In the wake of the pandemic, many are questioning our social contract with business, in part due to it having highlighted insecurity and inequality in the labour market. However, the pandemic also presents the chance to re-build a more inclusive economy.

Whilst some businesses are hitting the news for short treatment of their workforce, others have taken the lead in increasing transparency and finding ways to support their people. In particular, the growing movement of purpose-driven business shows how trust and value can be built through a multi-stakeholder approach. The pandemic has also shown the benefits of having an engaged and committed workforce. At Bates Wells we take this approach within our own business and it informs our advice to our impact focused clients.

In this time of uncertainty, the principles of purpose-driven business can offer a guiding light for workforce practices that build greater resilience. 

The ‘S’ in ESG

The pandemic has shone light on the ‘social’ in ESG.

Reputations may not have been made or broken during the pandemic, but they have been revealed. Bird, the scooter company, made headlines when it fired 400 workers in a two minute Zoom conference. Fortunately, many other businesses have made efforts to ease the impact of the pandemic on their workforce. Back in March, outdoor clothing chain and B Corp, Patagonia, was quick to promise to continue paying employees despite closing its stores, and Danone guaranteed all employee contracts until 30 June. When Airbnb cut staff, it disclosed a number of ways in which it tried to provide support for its departing employees.

After the crisis, consumers and workers are more likely to reward those businesses that support society, such as through offering living wage rates, job security and a more values-led approach. Moreover, initiatives for increasing transparency on how businesses treat their workers may become essential to rebuilding trust[1].

Working for purpose-driven business

In the UK, the default position is that a company’s directors run the business for the benefit of its shareholders. When making decisions to promote the success of the company, directors must have regard to other factors including the interests of employees, but these are subordinate considerations. This ‘enlightened shareholder value’ approach acknowledges that businesses rely on society for their licence to operate. But, for some years now, trust in business has been low, and the pandemic has highlighted that our economic system is not delivering prosperity, or even stability, for all sectors of society.

What happens after the pandemic: can we have a sustainable economy if, ultimately, we prioritise shareholder returns over the people whose work creates the value in business? What if businesses took a long-term view of human and natural capital, seeking social and planetary sustainability as the basis from which they create value? 

Purpose-driven businesses, such as B Corps, take a multi stakeholder approach to what they do. This means that the interests of workers and employees are not trumped by pursuing shareholder value; productivity is sought, in part, through finding innovative ways to support the interests of this key stakeholder group. Evidence suggests that this is now the direction of travel. It is crucial for the younger generation, who will soon be the vast majority of the workforce, for an employer to have purpose beyond profit, and for some this may even justify a pay cut.

During the pandemic, Bates Wells has been advising many clients on their obligations to their employees and ways to ensure a safe workplace. This has included helping clients with emergency measures, such as creating hardship funds. We’ve also been advising on supporting longer term planning.

Many businesses want to develop their workforce policies and practices to attract and retain talent, and build workforce resilience for the uncertain times ahead. The approach taken to aspects of work-life such as flexibility, transparency and communication, and hierarchy can impact significantly on levels of trust and loyalty accrued within the workforce, to help the business weather difficult times.

Bates Wells advises many purpose-driven business, including B Corps for which we co-chair a dedicated People and Culture Group, to provide support tailored to the needs of businesses taking a stakeholder approach. We’ve seen common themes in the approach taken by these kinds of businesses, which could provide helpful learnings for others trying to get to grips with the ‘new normal’ of purpose beyond profit.

What does the purpose-driven approach look like?

Trust is a two-way street, and a crucial value of purpose-driven business. This has been highlighted by a large number of people transitioning to remote working; many workers have needed flexibility in adapting how they work. Businesses have therefore needed to trust workers to find ways to continue delivering results, but also to know what needs to be done to manage the challenges that the pandemic presents. It’s highly likely that many workers will want to keep at least some of this flexibility going forwards. Creating a phased return for workers could be flexible and allow workers some choice, while prioritising wellbeing and mental health. This can be reflected and supported through company policies and, as appropriate, contractual arrangements to set expectations.

Key to building trust is greater transparency, which can help people to cope with the current state of uncertainty. Where you can, be brave in your sharing and honest about your concerns; bring people with you on the journey. For a purpose-driven business, workers are not a means to shareholder value, but members of the business’ own internal community. Listening to feedback and responding in good time is important, but some experimentation may be needed to find what works. It’s therefore important to know to what changes the business can commit, and what may be subject to contractual or statutory requirements.

Transparency requires good communication, which in practice might include scheduling virtual town hall sessions, but also doing things beyond the normal purview of the workplace. For example, would setting up group calls for parents to share their experiences help encourage them to be open with their teams about their flexible working needs? In the context of increased social isolation, signposting to mental health first aiders and encouraging people to reach out to them if needed could help provide support, and help start important conversations about additional needs before difficulties become worse.

Productivity through employee ownership

Employee ownership is an exemplar model for stakeholder inclusivity with regard to the workforce. Bates Wells works with a number of businesses that have taken this approach, within our Impact Economy practice, and is an active member of the EOA, to include sitting on its Membership Council.

Employee ownership aligns employees’ interests with the long-term sustainability of the business, and thereby can shape decision-making and culture throughout. This approach made headlines recently with the conversion of Richer Sounds into an employee ownership trust structure, in order to ensure succession of the business. Other household-names taking this approach include John Lewis and Aardman Animations, of Wallace and Gromit fame.

Research shows that employee ownership is flourishing in the UK. For the top 50 employee owned UK businesses surveyed, the mean increase in productivity is 6.9% for 2020, with a median 5% increase in operating profit. In addition, 66% of the top 50 had no debt, which may be an uncommon advantage in the wake of the pandemic. Moreover, evidence from the Ownership Effect Inquiry suggests that employee ownership fosters high standards of corporate governance by encouraging transparency, knowledge sharing, scrutiny and challenge; features that can do no harm when a business is managing in difficult times.    

Employee owned business represents a small proportion of the UK market, but it is one of many options for businesses taking a stakeholder approach and they often feature in “best employer” surveys and rankings[2].

Purpose-driven business comes in different forms, but common to all is putting purpose beyond profit at the heart of governance. Many businesses have talked about wellbeing and supporting workers during the pandemic, but a purpose lens on decision-making redefines the business’ relationship with the workforce, compared to the mainstream approach. Regulation and market expectations still play their role in shaping that relationship but, where workers are as much a valued stakeholder as the shareholders, an authentic sense of community can strengthen company culture and engender the kind of cohesion, creativity and loyalty required to build back stronger from these difficult times.

Please get in touch with Paul Seath or Phillippa Holland if you have any questions on the above.

[1] For example, the Workforce Disclosure Initiative, an investor-backed programme promoting corporate transparency, asks multinationals to report on a range of workforce practice.

[2] For example, Childbase Partnership is one of the largest employee-owned organisations in the UK, and was the Best Big Company at The Sunday Times ‘Best Companies to Work For’ 2020 awards.