Back Page Interview
In this new section of Enterprise Excellence we will feature interviews with people whose work, whether as theorists or practitioners, has relevance to the vision and aims of Transforming Business.
The views expressed are the interviewees own and do not necessarily reflect the thinking of Transforming Business.
The book is intended to be of interest to the general informed reader. But to succeed in this I decided I needed to involve some big characters from history. I chose three eminent people that provided a profound critique of the British East India Company (BEIC): Adam Smith, the founder of economic liberalism; Edmund Burke, the father of modern conservatism; and Karl Marx, the founder of socialism.
Telling the story of the BEIC from the perspective of these three characters helped to show that the role of the company in society is a multi-party issue. It's not a right-wing, nor a left-wing, nor liberal issue.
You work in finance in the City. Everyone knows that jobs like yours are no doddle. How did you find the time and mental space to write a book?
I wrote it evenings, weekends, and by taking unpaid leave. It became a book I had to write, a passion. It certainly had nothing to do with generating extra income through sales of the book!
But the book does relate to your day job?
Yes, it does. The research I did for it gave me close-up exposure to the structure of a corporation. It made me much more conscious of the limits to what companies can be expected to do without government regulation. We tend to expect too much of companies and too little of regulation. Studying the BEIC taught me that companies perform better if they are in a strong regulatory framework. It stops them doing things that they shouldn't be doing if they want to remain successful.
Being so positive about state regulation is not what you expect to hear from business leaders like yourself!
I believe in open markets within a strong regulatory framework. On this I agree with Adam Smith. Contrary to popular opinion, Smith was a ferocious critic of market power. He was certainly no libertarian; he was vigorously opposed to the idea of untrammelled free markets. He also expressed sharp criticism of the shareholder company. True, he reacted against an over-mighty state. But he insisted you cannot leave everything to the market.
In fact, it was Smith's concern for justice that led him to promote the pursuit of individual self-interest. His book The Wealth of Nations can be regarded as the first book about globalization. Like Joseph Stiglitz and other critics of globalization today, Smith felt that the globalization in his day, which took the form of corporations and colonies, was causing great human suffering.
I think it is valid to hold similar concerns about companies today. One of the yawning gaps in the global economic architecture is in the area of competition authorities. We simply don't have them. Because of this, we have the paradox that the liberalization of the market has not led to the liberalization of competition.
How would you summarize the malpractices of the BEIC?
The company drove out its competitors and drove down the prices it paid to suppliers. It thereby made oppressive use of market power. It was also guilty of negligence, particularly when it began to operate as a mercantile sovereign. During a terrible famine in Bengal of 1770, instead of coming to the relief of its victims, it increased taxes. This led to dreadful suffering on a massive scale. A third problem was corruption. Company executives exploited their position - through, for example, insider trading - to massively increase their personal wealth. A final malpractice, though this is hard to establish with absolute certainty, is that the company used its power to undermine democracy. This is in any case what some contemporaries felt, including Edmund Burke.
Do you think that today's companies are generally more moral, and why?
Yes, definitely. Nowadays they are obliged to meet many more legal requirements. And our expectations as a society are much higher than they used to be. Also, companies tend now to see their mission to involve some wider social benefit. There is, of course, a tension between fulfilling this mission and meeting the demands of financial markets. It's a tension between long term and short term goals.
Following the fall of the Enron corporation, people focused on the misbehaviour of corporate executives. Very few were concerned about the behaviour of shareholders. Corporate executives may act immorally, but they often do so only under severe pressure from shareholders. The key question today is how can you get corporate leaders and shareholders to take a longer term approach? There's some very interesting work being done by the CFA Institute on this issue.
In fact, of course, the idea that the purpose of a company is to maximize profit is simply a myth. In my investment work I consider myself responsible for answering to customers' ethical demands as well as their financial demands. Frankly, it's virtually impossible to find someone who's interested only in profit. As human beings, we have a range of aspirations, not just financial ones. Sustainable business is business that seeks to respond to this broader spectrum of human motives.
Do you feel there's a danger that your analysis of the BEIC plays into the hands of those sympathetic to the anti-corporate movement?
My intention is to identify, using BEIC as a case study, what the necessary conditions are for corporations to do what they are good at without causing harm to the rest of society.
The conclusion I come to is that legal mechanisms have to be in place to ensure they do not achieve excessive market power and that they consider their social and environmental impact.
While I'm not saying 'let's bring down the corporation', I do think it's legitimate to ask whether companies have become too big to ensure their social impact is positive. The challenge is to find ways in which their role in society can be rebalanced.
Joseph Stiglitz and George Soros may be thought of as lending weight to the anti-corporate activists. But actually Stiglitz belongs to the mainstream of traditional liberal economics. He's concerned about market failures and wants to find ways to address them, so that the potential of globalization for good is maximized. Soros' point is that market fundamentalism leads to the removal of too many controls, and that this leads the market to become a threat to itself. So I don't regard either thinker as anti-capitalist or anti-corporate. Their work and that of other writers such as Naomi Klein represents a justifiable pressure for a rebalancing of the role of the corporation in society.
The call is no longer for the nationalization of industry, but for its accountability. The question people are asking is: what is the right place of companies in civil society? In other words, can everything be marketized and commodified, or are there some things that need to be left outside the market? This is a question we should welcome. It's a valid debate.
Where do you stand in this debate?
There's a strange assumption that to be in favour of open market means you must be in favour of big business. But this is not the case. I'm in favour of open markets - that is, I support the promotion of free trade, innovation, the emergence of new entrepreneurs. But these things are often a threat to big business.
In fact, it's simply not true that to advocate economic liberalization is to pander to the corporations. A truly liberal economy would be a truly diverse economy.
The British Labour Party has been too beholden to corporate interests. Take gambling. We've had no pressure from the public to have more gambling opportunities. The new legislation allowing the establishment of casinos is driven not by public pressure but by big business. Opposition to this is coming not from the left but from the right of politics.
But I remain hugely enthused by the good things that companies can do. This includes their capacity for innovation and for the efficient delivery of products that fulfil human wants and needs. But I'm also very concerned about their downsides. I think it's possible to hold the good and the bad together in the way we think about business and that it's vital we do so.
Is any of your involvement in ethical investment motivated by spiritual or religious concerns?
I find that going on inside me are two developments that often appear mutually contradictory. I am getting more and more interested in spiritual aspects of life. Due, I suppose, largely to my upbringing, this is focused on the church. But at the same time I'm getting increasingly suspicious of religion. In Europe we went through hundreds of years of brutal war about aspects of theology. We need to remind ourselves of the true terror that religion can wreak on society, because we can see this terror re-emerging today.
This is where I come back to the issue of accountability. All societies need proper mechanisms in place that will hold each institution of society accountable. England's Civil War taught us that we need to hold religion accountable and we need to re-learn that lesson now. So I'm an advocate of the formal separation between the state and the Church of England. I also think it might be good to have a separation of religion and education. This means I'm no fan of faith schools, though I do think there should be a faith dimension, or at least a spiritual dimension, to education.
To my mind, we need a balance of powers. We don't want an all-powerful state. But neither do we want other areas of society to dominate.
A fruitful life for society involves flourishing and efficient commerce, a strong sense of community, a well-functioning state, and a healthy and dynamic spiritual life. Each sphere needs to exert pressure on the others, without one of them getting the upper hand. In other words, we must never allow society to fall into 'silos'. Concentrations of power are always dangerous.
Does this perhaps bring us back to Edmund Burke - to his vision of the 'little platoons' of society?
You're right. His attitude to companies, including the BEIC, reflects this vision. He felt that companies needed to be made accountable because they were essentially revolutionary institutions. They overturned the established order of things. They disposed with tradition and upset the balance of powers. They are inherently anti-establishment.
Burke had a point. The business corporation does have great transformative potential. The challenge is to find ways to ensure that the transformation it brings is for the good of all.
Based on an interview conducted at the headquarters of Henderson Global Investors in central London on 2nd November 2006.