Restoring Trust is Good business

Geraint Talfan Davies hears a champion of successful ethical business score a hit in Cardiff.

The gap between public opinion and conventional business wisdom continues to yawn. The senior executives of banks, whether in the UK or the US still find it almost impossible to exhibit any contrition. It is as if the words shame, blush and embarrassment have fallen out of their dictionaries. Their renewed bonuses – this year the almost automatic result of market recovery – still keep them marooned luxuriously on a different planet from the rest of us.

Not only is public protest dismissed as naïve, but even those advocates of more radical reform who live within the magic circle – Adair Turner, Chair of the Financial Services Authority for one – are regarded suspiciously. Meanwhile, governments in the UK and US make limp gestures of constraint with little conviction that they will work. Lord Myners, a banker turned Minister, puts himself forward as a latter day Savonarola, preaching fire and brimstone, tolerated by a governmental church that seems to prefer an Anglican compromise. His lucrative past is a hindrance.

The job of finding and restoring the moral compass that in recent decades has been buried in a sand dune of greed is going to be a long job.

Three cheers, therefore, for Dame Marjorie Scardino, Chief Executive of Pearson plc, and one of the longest serving chief executives of FTSE 100 companies, who in an address to Cardiff Business Club on Monday evening, made a thoughtful and reasoned plea for the restoration of older values in business to restore lost trust.

Her address certainly did not have the feel of a public relations exercise, occasioned by the recent crisis. The record and purposes of the Pearson company – educational as well as ownership of the Financial Times – are such that there is no necessity for that. In any case, it was very early in her 12-year tenure at Pearson that Dame Marjorie was castigated for proclaiming the heresies that she re-stated afresh to Cardiff’s business community: that the ‘corporation is a social institution’, that ‘profit can’t define an institution’, but is ‘a by-product’ of the corporation’s task of ‘moving civilisation along’.

Capitalism, she said, is about more than wealth and shareholder value, and she regretted that this had been forgotten by too many in business. Far from this being woolly-minded idealism, she reasserted the view that it was companies that had a long term purpose other than profit, and that could engender trust, that would win out in the long term. John Lewis was another example where this approach strikes a chord with customers.

She also had little time for executives whose remuneration was sometimes 1400 times greater than their average employee, and had an amusing explanation of why public anger at such excesses is greater in Britain than in the US. She cited a survey which showed that 20 per cent of Americans believe that they themselves are in the top 1 per cent of income earners – a measure of the underlying American aspiration for wealth, not to say a rather spectacular example of cognitive dissonance.

She did warn, however, that there had to be a change in behaviour. Change could not rely on regulation, rules and contracts alone. Society, too, had to make clear what it expected. She preferred the UK’s approach to corporate governance to that of the US – relying on a framework of concepts rather than bureaucratic box-ticking – but did not explore in any detail the role of regulation which is, after all, one means of expressing what society expects.

If there is a connection between the substance of leadership and product quality,  perhaps it is not surprising that the Financial Times is the only UK newspaper in which you can read a sustained intellectual debate about more fundamental reform of the banking system. It wouldn’t surprise me if, in impacting on her audience, she didn’t sell a few more copies of the pink’un in the process.

Geraint Talfan Davies is Chair of the IWA.

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