So said Michelle Obama in 2008 – shortly before she became her country’s First Lady. Fortunately most Americans don’t necessarily agree with her. 69% of Americans agree that “successful business people and inventors are just as important to society as doctors, teachers and charity workers” (from the YouGov global poll for Legatum). But even if people think business leaders are important to society they do not necessarily admire them on a more personal level. Most business folk joined Members of Parliament and journalists near the bottom of YouGov’s annual survey of Britain’s professions. Conducted at the end of last year, the pollster found that just a quarter trust the managers of big businesses whereas 81% of Britons trust teachers and 89% trust nurses. And it’s not just bankers that are dragging all of the commercial sector down. Only 30% trust entrepreneurs and even small businesses couldn’t break above the 50% trust ceiling.

A survey by the UK-based Institute of Directors found that a plurality of business leaders recognise that these public attitudes are a problem. 48% of respondents to the IoD survey said that a lack of public trust in business was a quite (30%) or very (18%) important threat to the success of their business. 26% thought public trust in business was either not very important (16%) or not at all important (10%). We know from the YouGov survey for the Legatum Institute that 64% of Americans – in tune with people in the other six nations that we surveyed – think that most businesses have dodged taxes, damaged the environment or bought special favours from politicians in order to flourish.

Businesses have, of course, been portrayed negatively by much of the press and in much popular entertainment for a very long time but they also face a more fundamental public relations challenge. The positive benefits that they provide for the whole of society – including jobs, good value products, and the tax revenues upon which public services depend – are often seen as by-products of the pursuit of profit. We tend to most admire people who do things for selfless rather than self-interested reasons. Florence Nightingales rather than Henry Fords. Mother Teresas more than James Dysons. This is frustrating on many levels as it is undoubtedly true that the social benefits of self-interested business behaviour are many times greater than the fruits of selfless charitable behaviour. I’d offer the impact of foreign direct investment in developing countries versus the impact of overseas aid spending as my Exhibit A. As U2’s Bono has noted. Technological innovation delivered by business – such as mobile phone technology – has been much more important for African economic growth than any individual NGO; however big-hearted that NGO might be.

But if businesses want a different kind of reputation then it is clear that doing the same things that they’ve always done – however spectacular they might be in terms of the benefits they produce – isn’t going to be enough. Businesses need to do different things to achieve a different status in society. Let’s look at two business leaders who have chosen a different mode of operating.


One business leader who gets this is John Mackey. Mackey co-founded Safer War Natural Foods in Austin, Texas in 1978 - a supermarket specialising in organic, healthy and natural food. Whole Foods Markets, as it has been called since 1980, now has over 400 stores (including a handful in Britain and Canada), employs nearly 60,000 people and has a market capitalisation of approximately $20 billion. But this very successful businessman is hard to pigeon-hole. He’s a vegan. His stores are the choice of well-heeled, environmentally-conscious liberals across America. But this “cool capitalist” is also a trenchant critic of Obamacare and labour unions. He opposes the minimum wage - saying that if someone wants to work for $10 an hour and an employer is willing to pay that $10 then government has no business insisting that $15 or any other greater sum is paid. Milton Friedman is one of Mackey's intellectual heroes but he does not follow Friedman slavishly. Most importantly Mackey rejects what has become known as the “Friedman doctrine”. In his 1962 book, Capitalism and Freedom, the Nobel Prize-winning economist wrote:

"There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Only people - not corporations - have responsibilities, wrote Friedman in a 1970 article for the New York Times Magazine. Friedman likened the doctrine of “social responsibility” to socialism, arguing that if a company’s profits were to be used for charitable or other social goods then that good should be executed by shareholders as private citizens - financed by their dividends - rather than by the corporation.

He accepted that individual proprietors could quite legitimately “reduce the returns of his enterprise in order to exercise his "social responsibility,”” [because] he is spending his own money, not someone else’s.” This might impose higher costs on customers and less remuneration for employees but Friedman could see benefits from such behaviour:

“It may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects. Or it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to charities they favour by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.”

Crucial for Friedman, however, even in these actions is that it is in the self-interest of the corporation to generate goodwill - it is not “social responsibility”.

Mackey, in contrast, believes that a business only obsessed with making a profit contributes to the creation of an anti-business environment. Speaking to the libertarian website he argued that the anti-capitalist Left is empowered if the public comes to think businesses are “basically a bunch of psychopaths running around trying to line their own pockets”. If the public doesn’t think business is fundamentally good, he continued, and “we can’t trust them to do the right thing, so we’re going to have to do it for them.” If, in contrast “business has these responsibilities to all its stakeholders, its customers, employees, investors, suppliers, and the larger community, if business behaved like that, the impulse to regulate and control would be lessened.”

Mackey thinks a new post-Friedman generation of capitalists is now emerging. Employing the rather macabre expression that “social progress is made one funeral at a time” he argues that while the more elderly professors at business schools are still slaves to the idea of “shareholder value”, MBA students are “lapping it up” - “it” being the ideas contained in the book he wrote with Raj Sisodia; “Conscious Capitalism”.

In “Conscious Capitalism: Liberating the Heroic Spirit of Business” (2013) Mackey makes two principal criticisms of business: (1) that there’s too much profit maximisation rather than “purpose maximisation”; and (2) where Friedman would be in agreement, business is too focused on building cosy relations with government “that may not result in the greatest common good.” Mackey is a critic of the “too big to fail” model that operates in large parts of what he calls America’s system of “crony capitalism”. He recommends four key principles for “conscious capitalism” - a capitalism where business owners are conscious of how their decisions affect the business environment in which, in the long-term, they either thrive or flounder:

a. A higher purpose: “For Southwest Airlines, it is giving more people the ability to see the world. For Google, it is organizing the world’s information and making it universally accessible. For Whole Foods it is helping people enrich their lives through healthier food choices.” Mark Carney has called on this idea to be central to all banks and financial institutions: “Financiers, like all of us, need to avoid compartmentalisation – the division of our lives into different realms, each with its own set of rules. Home is distinct from work; ethics from law; the individual from the system. This process begins with boards and senior management defining clearly the purpose of their organisations and promoting a culture of ethical business throughout them. Employees must be grounded in strong connections to their clients and their communities.” Mr Carney was thinking of avoiding the attitude described by the CEO of TD Bank, Ed Clark. In 2012 Clark observed: “Bank leaders created cultures around a simple principle: if it’s legal and others are doing it, we should do it too if it makes money. It didn’t matter if it was the right thing to do for the customer, community or country.” Justin Welby, the Archbishop of Canterbury, believes that high social goals can and should be embedded in a corporation’s DNA. Focusing on the UK context, he promotes the idea of “gratuity” - citing the Post Office which is “required to maintain branches in one form or another in areas which will never be profitable”; the telephone system which ensures “there are landlines for remote communities in rural areas where the revenues will never return the capital invested” and “railways run with an element of the public good” – including discounted travel concessions for certain social groups. These forms of gratuity tend to be statutorily imposed but there is no reason why the banking sector, for example, couldn’t choose to provide a basic banking account for all citizens (with no opportunity to go overdrawn). As noted in chapter seven, the cost of having to use non-mainstream financial services adds up to tens of thousands of dollars over a lifetime for very poor households. A decision by the banks to collectively undertake such a social role could transform their public standing.

b. Stakeholder integration: “Without employees, customers, suppliers, funders, supportive communities and a life-sustaining ecosystem, there is no business” says the website of Conscious Capitalism. The idea that everyone is joined together in tangible ways is most exemplified by the company’s pay policy: no one at the top of the business can earn more than 19 times those at the bottom.

c. Conscious leadership: A management culture that brings out the best in all members of the business organisation - inspiring innovation and service rather than micro-managing. Mackey tells a story of an employee who decided to give $40,000 of produce away after the cash registers all failed for thirty minutes - during a raging snowstorm. He concluded that the goodwill generated couldn’t have been bought with $40,000 worth of advertising.

d. Conscious culture: “Culture eats strategy for lunch,” said Peter Drucker and Mackey agrees. This aim sounds very similar to aim (a) to me but Mackey would probably note that it is not enough to have the purpose articulated above - every stakeholder in an organisation must also understand that mission and feel able to contribute to it. Mackey is certainly sure of the “Whole Foods” mission and has written: “Most of the diseases that kill us and account for about 70% of all health-care spending—heart disease, cancer, stroke, diabetes and obesity—are mostly preventable through proper diet, exercise, not smoking, minimal alcohol consumption and other healthy lifestyle choices. Recent scientific and medical evidence shows that a diet consisting of foods that are plant-based, nutrient dense and low-fat will help prevent and often reverse most degenerative diseases that kill us and are expensive to treat. We should be able to live largely disease-free lives until we are well into our 90s and even past 100 years of age.”

Putting your head above the parapet - as Mackey has done - invites extra scrutiny. He has been accused of “corporate fascism” for some of Whole Food’s activities. Moreover competition from Trader Joe’s - another supermarket appealing to ethically-conscious shoppers - has tested his commitment to his values. Overall, however, he has won the admiration of his peers in the business world – despite his unconventional focus on purpose maximisation. Luke Johnson of the Centre for Entrepreneurs is one such admirer:

“Mr Mackey is willing to stand up and celebrate the achievements of free enterprise and make the case for entrepreneurs to be seen as modern heroes. He is credible because his company is cool but highly profitable. He argues convincingly against creeping government regulation and the demonisation of capitalism.”


If we are looking for someone who has won widespread admiration across social groups and across the world we need look no further than Bill Gates. For two years in succession a YouGov/ The Times survey of 25,000 people in 23 nations has found that the world’s most admired person isn’t Pope Francis, Barack Obama or Cristiano Ronaldo. It’s the founder of Microsoft.

With his wife, Melinda, Mr Gates is also one of the world’s biggest philanthropists – successfully fighting malaria and other deadly diseases all over the planet. With other super-rich individuals he has signed The Giving Pledge and will by the end of his lifetime, or in his will, donate at least half of his worldly wealth to good causes. It’s the combination of material success and beyond-the-bottom-line generosity that we appear to admire. In Britain, Lord Ashcroft’s support for military veterans has earnt him many plaudits. We warm to Richard Branson because of his support for great causes and, of course, for his daredevil pursuits, too. The Cadbury and Rowntree family names live on in public affection because of the charitable projects that they endowed. To be popular all of these people and businesses have acted – to use that expression again – “beyond-the-bottom-line”. It doesn’t have to mean philanthropy. Today it might mean paying more than the statutory minimum wage to employees – ideally even the Living Wage – and taking a more market-based approach to directors’ remuneration packages. It could be gold-plating apprenticeship programmes – rather than simply meeting the government minimum standards for training youngsters. It might mean not sponsoring the murky world of Fifa but investing in University Technology Colleges instead.

It might not seem necessary for businesses to worry about their opinion poll ratings. Perhaps that should be left to the politicians? But it’s the politicians and their focus on opinion polls that should worry businesses. The capitalist-sceptic Left might not remain unpopular in Britain – or in other advanced economies. There are circumstances in which it and its agenda could return to power. It is also true that the Conservative or Republican parties might play to the populist gallery if it thought some anti-business policies could win them votes in a tight election. Defending the City of London or Wall Street, in particular, is unpopular across the political spectrum. You don’t have to be a tobacco company to be unpopular anymore – just ask supermarkets or energy companies.

So long as there is a shortage of respected CEOs or entrepreneurs in the public square - who are able to compellingly defend business - there’s always a danger that anti-business policies might be implemented. Time is currently on business’ side given the nature of the governments that have been winning elections since the global crash. Even Michelle Obama hasn’t repeated anything as silly as her 2008 remarks about “money-making” since her husband entered the Oval Office. Every business needs to use this safe time wisely and focus on what kind of beyond-the-bottom-line projects it can pursue. All with the aim of ensuring nations like Britain and America remain places where it’s good to be in business.


There is probably no area where corporate responsibility is more needed than the area of executive pay. It is not just people on the Left who recognise that the current system leaves something to be desired. Mark Field, the Conservative MP who represents the constituency that includes London’s Square Mile of major banks and financial companies, admitted that a few years ago he could not imagine that he would have been “open minded to the notion of government interference in the remuneration of privately owned companies”. But, writing three years ago, he set out the kind of interventions he was now open to making. They included “tackling handsome dismissal packages for ineffective executives, commencing with equitable clawback schemes for unwarranted rewards (Sir Fred Goodwin’s pension springs to mind) and making shareholders – particularly large, institutional shareholders who must be more than just absentee landlords – more effective in insisting that earnings reflect reality.”

Mr Field was not alone. Mark Carney, the Canadian Governor of the Bank of England, has stated that “we need to recognise the tension between pure free market capitalism, which reinforces the primacy of the individual at the expense of the system, and social capital which requires from individuals a broader sense of responsibility for the system.”

Boris Johnson, Mayor of London, has worried aloud about the rise and rise of chief executive pay:

“How high do they tower, these great corporate sequoias, over the tiny shrublets of humanity? How high do the gullivers of capitalism loom over the lilliputians – I don’t mean to single out Stuart Gulliver. The answer is not 50 times, not 60, not 100 but 130 times…That is the average multiple of earnings …It has probably more than quadrupled in the last forty years.”

Many business leaders are “getting it” too. More than half of directors of the IoD admit that anger at executive pay was a threat to the status of business in society. Only 28% thought the public’s unrealistic expectations were a greater threat. The leadership of the Institute of Directors has also been willing to criticise pay deals.

The evidence within the United Kingdom is that top pay is beginning to moderate. Adjusted for inflation the average pay of chief executives fell in the last year. Top pay is actually down by 4.9% (in real terms) since 2010. Few people will feel sorry for this squeeze on top pay, of course, and nor should they. This small reduction starts from a very high base. Pay rises more rapidly in the good years than it moderates in the leaner years. City bonuses, for example, tripled between 2002/03 and 2007/08: rising from £3.3 billion to £11.6 billion. There has never been a proper reckoning since. Bonuses equalled £15 billion in 2014. CEO remuneration and the average remuneration of those at the top of FTSE-100 companies (£4.964 million in 2014 - nearly £100,000 per week) is still at a 183:1 ratio in comparison to the average remuneration of the full-time workers of that CEO (a median wage of £27,195). The ratio was 50:1 at the start of the millennium and just 20:1 in the 1970s. The current ratio in America is 373:1 with the average CEO earning $13.5 million. At Wal-Mart it is 537-to-1. Some “friends of capitalism” will defend this position as they will defend any and every market outcome. But it’s too simplistic to say that these awards are the product of a free market. In many European nations the ratio between average pay and boardroom pay is more like 100-to-1 and in some countries it is a lot lower than that. National cultures, tax systems and corporate governance regimes are clearly playing a part too.

There are many examples of good CEOs making a difference. Kate Andrews of the Adam Smith Institute has argued that bad leadership at Kodak meant the once all conquering photographic film company never invested in digital cameras. The result was bankruptcy. In contrast Steve Jobs’ return to Apple was the moment a failing company in the global computing business started to become the powerhouse that it is today. What worries many, however, is that overall pay awards bear little relationship to company performance. The High Pay Centre analysed pay data and key company performance metrics between 2000 and 2013 and found that the median earnings of a FTSE 350 Company Director increased more than twice as fast as median pre-tax profits at FTSE 350 companies and four times as fast as their median market value. FTSE 350 Directors’ pay grew nearly twice as fast as pay for all full-time UK workers.

Another myth busted by the High Pay Centre is the idea that there is a global market in CEOs. A 2013 report from the Centre – “Global CEO Appointments: A Very Domestic Issue” - found that 80% of CEO appointments in the world’s largest 500 companies are internal promotions. Only 0.8% of CEOs were poached from another CEO position in another country. 6.5% of CEOs were poached from another company, while serving as a CEO. While comparisons with the football transfer market are often made there simply isn’t the same international market in CEOs. Another difference between football and corporate boardrooms was pointed out by the former Business Secretary Vince Cable. Just because Manchester United’s Wayne Rooney wins tournaments that doesn’t justify everyone getting Wayne Rooney’s wages. “And,” insisted Cable, “it is not a committee of Manchester United players who set the pay of Wayne Rooney”.

Clare Foges, David Cameron’s former speechwriter and not, therefore, known for her revolutionary politics, has recommended worker representation on boards. Noting that the average annual pay of remuneration committee members is a substantial £450,000, she worries about an “incestuous merry-go-round in which noone questions the culture of ever-higher pay because they all benefit from that culture.” This will carry on, she warns, “like some Escher artwork” until the mutual back-scratching is ended. Foges doesn’t want worker representatives to have any power of veto but she does hope that worker voices on boards might at least challenge the existing culture.

Britain’s coalition government did introduce modest measures in the Enterprise and Regulatory Reform Act of 2013 to bring more openness to executive and directors’ pay. Some remuneration committee reports have been almost unintelligible - perhaps deliberately so. In order to tackle the problem of impenetrably complex pay packages companies are now required to publish a 'single figure’ detailing the total remuneration that their chief executives receive in any one financial year. Alongside this single figure companies must now publish historic comparisons of CEO pay and what relationship it has to the company’s underlying performance and to other employees’ pay. The ERRA also requires there to be a binding rather than advisory shareholder vote on pay policy at least once every three years. There is a specific requirement to get shareholder approval for any exit payment that amounts to more than one year’s basic salary or otherwise exceeds the minimum contractual severance arrangement.

It is perhaps too early to judge this Act’s full effectiveness - the only successful rebellion so far against pay was against the engineering firm, Kentz in May 2014 - but there are other signs that the the reforms might be working. We have already noted the modest moderation in CEO pay.

Some top CEOs still aren’t responding to the new climate, however, and they are insulated by the institutional conservatism of institutional shareholder groups. Requiring a super majority of shareholders (perhaps 66%) to approve CEO and director pay packages might help to overcome that conservatism. The introduction of such a super threshold would need to include provisions to avoid it being abused by a single, vexatious minority shareholder with another unrelated agenda but it would also be a neat companion reform to the UK government’s plans to guarantee proper turnouts in strike ballots run by trade unions.

Such a reform might further encourage the large institutional investors to spend more time listening to activist shareholders as Vanguard, Black Rock, State Street and Legal & General are already doing. Quoted in The Economist, Vanguard Asset Management’s controller of funds, Glenn Booraem hopes big investors will become “passive investors but active owners”. Mr Booraem explains more on his company’s website.

CEO pay and reward structures don’t just matter because of fairness and equality. They matter because shareholder and management objectives should be aligned. We had a classic example of dangerous misalignment recently. Martin Winterkorn, the former chief executive of Volkswagen, set out to make VW the world’s biggest car manufacturer by sales volume by 2018. His ambition to overtake Toyota and General Motors was succeeding and he was rewarded with the biggest pay deal seen on a German stock exchange-listed company. But you don’t treble sale volumes in the US — which was vital to his strategy — easily. You do it, we now know, by deceiving regulators with “defeat software” as technically brilliant as anything else in one of the Wolfsburg-headquartered company’s cars. Allowing Mr Winterkorn to set such a grandiose target – with huge upside gains for him but few downside financial personal risks – created a massive misalignment of shareholder and management interests. For capitalism to retain public faith we need a system where the rich can get poorer as well as the poor richer. There need to be snakes as well as ladders in the boardroom board game.


It is not just the corporate boardroom where thinking needs to evolve, there is also enormous scope for the thinking of charities to evolve. Frank Prochaska, a historian of the charity sector at Oxford University, has calculated that 27,000 British charities receive more than three quarters of their income from taxpayers. The overall percentage is 38 per cent, up from 10 per cent in the 1970s. When you get such a large amount of money from the state you get infected by its risk-averse mentality. Whereas business people often abandon failing projects because they can’t afford mounting losses, bureaucrats tend to throw more money at schemes that aren’t working because loss of face is a bigger worry to political paymasters who rarely like to admit defeat.

And this is why philanthropy by successful businesspeople should be judged by the change in culture it generates in the not-for-profit sector as much as by the sums that are given. 127 of 1,645 known billionaires have agreed to give away more than half their wealth as part of the Giving Pledge. They will never give as much as welfare states to fighting poverty and some, including Mr Gates, have questions to answer about the aggressive tax avoidance of the businesses that made them their wealth. Overall, however, the value of Michael Bloomberg’s donations to urban renewal projects, or Mark Zuckerberg’s to education, is that these adventurist minds bring to the fields of social policy the same disruptive thinking that made them rich.

In their 2008 book Philanthrocapitalism, Matthew Bishop and Michael Green examine the “value added” that successful business people can deliver to good causes. They highlight the New York City Leadership Academy which trains new school principals at a cost of $150,000 per head. Modelled on General Electric’s John F Welch Leadership Center its aim was to build “a team of 1,400 great principals who are true instructional leaders, who can inspire and lead teachers, students and parent in their school community.” There would have been public outcry if taxpayers’ money had started the academy and such large sums had been lavished on a few individuals. Because it was funded by the Broad Foundation, however, it was successfully established and after proving its worth it was incorporated into the New York schools budget by Michael Bloomberg when he was the city’s mayor.

On pages 281 to 282 of their book, Bishop and Green summarise the role of corporate philanthropists by pointing to a story of how their role is misunderstood in popular culture:

“In the penultimate episode of The West Wing, a favourite TV show of policy wonks, a multibillionaire Gates-like character tried to head-hunt White House chief of staff C J Cregg to run his foundation. She initially declines, but urges him to build roads in Africa. There is plenty of evidence that roads and railways are good for an economy and good for poor people, but C. J.’s advice was wrong. Infrastructure is hugely expensive to build and costs a lot to maintain, as the English philanthropists in the Renaissance found out. All the philanthropic capital in the world could not build enough roads to make a real difference in Africa – and within five years they would be falling apart with no one to maintain them. Public and for-profit private capital should build roads.

To achieve leverage, philanthropists should not be competing with or substituting for government money; they should be trying to improve the way it is spent. Likewise, companies and NGOs will be only too happy to take a philanthropist’s money, but they may be far less keen on the more valuable things the philanthropist can offer: insight and advice. Nor is leverage just about resources. The state is better placed, for reasons of legal power and accountability, to do some things, like creating welfare systems that provide universal coverage with consistent standards and without discriminating against particular individual groups. By taking responsibility for the whole system, governments can also minimise bad incentives – for example, by ironing out poverty traps. Governments tend to be hopeless at risky innovation, on the other hand. Likewise, public companies are good at taking an idea that works and growing it fast to a massive scale, but they are less good at investing in ideas that have an uncertain or long-term payback.”

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