Businesses should agree a “new social contract” on improved tax compliance, treatment of workers and support for communities in exchange for emergency support during the coronavirus crisis, a new report says today.
The Social Market Foundation think-tank said that business should “return the favour” of huge Government support packages by signing up to clear new standards of behaviour.
Several big companies have already faced public anger over their response to the coronavirus, while others have been praised for supporting workers and communities.
Unless more companies clearly demonstrate “reciprocity” over taxpayers’ support, business risks a political backlash and a further erosion of public trust, the cross-party think-tank warned. (See Note 1)
To avoid the anger that followed the bailing out of banks during the financial crisis, the SMF report recommends the creation of a clear set of “standards of good conduct” against which business can then be judged by consumers, politicians and investors.
These standards, similar to the Nolan Principles of Public Life, would be monitored by a new independent body, established by Royal Charter, which would provide regular authoritative assessments on how companies are complying with tax laws, treating staff and suppliers and supporting local communities.
While poor performers could face public criticism and be excluded from bidding for public contracts, companies with strong records of paying tax and supporting stakeholders should be celebrated and honoured, the SMF report said.
The report makes a range of suggestions for agreeing new standards of conduct and measuring companies conduct against those standards, including:
- League tables of companies’ tax contributions, with public “naming and shaming” for those who pay least — and official accolades for biggest contributors to the public finances.
- Honours for business leaders should be temporary and dependent on their companies’ ongoing performance.
- Companies should face new independent audits of their treatment of workers — including spending on training and how they involve employees in leadership and decision-making. (See Note 2)
- These audits should also use existing law to scrutinise companies’ support for communities. In an effort to rekindle the spirit of Victorian “home town” philanthropy, the best companies should be honoured with a new “Investors in Places” accolade.
- Government contracts and other procurement should be open only to companies whose conduct meets an acceptable standard.
- Millions of pension savers created by auto-enrolment should get clear information about the conduct of companies their savings might be invested in, and the chance to insist that only companies with high standards get their money.
- Official statistics should be collected and published on executive pay rates relative to those of other workers.
The report shows how some big businesses and investors are increasingly taking the view that the purpose of business is to do more than simply produce profits for shareholders and should also be about supporting the people and places where business operates. On that basis, the report suggests, many businesses will welcome the idea of a new social contract.
The report was written by James Kirkup, SMF Director, who said:
“Taxpayers are standing behind business during the crisis. Good businesses will return the favour by paying their taxes and doing more to look after their staff and the places where they operate.
“A new social contract will set out what we should expect of business and allow the world to see which companies meet those standards and which don’t.”
“This is a pro-business plan, because so many people in business want ways to demonstrate their commitment to wider society, and know that unless business repays the support of taxpayers during this crisis, it faces a backlash that could cost us all dearly.”
Notes to the Editors:
The report, entitled Returning the favour: a new social contract for business, is available in full at https://www.smf.co.uk/publications/returning-favour/
Shortly before the coronavirus reached the UK, the consultancy firm Edelman published the 2020 edition of its Trust Barometer, Some 53% of Edelman’s UK survey sample said that capitalism does more harm than good in the world. The balance of people who do or do not think business acts “fairly” was -32.
The report suggests much stronger application of Section 172 of the Companies Act 2006, which gives directors a duty to act in the interests not just of shareholders but of the company’s stakeholders. Some big companies now have to produce narrative accounts of their Section 172 compliance. The SMF report suggests rigourous, standardised and audited reporting of compliance with the law.