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Capitalism in crisis? Thoughts for Boardrooms in 2012

Last week, at the Financial Times’ pre-Davos seminar, US Ambassador Louis Susman stated that the key issue for the world in 2012 will be fairness. For the last two weeks, the FT itself touched on the same theme throughout its ‘Capitalism in Crisis’ series. And if we doubted the success of the Occupy movement, our own politicians have all rallied behind similar themes since Christmas. First, David Cameron pledged to stop escalating high level management salaries, with possible legislation later this year. Then Ed Miliband called for an end to tax havens, and earlier this week Nick Clegg called for Britain to develop as a John Lewis economy. We can clearly conclude that all three parties’ private polling is telling them the same thing that the US Government has spotted – that the key issue for the world in 2012 will be fairness, or possibly more accurately, (perceived) unfairness. The question for Britain’s boardrooms is what, if anything, to do about it. Are we in the midst of a tidal wave of ultimately meaningless political rhetoric, or does something have to give, does something have to change. During the FT debate, Chief Economics commentator Martin Wolf said that he had never used the word fairness in a column because no two people ever agree on what is fair. The US Ambassador responded with the view that many people currently agree on what is unfair, they just don’t agree what to do about it. In this climate, I think that five themes are important for Boardrooms in 2012 :
  • The first is to accept the current austerity public policy landscape and don’t dismiss the recent comments made by politicians out of hand. It’s true, as Winston Churchill almost said, that capitalism is the worst system except for all of the others, but when all of our political leaders agree that ‘something must be done’ they are probably also right. The most difficult element for Boards is the moral dimension, on Thursday David Cameron talked of the need for moral (and responsible) capitalism and George Osborne has previously talked of some forms of tax avoidance (not tax evasion) being immoral.
  • Secondly, we must collectively emphasise the strengths of our form of capitalism. Amidst most of the recent criticism, almost all parties acknowledge that entrepreneurialism, wealth creation, exports and jobs are good things, that are hugely important for our economy. There are times when individual companies need to stand up and be counted and City UK’s City Week (6th-8th February) is one such example. On an ongoing basis it’s important that we remember our global strength as a service economy, as well as giving greater credit to the often unsung areas of science, technology and manufacturing.
  • One of the key words of 2012 will be egregious, namely things that are extraordinarily bad or shocking. The concept of ‘rip-off Britain’ is still in the news and almost all consumer facing industries, including airlines, energy companies, banks, car insurers, supermarkets will be tackled in some way by Government and regulators this year. The best policy is not to defend the indefensible and take action on those things that will be judged ‘egregious’ sooner rather than later. In the payday loans industry, failure to tackle the egregious issue of ‘rolling over’ loans could result in the much stricter action that people such as Martin Lewis, Shelter and MP Stella Creasy are calling for.
  • This year it will be important to keep your friends close but your shareholders closer. There is a good deal of skepticism amongst those working in financial services that institutional shareholders will deliver the kind of impact on executive pay envisaged by the Prime Minister. However, there are already signs that the increasing pressure on them will have some impact. In this Wednesday’s FT, Fidelity has proposed that all ’annual variable compensation’ for Directors should require the support of 75% of shareholders before payment.
  • More than ever before it’s the year for Board’s to use the Private Eye test or maybe we should re-name it the FT test. When taking key strategic decisions, it’s important to ask: would we be happy if this appeared in the Financial Times ? If the answer is no, then it’s probably a decision not worth taking. On a more mundane level, this particularly applies to any perceived extravagance, whether it be Board away days, sponsorships or Olympics tickets.
And finally, back to the private polling that has led to all political parties and the President of America to question aspects of big business. The ordinary British citizen is not an abstract concept, they are also your employee and your customer. Employee communication and motivation will be vital to running a successful business in 2012, it’s important that they perceive a company’s actions as fair – or at least not unfair. For more information about Lansons Communications please contact Tony Langham at tonyl@lansons.com