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Jonathan Oxley - Regular Column

02 Aug 2016
The purpose of businesses in capitalist societies is to create wealth. The failure of BHS has brought into sharp focus the question of how that wealth should be shared.

British culture does not seem to admire the conspicuous wealth of its business people in quite the same way that Americans do. Not everyone here subscribes to Karl Marx's view that capitalism is built on the exploitation of labour but we do have mild reservations about the ethics of business leaders earning many times the income of average workers. 

Some of this ambivalence arises from the varying principles applied in different businesses.  As that other famous Marx, Groucho, once said: "these are my principles, and if you don't like them… well, I have others…"

There are successful business people who maintain that businesses are not social enterprises, are built solely on the genius of the presiding mind and that the deal for the employees is that they get a job and they get paid what they are worth. There are other successful business people who will maintain that businesses have a social responsibility, are founded on the collective efforts of their employees and that those employees are entitled to share in the success of the enterprise. And there are many shades of opinion between those two positions. 

The demise of BHS has all the hallmarks of a one-off disaster that could result in knee-jerk legislation. There is law in place which stipulates the duties of directors and deals with issues such as whether or not too much money has been taken out of a company. Any development of that legislation needs to be considered carefully. Particular thought needs to be given to intervening further in private companies (more than 99% of companies), the nature and flexibility of which has been key to the competitiveness of our economy. 

However, where companies have one individual who is both sole or major shareholder and Managing Director, there is an absence of challenge which can be a problem. The IoD has pointed out that just because companies are not public, doesn't mean there isn’t a public interest in how they are run. The IoD is now in the process of updating its guidance for directors of unlisted companies, to be published in the autumn.

Ultimately, if we believe in a capitalist society, we must believe that the strongest businesses will survive and that businesses run on more inclusive lines with strong corporate governance will survive and prosper because in the medium to long term they will be stronger organisations because they are built on stronger foundations. 

The Employee Ownership Association ("EOA"), which represents employee-owned businesses in the UK (together accounting for £30bn of our annual GDP) maintains there is strong evidence that businesses owned by the many perform better than those owned by the few.

The number of employee-owned businesses has been growing at a rate of 10 per cent per annum in recent years and may well come to form a major part of our economy. The EOA maintains that employee-owned businesses have outperformed the market in general during the economic downturn.  Employee-owned businesses in Yorkshire such as Gripple in Sheffield and Union Industries in Leeds are highly successful.

Good businesses (in whatever sense) will grow and prosper. The proper role of government is to enforce existing laws, develop new legislation after careful thought and if appropriate, and to provide a social safety net to deal with the consequences in extreme cases. 

Contact IoD Yorkshire

Contact the branches team here.

IoD Yorkshire & North East
Old Broadcasting House
Woodhouse Lane

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