Businesses must have a purpose – and it ain’t maximising profits. The chorus of voices expressing this sentiment continues to grow and now includes many from the worlds of politics and economics, finance and business itself, not constituencies one would have expected to be expressing such views.
The compelling rationale is that profit maximisation causes greater harm to more people, than the benefits it brings to a few. Making money is an important element of running a business, but it is not the reason it exists. Increasingly, the question is being asked what contribution is a business making which entitles it to enjoy limited liability, various legal protections and advantages and to benefit from a licence to operate?
But it is not only businesses that could benefit from rediscovering why they exist. Whereas a change in law may be needed to encourage many businesses to adopt such a fundamental shift in culture and practice, this is how public sector bodies ought to be acting already. They exist to protect and further the public interest, but more often than not this appears to be lost amidst the challenges of government imposed austerity; political sensitivities and embedded perceptions that the role of staff is first and foremost to protect the organisation itself.
The nineties and noughties saw the advent of many public private partnerships, most of which were partnerships in name only. Where the public and private sectors come together though seems an obvious place for both businesses and public bodies to reclaim their underlying purpose and to demonstrate it in action for the common good. The purpose of an organisation needs to be particular to the organisation, but there are some disciplines that could be usefully introduced into such relationships which should steer both parties in the right direction. These include:
A more robust approach to social value
If an organisation is providing public goods or services, or indeed commissioning them, the full effects of how those goods or services are being provided should be taken into consideration – not as an optional and/or marginal item, but as the core of the relationship. A clear sense of how the intended service users will benefit and how the wider community is affected should be considered, as well as taking into account the externalities flowing from the relationship. This may require increased co-production with service users. It may mean open book accounting being deployed to understand where the public money goes. It will certainly require public bodies putting social value at the heart of their commissioning (their specifications, procurement processes and contracting) and building out from there.
Without waiting for the detailed impact of Brexit on UK procurement practice to emerge, there is already room in the current regulations to be much more creative around this. To take just one example, the light touch regime already provides lots of scope for flexibility on the part of commissioners and if the general EU Treaty Principles are no longer legal requirements, there is further scope, potentially, to promote social value without being inhibited by perceived regulatory restrictions.
Responsible business principles
Big Society Capital routinely requires the parties it lends money to to commit to its responsible business principles. These include providing safe and healthy working conditions; using natural resources efficiently and protecting the environment; requirements around treatment of staff; and taking account of the impact of its operations on the local community.
Public bodies could require similar explicit commitments from its contractors, to be audited regularly, breach of which could lead to termination of their contracts. This may be extended to other companies in their group to avoid opaque corporate structures being adopted to circumvent the commitment.
Equally, public sector bodies themselves might volunteer, or expect to be challenged, to make equivalent commitments. There is an irony that in some contracts they require contractors not to invest in, or be owned by, or assign the contract to, parties with interests in armaments, tobacco or pornography whilst themselves continuing to hold investments in such companies. It is time for such hypocrisy to end.
Foundational goods and services
Examples of purpose driven organisations already exist of course, in the form of social enterprises. Commissioning processes have often worked against them, despite greater scope for contracting authorities to flex the rules, but the introduction of some of the changes above ought to offer greater scope for them to demonstrate the benefits of successfully combining social purpose and commercial acumen. This may be particularly relevant in relation to foundational goods and services, that is those which either due to their nature (eg education, health and social care and working with vulnerable individuals), to market failure (eg rail transport), or lack of a market (eg water and sewerage) delivery by purely for profit organisations may be deemed inappropriate. It may be desirable to restrict these (building on existing procurement regulations) to non profit distributing entities, including mutuals and co-operatives, or at the very least require B Corp status or its equivalent to be demonstrated.
Einstein defined insanity as continuing to do the same thing whilst expecting different results. The suggestions here recognise the need for fundamental change. They do not come from a place which is either anti-business or anti-state. They are offered as a contribution to the conversation around how to make both more effective and better equipped to contribute meaningfully to society. And they are based on the assumption, reinforced by its childlike simplicity, that the people who comprise organisations will perform better where they understand and believe in the why of what they do.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of July 16, 2019.