Companies need to demonstrate societal value

Public distrust of business has got so bad that the Chancellor of the Exchequer has told British companies to ‘stop apologising’ and start telling people what value businesses add to society.

At the annual alpine meeting of politicians and business leaders in Davos in January, George Osborne told British businessmen and women not to expect politicians to speak up for their companies, but to get on the front foot themselves.

It is a message whose time has come.

A string of scandals – the financial crisis, mis-selling of energy and financial products, Libor rate-rigging, the horsemeat scandal – and a steady stream of stories about tax-dodging multinationals has lowered public confidence in business.

Portland, the strategic communications consultancy, recently polled the public and MPs, and discovered that dislike of business was consistent and pervasive. Of those MPs polled by Portland’s partner ComRes, 72 per cent said that trust of business had worsened in the last five years, while 67 per cent of the public believed this to be the case.

Almost half of those polled used the phrase ‘too much focus on making big profits’ to describe business. On the positive side, however, those polled tended to think more highly of the businesses that employ them and their friends and family, than business in general.

In his January address, John Cridland, director general of the CBI, said: ‘If 2013 was the year that business trust took a hammering on a range of issues from corporate taxation to energy prices, then 2014 must be the year that business leaders take action to rebuild that trust.’

Cridland went on: ‘With an election less than 18 months away, politicians must remember that businesses are absolutely crucial to driving the recovery home, creating jobs and raising living standards for all.’

To hammer home the point, the CBI says that businesses are behind 80 per cent of all jobs and have created more than 900,000 jobs last year alone. They spend £49 billion on training staff every year and contributed business taxes to the tune of £161 billion in 2012/13 – almost equivalent to the combined spending on health and education in the UK.

While taxes and jobs are easy to count, the social impact of businesses is also huge. Big business is in everybody’s life.

As Jon Miller and Lucy Parker recently documented in the book Everybody’s Business: the unlikely story of how big business can fix the world, every time we send an email, feed our families, charge our mobile phones, take a shower, make a journey, watch a movie or sip a beer – it is thanks to a number of big businesses.

Simon Walker, director general of the Institute of Directors, agrees with the Chancellor that business needs to start talking up the good it does.

‘The last few years has hugely dented the trust that the public has had in business. If you believe that free market capitalism has done more good than any other force in history, it is concerning.’

Walker was the private equity industry’s chief defender from 2007 to 2011, when he served as chief executive of the British Venture Capital Association.

‘In all the roles I have held, strict legality isn’t enough. You need some popular consent or acquiescence from the public to trade,’ he says.

Catherine May, corporate affairs director at SAB Miller, the brewing giant, calls this a licence to operate and agrees that it can be lost if businesses step fundamentally out of line.

Like Walker, she agrees that business has a huge responsibility to say where it contributes value. However, she is cautious about characterising this as ‘a fightback’, adding: ‘I always say that business can’t be behind the battlements. It’s ridiculous to make such statements from a defensive position.

‘Business has a responsibility to help people understand what it does and what it contributes. Why should people understand business unless companies are willing to share their success stories and allow people in?’

She acknowledges that the popular ‘sharing’ of business stories, with documentaries such as Back to the Floor and Undercover Boss, have sometimes been unhelpful. ‘Some were terrific but a good few showed what a bunch of cut-off idiots these people were. It made great TV for all the wrong reasons,’ she admits.

Yet she believes responsible businesses will continue to talk about what they have done. Last year Tesco talked openly for the first time about the huge environmental problem of waste food – produce wasted by the grocer and its supply chain, coupled with the items consumers leave to rot in their fridges.

It was a risky move to reveal its own waste in this context but May argues that there was a bigger risk in not doing it. ‘In the longer term, if a business is not committed to proving its worth to society, they risk their licence or permission to trade,’ she says.

As far as her own company is concerned, May acknowledges that SAB Miller has to work ‘very hard’ to help people engage responsibly with beer, but that is part of earning its place in society.

James Henderson, chief executive of Bell Pottinger, argues that the antipathy towards business has more to do with the perceived poor behaviour of some companies, than a concern over excessive profits.

He singles out the quasi-monopolistic utilities companies and the banks for having a particularly difficult task here – one which most are failing at.

‘If companies are seen to be exploiting their near-monopolistic position, then consumers will feel justifiably concerned. These companies do have a responsibility to explain how their business works and how that benefits people.’

The game has changed, he says, because business and politics are now completely entwined. Politicians are more interested in business than they ever were, with select committees appearing to lead the inquisition against business. Companies now find themselves elevated from the business pages to the front page of national newspapers, for all the wrong reasons.

With a General Election due next year and Labour’s cost of living campaign keeping the spotlight on consumer issues, businesses should realise that that level of scrutiny is not going to disappear.

‘The game has completely changed. Companies can’t announce results to their investors and think that you can’t talk to customers on the same day. They need to think about an integrated message,’ says Henderson.

And they should also take the initiative. Henderson cites the example of Centrica’s economic impact report, published last year, as a good example of a business trying to get its message across.

Another company that has gone down the economic impact route is the broadcaster Sky. It published its first economic impact assessment, conducted by the independent advisory firm Oxford Economics, in 2012, when Sky was the subject of a lengthy Ofcom investigation arising from the aborted bid by its biggest shareholder Rupert Murdoch’s News Corporation.

‘There was a lot of noise around and a lot of negative comment. Ofcom’s inquiry threatened the company directly as a holder of a television licence. We needed to get out on the front foot,’ explains corporate affairs director Graham McWilliam.

The headlines generated by the 2012 report were strong, showing that Sky’s direct contribution to Britain’s gross domestic product in 2011 was £2.2 billion, representing about 40 per cent of the contribution made by the entire TV and radio creative sector in the UK.

The firm also employed 22,800 staff, and had hired 3,800 young people between 2008 and 2011.

McWilliam considers the report a very successful tool and the study is likely to be repeated this year.

Sky had been thinking about corporate reputation as a core part of its commercial success for some years, before the events of 2011. ‘The basis of everything has to be doing the right thing: building trust with our customers and acting properly,’ says McWilliam.

Sky launched a series of initiatives to change public perceptions of the business. Its most high profile one has been Team Sky, which has produced two successive British Tour de France winners, while also supporting and promoting cycling as a hobby and a mass participation sport.

Other activities include the Sky Academy Skills Studio, where school children get to make a TV news report in studios in West London. About 14,000 children have visited the studio and a second Skills Studio will open in Livingston, Scotland, this year.

‘Simply doing the right thing isn’t enough. We need to be seen to be doing the right thing. If we didn’t talk about it, nobody else would do it for us,’ explains McWilliam.

Fraser Hardie, senior partner at Blue Rubicon, wants to see businesses communicate their value more effectively. But he disagrees that declining trust in business is a recent phenomenon.

He argues that hostility to business must be seen in a wider context. ‘A whole generation of people who have only ever experienced low growth are now coming of age.

That is shaping their expectations about transparency and businesses that don’t respond to that, over time, will be less successful,’ he says.

He sees antipathy to business, or anti-corporatism, as part of a raft of consumer trends for goods and services that are ‘more authentic, more local, more personalised’.

Hardie argues that obsessing about declining trust in business could even be counterproductive. ‘It’s easy to get side-tracked by political proclamations and things that look like recent trends, when they are not. When economic growth is at a premium, it focuses minds on trends that have been there for a while,’ he says.

If the next generation of consumers has high, possibly unrealistically high, expectations of business then it is in the interests of the corporate world to get to know, and also to educate, its customers better.

Hardie expects that many more businesses will decide that the solution is to get involved with young people and do more to train and promote them for life and the world of work.

‘Businesses need to be doing more around skills and confidence. They need to make a long-term commitment to improving young people,’ he says.

Shifting the debate takes time and effort. But Philip Gawith, managing partner of communications company StockWell, is certain that part of the solution is for businesses to become more robust in fighting their corner.

‘The divide between business and society is extremely damaging. It fosters an anti-business climate which is harmful to everyone,’ he says.

The danger of businesses not communicating their worth is that the vacuum is filled with ‘the voices of ignorance and prejudice, which creates a very unhelpful backdrop for the creation of policy and running businesses,’ according to Gawith.

He cites Kingfisher, GSK, Unilever and SAB Miller as some of the big businesses that are already doing good and that are talking about what they do.

Gavin Megaw, director of Hanover Communications, thinks that well-run companies need to be braver and put their heads over the parapet. ‘A well-run company, that lives up to its values, and communicates them effectively, will not have problems however much money it makes. Problems arise when profits seem out of kilter with your value and your values,’ he says.

The Chancellor has issued his call to arms. It’s time for business to stand up and be counted.