Rob Campbell rebukes the Corporate Governance Symposium for its focus on market perception. He's all for sustainability and diversity, but not because of branding. It's because they are the right thing to do.
OPINION: There are many conferences on business governance these days. Possibly in inverse proportion to any clear improvements in how business contributes to society.
This should concern us all, not least because so many non-business organisations from state, to local government, to charities continue to adopt private sector governance models just as those models need to be changed.
Whether we meet the various physical crises of climate, biodiversity, and degradation or the social crises of inequality, migration and health will depend in large part on how we conduct our economic activity. That, in turn, is substantially dependent on how boards see their role.
So when I saw a report on one of the most influential governance conferences recently state that “despite the rapidly changing economic and social environment, the principles of good business have not changed: profitability, longevity and market perception of a company and its brand remain the significant focus for governors, and the key markers of success” – I was moved to comment.
That comment on LinkedIn attracted quite a bit of interest.
Supportive interest mostly came from those who were not large business directors (though some of those have also privately expressed similar views to me).
The “rapidly changing economic and social environment” is not an externality for business. Business is reflexively embedded in its environment.
I take this opportunity to expand a bit on why I think this summarised conference view is unfortunate. It is not personal criticism of board colleagues and should be read more as personal reflection from some decades of business governance.
The “rapidly changing economic and social environment” is not an externality for business. Business is reflexively embedded in its environment.
The very act of intellectually conceiving this as external poses the business as a distinct agent. It is a conceptual framework which gives an independent legitimacy to one form of economic organisation – business – in which that form’s role is to influence and extract from that environment.
Danger signal number one. It leads on to the others.
The “principles of good business” begs the question “good for who?” It seems pretty clear from the context that “good for society” is not the assumed answer but rather “good for the owners” or “good for the owners and other financial claim holders”. There is nothing wrong with that in itself.
But whether it works effectively for society, for all of us, or for the physical world we occupy, for this to be an unchanging “principle” is very moot. There is plenty of evidence to suggest that this is not always the case.
For everything there is a time and directors should be alert and ready to call when time is up, not seek longevity for its own sake.
Hence our old friend “profitability” gets its seat at the front. Now we need to be careful here. There is obvious logic to a return on investment being required to maintain investment. Assuming the investment is not itself causing more harm than good.
But in capital markets the aim is not “profitability” as such but rather a return on investment which is in excess of the cost of equity capital. In other words “profitability” in this context should be read as “more profitability”. It is a “marker of success” but when it becomes “the” marker, it will quickly crowd out other legitimate “markers of success”.
Of course, it is not left wholly alone. The conference also wanted “longevity”. Well I guess most of us want that.
But there is no reason to suppose that any business entity should necessarily prioritise this. Not if it is doing more harm than good. And there is plenty of wasted energy and capital caused by board and management trying to keep a business going long after its genuine use-by date. For everything there is a time and directors should be alert and ready to call when time is up, not seek longevity for its own sake.
“Market perception and brand”, if they mean anything other than a means to ensure profitability or longevity, really reduce to ego promotion/protection. Or perhaps it means the greenwashing or other virtue signalling so commonly seen in business.
I’m all for sustainability, diversity and inclusion and other such activity in business, but not because they promote the brand – because they are the right and socially beneficial thing to do.
So there you have it all. Not a single thing in the summation I agree with.
Maybe I should hand in my directors' union card.
