How forward-thinking firms are rewriting the capitalist rulebook

[sun rise]

Government ownership of business fails. The pursuit of profit above everything else screws everything (and everybody) else besides the executives and shareholders. So, this is a story about a third way that is being conceived and worked toward. This is a UK-centric piece but has points to consider for all.

How forward-thinking firms are rewriting the capitalist rulebook

From demoting shareholders to appointing nature to the board, purpose-driven firms are changing the rules of business

When Yvon Chouinard (main picture) passed ownership of his billion-dollar company Patagonia over to the planet, he redefined what it means to be a sustainable business.
...
1. Demoting shareholders
...
The desire to remodel business-as-usual is also at the heart of the Better Business Act. Backed by more than 1,500 firms, the legislative proposal aims to change UK law so that leaders of listed companies can balance social and environmental concerns with their legal duty to shareholders.

The proposed rule change takes its inspiration from the B Corp movement, which sees companies agree to change their founding documents to put shareholders on par (not above, as at present) with communities, the natural world and other so-called ‘stakeholders’.
...
2. Bringing the birds and (worker) bees to the board

Having no one to speak up for you is a sure way to have your interests get overlooked. Welcome then is Faith in Nature’s decision to appoint nature to its board.

The British haircare brand has issued the great outdoors with voting rights (exercised by a real-life proxy), ensuring its natural-origin, low-waste principles stay centre stage.

Britain’s Trades Union Congress is pushing for similar representation for workers, arguing in a new paper that one third of directors in large companies should be workers elected by their own colleagues (a model already in place in Germany).

Fudge Kitchen, the Kent-based confectioner, has gone one step further by joining the likes of John Lewis and engineering giant Arup in handing ownership of the firm over to its workforce meaning they all benefit from a share in the profits.
...
3. Tying bonuses to sustainability targets

Nothing (we’re told) concentrates a business executive’s mind like their end-of-year bonus. Assuming that’s true, the top bosses at Tesco, a UK supermarket, have fresh cause to take issues such as gender representation, emissions reduction and cuts to food waste seriously. Why? Because, from now on, 25 per cent of their performance bonuses will be linked to the company’s sustainability targets
...

 

[Shadow Wolf]

We shall see. My money is on the rich still get richer and has a robust system of socialist safety nets at their disposal and everybody gets screwed as they fight over table scraps. And somehow I just foresee the Earth having some suspiciously anti-Earth interests out of this all.

 

[icehorse]

Thanks for the OP, a glimmer of good news!

Here in the PNW I have a friend who's involved in an initiative called "rights of nature" - the birds and bees on the board of directors sounds very similar!!

hooray!

 

[lewisnotmiller]

...
3. Tying bonuses to sustainability targets

Nothing (we’re told) concentrates a business executive’s mind like their end-of-year bonus. Assuming that’s true, the top bosses at Tesco, a UK supermarket, have fresh cause to take issues such as gender representation, emissions reduction and cuts to food waste seriously. Why? Because, from now on, 25 per cent of their performance bonuses will be linked to the company’s sustainability targets
...

For better and worse, it's true.
What I mean by that (and to be clear, this is a personal hobby horse) is that bonuses can encourage behaviour quite different from that intended. Simple (and simplistic, honestly) examples could be;

Setting idealogical goals like 50% female management causing existing non-female managers to be removed, demoted or promoted in order to achieve the measure and make bonus.

The unintended impact this could have on non-binary staff.

The relative ease of some measures and the relative difficulty of others in terms of accurate assessment driving corporate behaviour (say, gender quotas versus racial ones).

The need for bonuses to be largely non-discretionary and contractual in nature complicating contracts and requiring contractual updates.
(Eg. Imagine my contract stipulates a bonus based on reaching a certain 'green' outcome,only for that outcome to be discredited or replaced in terms of best practise scientific measures...)

None of this is specific to these type of KPIs to be clear. Exec KPIs currently commonly drive unintended (as well as intended) behaviours through how they are structured.

And, to be clear, I'm not pushing back on the need for businesses to be more diverse and representative, nor more sustainable.

Just adding some colour based on my experience.

 

[Heyo]

The desire to remodel business-as-usual is also at the heart of the Better Business Act. Backed by more than 1,500 firms, the legislative proposal aims to change UK law so that leaders of listed companies can balance social and environmental concerns with their legal duty to shareholders.

The proposed rule change takes its inspiration from the B Corp movement, which sees companies agree to change their founding documents to put shareholders on par (not above, as at present) with communities, the natural world and other so-called ‘stakeholders’.

That would be interesting if it really became law. But I doubt it. Capitalism is here to protect the capital from social or environmental influences. Allowing corporations to not work on a profit motive would disrupt the system. A firm could price their products based on a zero profit calculation and be extremely competitive. Can't have that.

 

[exchemist]

That would be interesting if it really became law. But I doubt it. Capitalism is here to protect the capital from social or environmental influences. Allowing corporations to not work on a profit motive would disrupt the system. A firm could price their products based on a zero profit calculation and be extremely competitive. Can't have that.

I think this mixes up two things. Sure you need a profit motive, because without that there is no return to shareholders and without that there is no capital invested in the business and without that there is no business.

But it is plainly false to suggest that capital tries to protect itself from social or environmental factors. A large part of what manufacturing and retail businesses do is bound up with such things, for the simple reason that this is what their customers require of them. And without customers, they don't have a business.

They don't do it from altruism, of course. They do it from enlightened self-interest. But, believe me, they do it, as I know well from over 30 years experience in an oil company.

 

[PureX]

The solution has always been shared control of the commercial enterprise by the interests being effected by that enterprise. It's not an issue of "ownership" apart from the idea that ownership equal total control. So the only real obstacle to be overcome apart from our willingness to accept the obvious, is how to enable that mutual control.

I would prefer to see it done 'in house' to the degree that this is possible, but the community also has to have a say, especially regarding infrastructure costs and environmental impact (also consumer protections). Keeping it in house as much as possible helps to elmiinate unnecessary complexity and abstraction, and the resultant propensity for bad decision-making.

Unfortunately, I don't see this coming about voluntarily. There is way too much money and ego at stake for that to ever happen. It's great that some businesses are this forward-thinking, but they will always be a drop in the bucket without imposing systemic changes.

 

[PureX]

The solution has always been shared control of the commercial enterprise by the interests being effected by that enterprise. It's not an issue of "ownership" apart from the idea that ownership equals total control. So the only real obstacle to be overcome apart from our willingness to accept the obvious, is how to enable that mutual control.

I would prefer to see it done 'in house' to the degree that this is possible, but the community also has to have a say, especially regarding infrastructure costs and environmental impact (also consumer protections). Keeping it in house as much as possible would help to eliminate unnecessary complexity and abstraction, and the resultant propensity for bad decision-making.

Unfortunately, I don't see this ever coming about voluntarily. There is way too much money and ego at stake for that to ever happen. It's great that some businesses are this forward-thinking, but they will always be a drop in the bucket without imposing systemic changes.

 

[exchemist]

The solution has always been shared control of the commercial enterprise by the interests being effected by that enterprise. It's not an issue of "ownership" apart from the idea that ownership equal total control. So the only real obstacle to be overcome apart from our willingness to accept the obvious, is how to enable that mutual control.

I would prefer to see it done 'in house' to the degree that this is possible, but the community also has to have a say, especially regarding infrastructure costs and environmental impact (also consumer protections). Keeping it in house as much as possible helps to elmiinate unnecessary complexity and abstraction, and the resultant propensity for bad decision-making.

Unfortunately, I don't see this coming about voluntarily. There is way too much money and ego at stake for that to ever happen. It's great that some businesses are this forward-thinking, but they will always be a drop in the bucket without imposing systemic changes.

Yes it is the job of government to control and channel the profit motive for the wider social good. Market forces can do part of the job but not on their own. (US Inflation Reduction Act is a case in point.)

 

[Revoltingest]

Yes it is the job of government to control and channel the profit motive for the wider social good. Market forces can do part of the job but not on their own. (US Inflation Reduction Act is a case in point.)

Oddly, the Inflation Reduction Act has nothing
to do with inflation...other than having the likely
consequence of increasing it.
Anyway, before the fed got interested in renewable
energy, tax policy actually incentivized against
things like solar power generation.
How so?
IRS required depreciation of installations over
the life of the building, rather than the shorter life
of the equipment. On top of that, local laws
typically regulate electricity suppliers in a manner
that discourages feeding excess power back
into the grid. This is still a problem.

 

[Heyo]

But it is plainly false to suggest that capital tries to protect itself from social or environmental factors.

I wasn't talking about the capital protecting itself but about the capitalist state protecting capitalism. Every capitalist jurisdiction I know about requires businesses to have profit as it's main goal. You can't register a firm with just a sustainability goal and/or other primary goals. And charities, which don't need a profit motive, aren't allowed to compete with corporations.

 

[Revoltingest]

Every capitalist jurisdiction I know about requires businesses to have profit as it's main goal.

Evidence for this claim?
In businesses I've owned, profitability has never been
required, whether incorporated or sole proprietor.
However, there are IRS complexities if one isn't
profitable for several consecutive years.

I'll wager that court decisions have required business
managers to prioritize owner (ie, stockholder interests
over managers' personal interests. Perhaps that's
why so many believe that it's illegal to not maximze
profits?

 

[exchemist]

I wasn't talking about the capital protecting itself but about the capitalist state protecting capitalism. Every capitalist jurisdiction I know about requires businesses to have profit as it's main goal. You can't register a firm with just a sustainability goal and/or other primary goals. And charities, which don't need a profit motive, aren't allowed to compete with corporations.

Well yes you can. There is no law that says a company has to be run at a profit, nor that profit has to be the main goal. In fact many companies run at a loss for years. And of course there are rafts and rafts of non-profit making organisations, from schools to wine societies. Of course businesses have to remain solvent, i.e. be able to operate and pay creditors without defrauding them. But that's a matter of cashflow, not profit.

As for restrictions on charities competing with profit-making businesses, the problem there is charitable status involves tax breaks. So you fun foul of the laws on fair competition if you allow an entity that has tax free status to compete in the marketplace with one that has to pay taxes.