British business needs investment and vision. But most of all it needs purpose

Article published by The Guardian on 15 May 2016

Written by Will Hutton

Featuring: Big Innovation Centre Purposeful Company interim report argues that it has become too hard for British companies to pursue purposed, rounded business strategies.

Many external forces can shape a company. But what makes them great is a clarity of intent that comes from within.


There is a quiet crisis in British business. The number of quoted British public companies has halved over the past 15 years. Too many famous names among those that are left – from oil to retailing – have been embroiled in scandals or have profound problems with their business model. There are only two hi-tech companies – ARM and Sage – represented in the FTSE 100. Fifty years ago there were dozens.

Yet great companies are precious economic and social organisations. At their best, they are agencies for human betterment. If Britain is going to improve its economic and social performance, it needs more such companies, especially in the knowhow-driven economy of today. Their lack is an important reason for the decline in productivity growth.

The chief explanation is that it has become too hard for British companies to pursue purposed, rounded business strategies. That is the proposition at the core of tomorrow’s Big Innovation Centre Purposeful Company interim report, supported by more than a dozen companies (such as Kingfisher, GlaxoSmithKline, EY, Barclays, the Guardian Media Group and Infosys) as well as by other organisations including the Bank of England and Innovate UK.

Successful companies are defined by their capacity to deliver and pursue clearly defined visionary corporate purposes – to be the best, to do business that is sustainable, to serve humanity, to stretch every muscle to innovate. Those purposes are not just rhetoric: they are binding commitments on the whole of an enterprise, from the board of directors to the shop floor, that generate trust. It is trust on which so much good business depends.“The industry that manages Britain’s long-term savings is hardly structured to make good deficiencies”

No company attempting to be purposed pulls it off completely; the key is to try, and build the systems to make it happen – and it is this commitment that contributes to improved performance. Thus Ikea, Kingfisher and Uniqlo declare that their purpose is to make sure everyone can have what only a few can have – from improving their home to cheap clothes that are nonetheless high-fashion. As their purpose, Apple and the BBC strive for perfection in what they do; GlaxoSmithKline and Unilever declare their purpose is to do business that is sustainable and ethical. Unilever creates a “materiality” map to ensure it is focused on what materially will deliver its declared purpose.

Innovation is another compelling clarion call; the company’s purpose is to go where no company has gone before – as ARM or Tesla declare. Other purposes range from treating stakeholders, including one’s workforce and customers with integrity – John Lewis and more recently Barclays – or taking on the big boys and challenging the complacency of incumbents, like Uber or Ovo Energy.

The evidence marshalled in the report suggests that purposed companies measurably – and here the report breaks new ground – innovate, invest and are more customer-centric than their non-purposed peers. Put another way, being non-purposed is costing the British economy up to £130bn a year of lost value generation. The precondition for rebalancing the economy or launching the march of the makers – preoccupations that stretch across the political spectrum – is to have a large and growing population of purposed firms.

Yet too much in the British ownership, financial and innovation ecosystem militates against the delivery of purpose. The evidence is that British public companies have the most fragmented, diversified shareholder base – and fewer so-called external independent block shareholders – of any advanced industrial economy, including the US. There is thus a paucity of engaged owners.

All advanced economies over the last 20 years, including China and Germany, have enlarged the rights of shareholders. But they have done so within financial frameworks that give company managements an array of devices to cement shareholder commitment – from making takeovers difficult to privileging founder shareholders with more voting rights, or allowing directors to have responsibilities to a wider range of stakeholders. They also have more sizeable block shareholders, which can act as engaged owners. Britain neither encourages block shareholding nor gives companies the freedom to protect purposed behaviour if they choose. Visionary purpose gets marginalised.

The industry that manages Britain’s long-term savings is hardly structured to make good the deficiencies. Long-term insurance companies and pension funds hardly invest in British companies any more; there are too many small pension funds, and too few have the incentive or resource to be in the business of stewarding companies. Stewardship, for all the warm words, codes and exhortation, is too often honoured in the breach rather than the observance.

To make matters worse, the stock market is not very good at valuing investment in intangible “knowhow” assets like R&D, patents, copyrights, or just straight investment in employees’ skills. Yet intangibles, with their long-term returns, are already the bedrock of the 21st century economy, with investment running at twice the level of “tangibles” in factories and machines.

British business investment in R&D, even allowing for the shrunken size of manufacturing, is running below the international average and shrinking. Small wonder so many companies are retreating from the public markets – and that matters not only because, if public markets work well, they provide money at scale, but because they are the principal way in which the average person can share in wealth generation.

What to do? There is no magic bullet, just a range of ideas – some big, some small – that cumulatively could make a difference. The interim report groups 20 policy options for change on which the Purposeful Company taskforce will be consulting over the next seven weeks.

The first ideas cluster is to encourage companies, via their constitutions, practice and reporting, to take purpose more seriously. Executive pay should be geared to the results that engaged owners want over time, rather than just rewarding this year’s profits. Secondly, Britain should consider introducing the tools that other countries permit to encourage shareholders to commit to companies – such as shares with differential voting rights. Thirdly, we need more blockholding and long-term shareholders.

Next, the asset management industry needs a makeover itself; there are too many small pension funds and the stewardship code could be made tougher. Lastly, the decline in UK equity ownership needs to be reversed: the tax system favours debt, not equity, and there is a case for a British sovereign wealth fund to make good the equity shortfall.

Too many of these propositions for too long have been regarded as the preserve of corporate governance nerds. Wrong. These issues are central not just to reviving the legitimacy of business by putting purpose at its heart – they are the key to creating long-term value for business and society. There is now a critical mass of companies and opinion emerging that could make real change happen. The task is to ensure that it does.

The Big Innovation Centre Purposeful Company taskforce’s interim report is released on Monday on

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