Centre by representatives of the Taskforce including Andy Haldane (Chief Economist of the Bank of England). At the launch the report’s 20 options for reform will be discussed including:
- Changes in practice and law to make delivery of purpose more central to business
- Redesigning executive pay to reward long term purposeful strategies
- Tax changes to reverse the decline in British equity ownership, including creating a British sovereign wealth fund
- Promoting engagement and stewardship
- Relaxing disclosure rules to encourage block holding
- Restricting the rights of short term shareholders in takeovers
- Better company reporting of intangibles.
Big Innovation Centre’s Purposeful Company Taskforce is inviting reaction over the next six weeks to these policy options before publishing the Final Report in Autumn 2016 with policy recommendations and a programme for change.
Commenting on the report Andy Haldane, Taskforce member and Chief Economist of the Bank of England said: “The evidence assembled in this report points the way to rethinking and re-orienting the very purpose of a modern day company, so laying the foundation for a new wave of investment and innovation”.
Clare Chapman, Taskforce member, non-executive director of Kingfisher and Heidrick and Struggles said: “A report of this character has long been needed in British boardrooms. It is the clarion call for action long overdue. I urge every FTSE 100 director or non-executive director to read it and become part of making change happen”.
Will Hutton, Chair of Big Innovation Centre Steering Group, Taskforce member and Principal of Hertford College Oxford said: “In my view this is the best attempt yet to set out the evidence that Britain has had a lackadaisical approach to company ownership, so carelessly creating economically and morally damaging company ethics and practices. Putting it right is feasible if a consensus can be built for change. I hope this report will contribute to doing just that.”
Mohit Joshi, Infosys President and Global Head Financial Services and Taskforce member said: “From our perspective, purpose is the glue that binds all our stakeholders (our clients, employees and shareholders) and connects us to the broader community. It has given the company a sense of self and a touchstone when vital decisions have to be made. I have no doubt that it has helped us deliver superior financial performance. The points raised in the report are vital to the long term health of capitalism in this country and beyond “
The Interim Report will be launched on 0900 at the Big Innovation Centre on Monday 16th May 9-11am at 4th Floor Ergon House, Horseferry Road, London SW1P 2AL. If you wish to attend please confirm your attendance to Brian Wagenbach at firstname.lastname@example.org.
James Chandler Hattie Stewart
Red Consultancy Red Consultancy
020 7025 6500 020 7025 6500
NOTES TO EDITORS
Purposeful Company Taskforce
The Taskforce members include Alliance Trust, Bank of England, Barclays, EDF Energy, EY, Fidelity International, Guardian Media Group, GSK, Hermes, Infosys, Innovate UK, Juniper, Kingfisher, Scottish Government.
Big Innovation Centre
Launched in September 2011, the Big Innovation Centre is a hub of innovative companies and organisations, thought leaders, universities and 'what works' open innovators. Together BIC enlarges innovative capabilities, acting as a catalyst in co-shaping innovation and business model strategies – testing and piloting ideas - that are both practical and intellectually grounded , with the aim of making business more purposeful and inclusive through the enormous potential of technology, creativity and innovation. The vision is to help make the UK a Global Open Innovation and Investment Hub by 2025, and to build similar initiatives internationally.
All the related news coverage can be found in New & Media