The purpose of business and the social licence to operate

1-4 February 2021 saw the British Academy’s ‘Future of the Corporation’ programme host its ‘Purpose Summit’ – a series of three events where a stellar cast of speakers discussed the concept of purposeful business, and the role that government and broader society can and should play in promoting ethical behaviour in business. The positive message from all three events was that debate about whether businesses should have a wider social purpose (alongside their profit-making purpose) seems all but over. There is now widespread agreement, both within business and beyond it, that, as the Future of the Corporation project has argued, the purpose of business is “to profitably solve the problems of people and planet, and not profit from creating problems”. The days of the Friedmanesque view – that all that matters in business is creating (lawful) value for shareholders – seem to be behind us; if we are to tackle the immense challenges that we face (from climate, to pandemic, to ageing populations and the growth of AI and digital technologies), we must have a private sector that works with, not against, wider society.

But a general agreement that we need to do business better still leaves open the question of how to bring about change.

On the one hand, there is a view that things can be left to business and to the market itself. After all, there are now a number of inspirational leaders and companies that are ‘walking the talk’, making concrete changes to bring about the kind of reformed, purposeful businesses we all want to see (see, for instance, the Statement on the purpose of business by the US Business Roundtable, or the work undertaken by Hermes Investment, Danone, or, most recently, the ground-breaking private-public collaborations that have seen big Pharma companies bring Covid-19 vaccines to market with incredible speed on a not-for-profit basis). Furthermore, the growth of new forms of company, such as the B-Corp movement and social enterprise firms, which have social goods built into them from the start, indicates a real appetite in the business world itself for doing things differently. Finally, the idea that market forces will lead to better business is supported by a wealth of research showing that companies which behave better are more profitable than their competitors (see, e.g. Alex Edmans’ Grow the Pie).

However, there are also reasons to be sceptical that the market alone can affect the change needed. We are, as Lord Victor Adebowale (CBE, Chair of Social Enterprise UK) put it at the British Academy Summit, standing on a burning platform. Change is needed, then, at a pace which is likely to outstrip that of self-regulated change within the business world. Furthermore, while many in business appreciate the need for change, not all do (see, e.g, the Council of Institutional Investors’ response to the US Business Roundtable). And if change is not mandated, those firms which persevere with ‘business as usual’, failing to make green and social reforms that go beyond mere ‘green washing’, may put other firms at a competitive disadvantage. A lack of regulation around reporting also undermines the power of consumer activism, with firms making insufficient or inappropriate information available to consumers. To create and maintain a level playing field for the firms that are trying to do things better, then, governments must step in.

So, I would argue that the case for government intervention in this area is clear. But, even if that’s right, what form should that intervention take?

There are a huge number of specific initiatives governments can and should pursue to support change, from the introduction of carbon taxes, to mandating anti-slavery supply chains and strengthening worker’s rights, perhaps particularly around the Gig economy. And these moves also need an international dimension – regulating multinational corporations will need trans-national co-operation. However, rather than exploring these specific changes, what I would like to suggest in closing is the need to explore an overarching reframing and reshaping of regulatory moves. This is needed, first, because using standard regulation to try and legislate for ethical behaviour faces well-known problems (see Borg 2020). Secondly, however, it is also needed because if we are to carry all parties along with the need for change, we need to get the language of change right.

The language of change which I think we need is one of partnership. It is a framing of the debate which clarifies the nature of the social contract between the private sector and the state, and which shows why it is reasonable for the state to demand that firms do business better. It is a language which makes clear what matters to us all – as individual citizens, as business leaders and workers, and as consumers – and focuses attention on what we owe to the future citizens of our world.

In response to this need I have argued that it would be worth exploring a new kind of regulatory framework – the social licence to operate model. This model provides a unified framework for a wide range of more specific measures (including such varied moves as better reporting of progress against environmental and social targets, moves to strengthen the worker’s voice in company decision making, investment in staff training and support, and community outreach), but it also allows firms to tell a narrative about the steps they are taking. The framework allows a firm to lay out what matters most to them as an organisation and how they are seeking to improve performance against relevant targets. And, although government must set the lower boundary for behaviour (e.g. setting minimum carbon targets), this framework allows firms to be ambitious and flexible, deciding through dialogue with a wide base of stakeholders what they should focus on and exactly how to go about improving matters (e.g. to take a toy example, a firm might decide to prioritise conditions for workers in their supply chains, perhaps stating they will hit only minimum climate targets for three years, on the grounds that this will allow the firm to make accelerated progress on climate issues in future years on the back of a better equipped and educated global workforce). As long as the firm can provide a convincing narrative (convincing to both their own workers and shareholders, to government, and to a well-informed customer base) about what they are doing, showing how they are meeting the conditions imposed by their social licence, this kind of flexibility should be welcomed.

Of course, there is much more to be said about exactly what a social licence framework might look like and how it might be developed, but this is a conversation that needs to be had. We need to determine, and quickly, exactly what the proper balance is between self-regulated change within the private sector, new regulation by government and trans-national organisations, and supported activism from the buying public. All these sectors need to play their part in making sure that we build back better after Covid-19 but, I would argue, progress will not be quick enough nor profound enough without serious government intervention to change the landscape within which the private sector operates.

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