Theresa May launched her term as Prime Minister by promising to tackle what she calls “the unacceptable face of capitalism”. She has been sharply critical of executive pay, which she termed “excessive”.
Without reform, the Prime Minister told us, faith in the free market will falter.
As head of one of the UK’s largest recruitment and facilities services companies, which last year enjoyed a turnover of £840m, you might expect me to take issue with her stance. But I won’t. In fact, I think she is on to something.
No one should bash big business for the sake of it. Large companies provide jobs for millions, and, of course, generate tax revenue to fund the things society most needs.
But if capitalism is to flourish, we are going to have to change.
At the Cordant Group, we have decided to stop being a conventional business, and instead turn ourselves into a social enterprise – an organisation in which profit maximisation is not our only objective.
Specifically, Cordant will cap executive salaries at 20 times what the lowest paid make. To put that in context, FTSE 100 executives make on average about 150 times what their ordinary employees are paid.
“But won’t that kind of pay cap make it impossible to run a big business?” some will ask.
Not at all. A 20-fold salary cap takes us back to how big businesses did things until the eighties.
Runaway executive pay is a recent phenomenon – and it is a symptom of a more profound problem with capitalism that needs addressing. Those who invest in big businesses are often not properly able to exercise control over those that run them. Ownership – increasingly through a pension pot, Isas or mutual funds – has become detached from any notion of control.
Contemporary capitalism’s big problem is that there are too many absentee capitalists. Investors (or the fund managers that act on their behalf) are often really just rentiers, out to claim a slice of corporate profits, but with little actual interest in how the business is run day to day.
Profit is important, but profit maximisation should not be seen as the be all and end all in business. Profits should be a by-product if we get everything else right.
That’s why we believe in a profit share model, and will cap our dividend so that there’s a fairer distribution of our returns.
The Prime Minister was right to say that shareholders should have new powers over those who run their companies on their behalf. She was right, too, to insist that workers should also have a greater say.
It’s not anti-capitalist to want any of that. It is recognition that capitalism needs rescuing.
Across the Western world, productivity growth has fallen since the 1970s. This cannot, in my view, be separated from the fact that too many people in the workforce are dissatisfied.
According to recent research in the US, 90 per cent of workers are either “not engaged” or “actively disengaged”. This means that millions of people are spending half their waking lives in places they don’t want to be.
As a social enterprise, it’s our ambition that Cordant becomes a genuinely different kind of business, one which delights people – our workforce, clients, and society at large.
This is why we are experimenting with digital technology to allow some of the 125,000 people who work for us each year to have a greater say. We are trialling the idea of a productivity related profit share scheme for all our workforce, where feasible.
We believe that we will be more able to deliver public services as a social enterprise. It will help us to provide better care in our care homes, and to enable hospital trusts to offer shifts directly to doctors, nurses and other healthcare professionals – at zero cost to the taxpayer.
It also means that all profits that we make after any profit share arrangements with our employees will be invested into programmes which contribute and add value to society at large.
Throughout history, the most successful and innovative societies – Venice in the Middle Ages, early modern Holland, England and America during the industrial revolution – carefully recalibrated the relationship between capital and labour, risk and reward, to suit the conditions of the time.
We need to do so again now.
According to a recent opinion poll, the millennial generation are much more doubtful about the virtues of the free market than those aged over forty.
If we don’t make sure that capitalism works for everyone, we risk ending up with something far worse.