Business groups and a leading think tank have defended UK capitalism and corporations after harsh criticism from a report written by Oxford professor Colin Mayer for the British Academy.
Mayer’s report, released today, said the corporation “has failed to deliver benefit beyond shareholders, to its stakeholders and its wider community”.
He said forms of ownership in the UK lead to a damaging focus on short-term returns. The report proposed a shake-up of the corporation to make it accountable to stakeholders such as employees.
Tom Clogherty, head of tax at the centre-right Centre for Policy Studies (CPS) think tank, said: “To claim that British business delivers no value to anyone but its shareholders is extraordinary and absurd.”
He said that although corporate governance is not perfect, “improving it actually means giving shareholders more control over executives”.
The Institute of Directors’ (IOD) corporate governance policy adviser Carum Basra was more welcoming of the report, praising its “emphasis on boards’ responsibilities to stakeholders”.
Yet he said: “Corporations have been great engines of innovation, which has improved the lot of shareholders and non-shareholders alike.”
Federation of Small Businesses (FSB) chairman Mike Cherry said smaller firms already benefit their areas. “Small firms help to give back in time, skills and wealth to communities which is reinvested back into the wider economy,” he said.
The report, published as part of the British Academy’s project looking into the future of the corporation, made eight recommendations to restore trust between businesses, stakeholders and society.
There is growing recognition of the need to change the current capitalist model in response to public discontent.
For example, in August a powerful group of top US executives said firms should benefit all stakeholders: employees, customers, suppliers, and communities as well as shareholders.
The British Academy report proposed changes to corporate governance to “establish accountability to a range of stakeholders through appropriate board structures”.
Also suggested were regulatory changes to demand companies engage and remain loyal to public interests where they perform important public functions.
The CPS’s Clougherty criticised the proposals, however, calling them “a recipe for corporate sclerosis and economic stagnation”.
However, the IoD’s Basra said: “There are certainly steps we could take to underline that purpose should be embedded in directors’ thought process.”
Yet he added: “We must be wary of losing sight of the fact that creating wealth by improving products and services is very much beneficial to society at large.”