‘Covid has brought out the best and the worst in companies’: Where next for British business?

We all want business to take more social responsibility. Thanks to the coronavirus pandemic there’s never been a better opportunity, writes James Moore

Many businesses in seaside towns such as Blackpool were forced to close over Easter, normally the start of the summer season (Getty)

Why on earth would a business voluntarily offer to pay back government money, freely given to protect jobs and without any discernible strings attached or any real pressure to do so?

Even if they recognised that they had a wider social role than purely increasing profit – Nobel Prize-winning economist Milton Friedman infamously argued that was a business’s sole social responsibility – it seems counterintuitive.

Voluntarily returning furlough cash, or promising to refuse Job Retention bonuses when your competitors are planning to gobble up such subsidies, in theory puts you at a disadvantage against them.

Yet that’s what some companies did. After enjoying a Covid-19 related boost to its business, Bunzl, one of those big FTSE 100 listed businesses whose products a lot of people use without necessarily ever having heard of it, said it would voluntarily repay funds taken to support furloughed staff.

“As a result of Bunzl’s very resilient trading performance, we quickly concluded that government support was not required to sustain our business,” said a spokesperson for the group, which sells packaging and other non-food kit (eg napkins) to the food service industry and supplies gowns and gloves to hospitals, among other things.

“At a time of extreme uncertainty we were grateful that such funding was made available, and were happy that the resilience of our business meant it proved not to be required, with less affected parts of our business able to support more affected areas,” they went on.

A small number of other companies did something similar, including the Swedish furniture retailer Ikea, which took the step in several markets in which it operates, and Games Workshop, the fantasy game and miniature designer.

Discount clothes retailer Primark, meanwhile, said it would not take the Job Retention Bonus that chancellor Rishi Sunak originally intended to replace the Job Retention, or furlough, Scheme until the pandemic got in the way and forced the latter’s extension.

“Without doubt Covid has brought out the best and the worst in companies.  We have all experienced this as employees and customers,” says Dr Ian Peters, director of the Institute of Business Ethics.

When it comes to the best Peters says it goes beyond just whether or not to accept subsidies from the taxpayer.

“Those companies that began with a clear purpose and shared values were well placed to respond to the Covid challenge. Their teams reacted quickly, living their values and putting the customer at the heart of their response. The shift to remote working required greater delegation to middle management and for management to place trust in their teams. Employees have repaid this trust with loyalty and flexibility despite all the stresses of the new Covid world. And companies who have really listened to their employees have been much better prepared for the challenges they have faced,” he says.

The rise of the “stakeholder” model, AKA capitalism with cuddles? Peters may be idealistic, but there are plenty of examples of where this has actually happened.

Unfortunately, there are plenty of examples of the opposite too.

Wetherspoon, the pub group run by outspoken Brexiteer and big mouth Tim Martin, told 43,000 staff it couldn’t afford to pay them early on in the pandemic, even going so far as to suggest that they seek to work for Tesco instead. The supermarket group was, at the time, taking on thousands of new staff to cope with a surge in orders.

The backlash was swift and fierce, involving more than 100 MPs as well as the media. A U-turn followed.

Then there was Sports Direct, which briefly mooted keeping its stores open during lockdown as “an essential retailer”. It was also have found to have hiked the prices of gym equipment on its website. These moves also created an outcry and were reversed.

Those companies that began with a clear purpose and shared values were well placed to respond to the Covid challenge. Their teams reacted quickly, living their values and putting the customer at the heart of their response

Companies with far less controversial reputations, which probably wouldn’t welcome being mentioned in the same breath as those two, have also found themselves under a harsh spotlight. Tesco, and other supermarkets, benefitted handsomely from a business rate holiday designed to support shuttered “non-essential” retail peers and other similarly affected businesses. They didn’t need the extra cash as they were allowed to remain open throughout lockdown, during which time their sales soared. So did their dividends. Critics were quick to point out the problem with that at a time when people were struggling in the midst of a brutal economic crisis. Amid mounting pressure, including from MPs, Tesco eventually took the lead in offering to repay the £585m it had made through not paying its rates.

These incidents suggest that policymakers and the public aren’t minded to accept “business as usual” and take a dim view of companies which behave badly or profit from state support that they don’t need.  

Questions of the behaviour of businesses during the pandemic are likely to persist into the next year. While some have a good story to tell, others are going to have their PR people working overtime trying to find excuses. PS… stop patting yourself on the back for “feeding the nation”. It’s what you’re supposed to be doing. It’s your job. It’s what you and your shareholders profit from.

“We all want to see kinder, better business. The best businesses already recognise this and have embarked on a positive journey.  Covid has accelerated this process but many businesses will need to make it a priority to catch up,” says Peters.

Just so. But that journey isn’t always always easy, even for businesses that have long put “values” front and centre.

The John Lewis Partnership is one of these and it’s in a tough spot. The fact that there are many retailers that would still envy the position the business is in – those that haven’t collapsed – only serves to underline how heavy the entire retail industry is finding Covid (with the notable exception of the supermarkets).

The partnership has had to make some tough decisions. Its annual staff bonus has been put on ice. Stores have been slated for closure. Jobs are being cut. There is no way to escape measures like these, even for a business that has embodied the more enlightened culture Peters wants to see becoming more firmly established across the business world.

Nina Bhatia, executive director for strategy and commercial development, says the partnership sought to remain true to its values throughout the process, stressing its constitution which holds that the group should seek to make only “sufficient”, rather than the maximum profit, as would be the case with a shareholder-owned company.

“That’s not to say we don’t have to change. We don’t profess to be perfect as a business and we have to improve our commercial performance,” she says.

Bhatia explains that the development of a new strategy with that aim in mind nonetheless involved “a clear commitment to put the purpose of the partnership at its heart. That’s what we’re about as a business, and it’s core to our values”.

We all want to see kinder, better business. The best businesses already recognise this and have embarked on a positive journey

“I think our timing is right. People are becoming increasingly thoughtful about who they spend their money with, and what a business stands for.”

But values, and an ownership structure that doesn’t have shareholders demanding dividends every five minutes, aren’t a lot of good if the people running the business don't commit to them. The Co-operative demonstrated this when it nearly crashed and burned.

The most obvious, and highly publicised, part of its crisis was the conduct of Paul Flowers, the chairman of the society’s former banking arm, which is now in the hands of the hedge funds that had to bail it out. Not only was the unit a financial train wreck, he was caught buying drugs, which led to the methodist minister being dubbed the “crystal methodist”.

A string of still more lurid scandals emerged. But while his misdeeds delighted the tabloids, there were problems right across an institution that found itself on a financial precipice.

Allan Leighton, a hard-headed old school businessman, was brought in as chairman to help clean up a mess that at times looked as if it was all but sure to pull the society under water. He succeeded.

Steve Murrells, now group CEO, was part of his team. “At the point in time where our balance sheet was stabilised, we had the opportunity to analyse properly what had gone wrong.

“Put simply, The Co-op had lost its way – we had basically lost sight of our Co-op purpose and reason for being,” he says.

The characteristics, which had shaped the rise of a Co-operative movement during large parts of the 19th and 20th century and delivered so much in the process, were no longer in sharp focus. “The ability to fully meet our members’ needs and to positively affect social change had also lessened. For us to build a new Co-op, fit for purpose in the 21st century, it required us to go back to our roots but with a clear lens and a renewed purpose.”

Shorn of its banking arm, and with its core grocery business focussed on the fast growing convenience sector, the Co-operative has resurrected itself.

This has helped to facilitate a renewed focus on campaigning, on issues such as as loneliness, isolation, access to food, sustainability, youth inequality, modern slavery and violence against shop workers.

“We’ve raised awareness of these issues, we’ve listened and collaborated, we’ve lobbied, we’ve acted and we’ve seen others act positively also. Our willingness to go into places others simply wouldn’t, adds weight and legitimacy to our purpose,” Murrells argues.

I think our timing is right. People are becoming increasingly thoughtful about who they spend their money with, and what a business stands for

“We have also realised that Co-op value can be created far beyond the trading activities within our own business areas. In the past few years we’ve successfully launched the UK’s first Fairtrade Sustainability Bond, our pension scheme trustees have moved some of the investment portfolio into social housing and we are firmly on track to having 40,000 pupils wearing a Co-op uniform in 40 Co-op academy schools.”

Of course, the Co-op is a unique institution. When it is being run as the Co-op should be run, you would absolutely expect it to be doing things like that.

A shareholder-owned business is a different animal, one that is supposed to make money with a view to delivering a return to its shareholders, many of which will be pension funds (like the Co-op’s) relied upon by millions of small savers. Dividends aren’t always a bad thing, especially when they help secure the value of these pensions.

The IBE argues that pubic companies can still achieve the aim of delivering profits while behaving better. Sometimes it can even be in their economic interests.

The Living Wage campaign feared that the pandemic might hit the number of employers signing up for accreditation. However, it says that since it started to rage, over 800 more employers have signed up to become accredited employers.

There are now over 250,000 people covered by the living wage, which is set based on what it costs to sustain a reasonable basic standard of living by contrast to what the government likes to refer to as the national living wage. What used to be known as the minimum wage is misnamed in its new guise because it is not a living wage. The calculation of its rates takes into account what the market will bear and the pandemic meant a previously planned rise was reduced.

Accreditation from the Real Living Wage campaign requires that companies commit to paying all their staff the set amount. It must also extend to people like cleaners and/or security guards, whose services are often bought in from third party contractors by large organisations.

It’s an important part of accreditation and some of the institutions that say they pay the living wage – cough Lidl cough – don’t.

Why has the campaign been so successful? Accredited employers often like to say that their signing up was “the right thing to do”. Public relations can also play a role. For a company like Barclays, it would not be a good look having some of Britain’s highest paid employees in its investment bank being served by baristas in its cafes who struggle to pay for food when their shifts are over. The bank’s accreditation means that doesn’t happen.

Several of the businesses I’ve talked to that similarly display the campaign’s badge of honour also cite economic benefits. Employees on a living wage are more likely to stick around for longer, which reduces recruitment costs and the time taken to get new employees up to speed. They are less likely to call in sick. The quality of their work is better.

This, then, is an example of where doing business better yields a payoff.

Shareholder-owned companies are also increasingly finding themselves under pressure to do better from their shareholders.

At least some institutional money managers are taking companies’ ESG (Environmental, Social, Governance) performance seriously, particularly UK and European fund managers (sometimes under pressure from their pension fund clients).

In a report earlier this year, Share Action cited Robeco, BNP Paribas Asset Management, Legal and General Investment Management (LGIM), APG and Aviva as leaders in the field. LGIM and Aviva, are UK-based and received A grades.

Amid all the talk about cuddlier stakeholder capitalism there is, however, still work to be done. The High Pay Centre and the Chartered Institute for Personnel and Development, for example, found that just 34 per cent of FTSE 100 companies have some form of employee-related metric in their performance-related pay plans.

Across these companies, the employee-related element accounted for an average of just 5.9 per cent of total incentive pay. Across the FTSE 100 as a whole, it accounts for an average of 2 per cent, scarcely enough to attract a multimillionaire CEOs’ attention.

By contrast, the element of potential incentive pay linked to financial performance metrics accounted for 82 per cent of the total. Hitting financial targets is effectively 41 times as lucrative for CEOs as paying heed to the interests of their employees (which might help them hit those targets).

“There's been a lot of talk about ‘stakeholder capitalism’ recently and the need for boards to balance the interests of other stakeholders (chiefly, workers) alongside those of shareholders,” director Luke Hildyard points out. “Insofar as CEO pay incentives reflect corporate priorities, these findings suggest there’s still a bit of progress to be made in that respect.”

Old habits die hard but it is clearly possible to do business better and to make money while rewarding shareholders. Customers are increasingly calling for it. If investors are willing to join them (and they are increasingly under pressure to do that) then maybe a better kind of business will be a welcome legacy from an otherwise dark and sad year.