Capitalism is so familiar to us in the UK – and the wider Western world – these days that we don’t really question it. The production of goods and services is based on supply and demand in the general market, rather than through central planning; that’s how it’s been for centuries.
Private ownership of the means of production, the modern definition of capitalism, has characterized the UK market economy since the 16th century, though antecedents existed in earlier times and there were flourishing pockets of capitalism during the later Middle Ages. Beginning in the 18th century in England, the focus of capitalist development shifted from commerce to industry as the Industrial Revolution flourished and the factory system developed.
Economist and philosopher Adam Smith, in the late 18th century, recommended leaving economic decisions to the free play of self-regulating market forces, and his policies were increasingly put into practice across Europe. And while the 19th century’s new class of industrial workers started to question the evolution of capitalism in the UK, it wasn’t until World War I, when international markets shrank and the gold standard was abandoned, and until the Great Depression of the 1930s brought an end to the policy of non-interference by the state in economic matters, that capitalism began to evolve with a little state manipulation.
Capitalism has been sputtering along for the last few generations, but its detractors are getting louder. The global financial crisis of 2007-09, and the Great Recession that accompanied, it has brought a renewed interest in socialism, especially among younger people and especially as concerns around climate change and social inequality are voiced louder.
So, where does that leave the interests and operations of the modern company? Is there still room for a laissez-faire attitude, or must the modern organization think further about its place in the world?
The evolution of capitalism in the UK is the evolution of the corporation
As capitalism evolved in the UK, the power balance shifted. A recent report on the future of the corporation, Principles for Purposeful Business, published by the British Academy, questions the role of the modern corporate in society, and its conclusion is that the UK has a “particularly extreme form of capitalism” on show.
Most ownership in the UK today is in the hands of a large number of institutional investors, says the report’s author, Professor Colin Mayer, none of which have a significant controlling shareholding in our largest companies. He says this is unlike virtually any other country in the world, including the United States.
Such a heavily dispersed form of ownership means no single owner is providing a genuinely long-term perspective on how to achieve goals while also making money – in other words, the revenue and profit is what matters, not the wider impact. And that has implications for governance and compliance.
“The corporation has failed to deliver benefit beyond shareholders, to its stakeholders and its wider community,” Professor Mayer told the BBC. “At the moment, how we conceptualize business is, it’s there to make money. But instead, we should think about it as an incredibly powerful tool for solving our problems in the world.”
Stakeholders, not shareholders, must lead the future evolution of capitalism
The British Academy’s report proposes a new formula for corporate purpose: “to profitably solve problems of people and planet, and not profit from causing problems.” This change, of course, would send ripples throughout an organization, and spell more tracking and more administrative duties for the legal operations team as they look further into corporate social responsibility, community benefits and company culture.
It’s not just shareholder rights that must be considered in this future form of capitalism; it’s also about stakeholder rights. While no one is calling for a change to company law, there is a definite trend emerging. Best practice companies are already doing a lot to focus on stakeholders, with section 172 reporting meaning that all companies must include a statement in their annual report detailing what they’re doing about the long-term impact of any decision and the external impact of its activities. If that statement says, “We’re doing nothing,” they will likely suffer in terms of support from investors and staff. They may well also gain the interest of regulators on other compliance issues, too.
Staff matter as well. As the Baby Boomers retire and Millennials and Generation Z start to become the majority in the workforce, the question of company purpose will become increasingly important. Younger workers want to feel inspired by their jobs, and to know that they’re working for an organization that stands for something. Company culture must have brand purpose at its heart, and that means robust governance practices that back up this need for purpose, to follow a mission that will have an impact for the greater good. The kids won’t stand for ruthlessness anymore.
Keep track of the current status and plan for future growth with entity management software
So the burden of compliance reporting is likely to shift in the coming years to reflect this wider appetite for more corporate social responsibility, less capitalism at any cost – and this means it’s ever more important for the legal operations, governance and compliance teams to keep robust records of everything.
You can be sure that regulators will not take it on faith that organizations are complying with any directions around stakeholder and community rights, nor will they take your word that the statement in your annual report reflects the real truth of the matter. Diligent, dedicated records must be kept and stored in an easily accessible place so that they can be updated on the go and accessed efficiently as soon as they’re needed by a regulator or an auditor.
To ensure the evolution of capitalism in the UK brings in the stakeholder view as well as the shareholder view, governance operations and business strategy must align to ensure there is a culture of caring and long-term thinking. Real-time reporting is key, as is the ability to visualize the entire organizational structure – both as it stands now and as it could be. Both these practices will help to guide business strategy toward growth and help to ensure the long term is kept top of mind. No act now, think later and ask for forgiveness – we must think before we act so there’s nothing to forgive.
Keeping a tight hold of the corporate record, and ensuring the right information can get to the right people at the right time, is the remit of entity management software. Using a cloud-based entity management system can make legal operations more streamlined and efficient, helping to ease the burden of the back office and give the governance and compliance professionals time to support long-term thinking.
Diligent Entities helps organizations to centralize, manage and effectively structure their corporate record to improve entity governance to better ensure compliance, mitigate risk and improve decision-making. Not only can you store entity information, documents and organizational charts in a highly secure format to create a single source of truth, but you can also report in real time on governance and compliance requirements, and electronically file statutory forms into global regulatory bodies.
Get in touch and request a demo to see how Diligent Entities and the wider Governance Cloud can help your organization to be prepared for the next evolution in capitalism and keep your stakeholders informed and happy.