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Financial Times: values must still matter to tomorrow’s companies

By Stuart Hampson: Published: January 31 2007 02:00 | Last updated: January 31 2007 02:00

An invitation in 1992 to join a group of leaders from 25 big UK companies to look at the role of business in a changing world would normally have seemed instantly resistible. But the facts that the invitation came from the Royal Society of Arts, that Sir Anthony Cleaver of IBM was chairing the inquiry and that the list of other individuals who had already signed up was impressive all made me think again.I am glad I did.

Back in 1992 there was little argument that we were in a changing world. The Berlin Wall had fallen. Disasters, such as Bhopal and Exxon Valdez, had raised awareness of the power of big companies to cause massive environmental damage. International competition was intensifying, technology was developing and the big worry among UK business leaders was the lack of productivity and competitiveness. Margaret Thatcher had weakened the grip of trade unions. The Cadbury Committee, established in the wake of Robert Maxwell’s theft of the Mirror Group pensions, heralded a new public emphasis on corporate governance.

Our interim report, published in 1994, highlighted the incredible wastefulness of business structures based on conflict rather than constructive relationships. The shibboleth of “shareholder value” – regardless of the significance of other stakeholders – was eroding performance. Our conclusion that future leaders needed to focus on relationships, reputation and knowledge seemed controversial at the time and obvious soon afterwards.

The inquiry report described this as an inclusive approach to success – using the word specifically to mean that long-term success would need companies to include in that definition the contribution of its people, its customers, its suppliers and the community it affected – but not to forget its shareholders. This earned Tomorrow’s Company the honour of being attacked by The Economist, which accused us of woolly thinking.

The inquiry’s final report came a year later. It warned business about the fragility of its “licence to operate”. In the month following its publication, Shell experienced reputational meltdown over Brent Spar – and an Economist leader now endorsed our approach and warned business to pay heed.

Although the John Lewis Partnership is best known for being owned on behalf of our employees, since 1929 our constitution has required us to take account of our suppliers, customers and local community. Our record, in terms of growth in a hugely competitive retail sector, but more especially our exceptional customer loyalty and respect from our own providers of finance, gave other inquiry members encouragement that we were not running up a blind alley.

We had started by talking about a changing world and thinking had indeed moved on since we first met, with growing interest in “corporate social responsibility” (CSR). I have always been convinced, however, that if the message of Tomorrow’s Company was to be effective it had to be championed by the finance director rather than the CSR director; it cannot be an optional extra for companies looking to polish their public image.

It is easy to say that Tomorrow’s Company now represents mainstream thinking. The “inclusive approach” was thoroughly examined by the committee that reviewed the UK’s tangled web of company law and the concept of “enlightened shareholder value” – taking into account the interests of employees, customers, shareholders and the community at large – provided the basis for the massive companies bill that was passed last year.

The law now provides the conditions for business success, but its achievement will continue to depend on leadership with long-term focus. Private equity funds have undoubtedly shown how money can be released and companies can be restructured, but big question marks still hang over whether such restructuring is a recipe for long-term survival. Building a business is hard work and requires commitment to see through the ups and downs of commercial life. It is a frame of mind that seems less and less in evidence as executive incentive is skewed towards quick rewards and career progression.

I am sure I am not alone in thinking that it is in Britain’s interest to have companies that know what they stand for and that see their culture and their values as a competitive advantage. Tomorrow’s Company still remains relevant for the companies of tomorrow.

Sir Stuart Hampson is chairman of John Lewis Partnership and a patron of Tomorrow’s Company, the business-led think-tank that celebrates its 10th anniversary this week

Copyright The Financial Times Limited 2007

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