The Age of Responsibility

President Obama has just launched the ‘age of responsibility’ and Gordon Brown has renounced the ‘age of irresponsibility’. You could be forgiven for thinking that they have both been taken onto the payroll of GoodCorporation!

However, although there has been much call for greater responsibility, no one in business or government seems sure how this should be achieved. There are at least two major issues to address: the first is obviously to get banks lending again in a more sustainable way. The second is to establish how businesses should behave on a long-term basis and how we generate wealth in a sustainable fashion.

One of the key issues is actually how we protect managers in listed businesses so that they can focus on long-term sustainable growth of their businesses. The trading in shares of publicly listed companies can clearly generate income. However, we need to remind ourselves that not only does this provide a livelihood for smart graduates with an eye for potentially profitable market movement. It is both fundamental to, and has a responsibility to, the country’s long-term savings industry that delivers pensions to ordinary people.

It is perhaps significant that in the last 10 years there has been a radical shift in share ownership, with short-term share ownership, mainly by banks and hedge funds and other non-financial institutions, rising from 5 per cent as recently as 1998 to almost 40 per cent. As a result, there has been a real move away from annual and long-term planning towards a short-term management focus that concentrates on beating the market over months rather than years.

While risk taking can be both productive and profitable, it needs to be managed to ensure long-term success. In his speech at the New World, New Capitalism conference in January, Tony Blair said; “If businesses want to succeed, they must embrace their shareholders with respect.” But his speech had no next sentence and it is not clear if even Corporate Responsibility practitioners know how to make this happen.

Much of the CR activity that we have seen to date is reflective of the short-term pressures on listed businesses which has put CR into a communications box, an opportunity for some soft marketing, a few initiatives to try and look good, to help successfully manage the massive pressures of beating the market every quarter.

Cost pressures resulting from the downturn we now face are threatening this soft marketing approach to CR. For both the long-term development of sustainable businesses, not to mention the establishment of a real understanding of running corporations responsibility, this must be a good thing.

The immediate focus for both banks and businesses must be on survival. But in the longer term Corporate Responsibility must move away from glossy reports and box-ticking and into the heart of the company. Long-term shareholders must actively participate in the debate about sustainable performance. Customer loyalty above short-term customer performance, responsible management of the supply chain, fair HR practices, the avoidance of bribery and a radical reduction of businesses’ impact on the environment are the fundamentals of Corporate Responsibility. They also happen to be fundamental to all long-term business success.