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British business remains a force for good

08 Jun 2016

Business is under intense political scrutiny at the moment, with Parliament running investigations into the collapse of BHS and allegations of poor working conditions at Sports Direct.

The IoD firmly believes that business is a force for good, but high profile failures like these damage the public view of commerce, and make it harder to argue for the free markets which allow for job and wealth creation. In an article published in The Daily Telegraph, IoD Director General Simon Walker urges corporate leaders to consider their responsibility to protect the reputation of business.

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You have to hand it to the trade unions, they know how to pick an eye-catching analogy. At the House of Commons Business Committee, the Unite union compared working conditions at Sports Direct’s warehouse in Shirebrook to the Gulag.

While Sports Direct is perhaps not quite one of Stalin’s Siberian death camps, the allegations made by the union – including that heavily pregnant women felt under such pressure to come to work that one ended up giving birth in a lavatory – were deeply shocking. If even some of these claims are true, it would reveal a working culture that would make most employers recoil.

Part of the problem with this case is that Mr Ashley refused time and again to appear before the parliamentary committee or talk to the media, meaning that we only got one side of the story. Mr Ashley has been successful through single-minded commitment to cost control. An entrepreneur by nature, he feels he doesn’t have time for the public relations efforts that occupy corporate grandees. But whether he likes it or not, he is a public figure at the head of a large listed company. It just isn’t tenable to refuse to talk.

The Institute of Directors (IoD), which I run, believes that business is a force for good. This newspaper has described us as a proponent of capitalism “red in tooth and claw”. We make no apologies for arguing that freer markets and lower barriers to doing business lead to more jobs and greater prosperity for everybody. When politicians propose new taxes or regulations that will make it harder to set up or grow a company, we are the first to oppose them.

But our arguments become much harder to make when we are confronted with allegations like these about Sports Direct or the now defunct BHS, whose former owner Sir Phillip Green also faces questions about his conduct.

I do not say this to be pious. I say it because I agree with Lord Myners, a former Labour City Minister, who said that if a company has a positive image, it encourages others to invest and deal with it.

Mr Ashley admitted that perhaps his company had grown too quickly, and was now beyond his ability to manage. This isn’t the first time that suggestion has been made. The IoD warned two years ago that there were insufficient checks on his power, to the detriment of its other shareholders.

Problems at Sports Direct are fundamentally about weak corporate governance. Its board of directors was just not willing or powerful enough to challenge the founder’s decisions. The firm’s review of conditions at Shirebrook should have been conducted by an independent director, not Mr Ashley himself.

Mr Ashley deserves credit for building such a successful brand, but because of its rapid growth, the range of people he is responsible to has also grown. His employees and investors deserve better. So does the rest of Britain’s business community, because when the image of capitalism is tarnished, it gives ammunition to those who would like to erode the system that has done so much to create and spread wealth throughout society.

Sports Direct sells goods at very low prices. That benefits customers while also generating jobs and tax revenues. Sports Direct has been able to do this because of the UK’s mostly business-friendly environment, which makes it relatively easy to take on staff, and manage a workforce when there are busy or slow periods.

We do not have to look far to see the consequences of a different approach. Tougher labour laws in southern Europe are a significant cause of painful levels of joblessness there.

But if Britain’s flexibility is abused and businesses behave unreasonably to their staff, pressure will mount to tighten employment laws and impose more regulations. There are many politicians, from across the spectrum, who would be very happy to place more burdens on business. To combat excessive or counterproductive new red tape, businesses in the public eye must be seen to be giving a good deal to customers and staff.

Mike Ashley has expressed a desire to change things at Sports Direct. For the sake of British business, I hope he follows through.

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