Will Theresa May break from Thatcherism and transform business?

Arad Reisberg, Brunel University London

It is hardly controversial that when the UK’s new prime minister, Theresa May, stepped into the role, she delivered a bold message of “social justice”, promising to work hard “not for the privileged few but everyone”. It followed swiftly on the heels of the vision she delivered to reform business, in particular by getting “tough on irresponsible behaviour”.

Talking tough might sound good to an electorate that has lost trust in the business world, but putting this rhetoric into practice is not so simple. Particularly when we all rely on these businesses for research and development, the manufacture of products, the sale of goods and services, jobs, and, in many cases, pensions. Indeed, many with pensions have no knowledge of the companies in which their funds are invested, let alone how they treat their employees, suppliers and customers.

So will May’s premiership offer any major shift to resolve this tension?

Well, the new prime minister has promised to crack down on fat cat pay, a topic that continues to capture the headlines. It will particularly resonate at a time when the majority of people have not had a decent pay rise since the onset of the 2008-09 financial crisis. The move would also show some respect to employees and their contribution to businesses’ profits.

But May’s suggestion that shareholder votes on corporate pay should be binding – not just advisory – is nonetheless startling. Companies already hold legally binding votes on future pay policies every three years, a move introduced by the previous coalition government championed by then business secretary Vince Cable.

Annual voting by shareholders may add more red tape, adding to costs and procedures. And, paradoxically, this added complication may not support May’s aim of helping “British firms to do business all around the globe”, particularly at a time of unprecedented challenges for business, with Brexit terms not yet agreed on.

Transforming capitalism

Far more sweeping is May’s plan to tackle “vested interests” by giving worker representatives and consumers a say on the boards of big British companies. If implemented, it will signal a major shift in their power balance. Up until now, shareholders’ dominance has been the prevailing measure by which all corporate decisions would stand or fall.

Many shareholders view their investment as constituting a purely financial asset. Their demands are generally more short-term, driven by a hunger for ever-increasing dividend payments and capital growth. This can stifle long-term planning and funding of research and development and, ultimately, hinder stable growth.

Shaking up the boardroom.shutterstock.com
The restructure could follow the example of some prominent EU members, such as France and Germany, where worker representation has been the norm for many years. It would constitute a complete change in culture from a more profit-driven focus that benefits a few (namely shareholders) to one that benefits all who have a stake in companies.

Greater involvement of all parties with an interest in the company can lead to a sense of community and generate more of a partnership approach to business. Difficult decisions will have to be approached in a way which looks at the consequences for all stakeholders, not purely the financials. But this can be ultimately beneficial for companies.

This is something that research into a “Relational Company” model has found – by putting the interests of all stakeholders at the heart of their decision making, companies can become more competitive, stable and successful. Ultimately, this will generate greater returns for shareholders.

The current, corporate model has been tested and vigorously challenged by the recent financial crisis. And if the new PM puts her words into action, it looks like it faces even greater challenges ahead. Time will tell whether she will distance herself from the Thatcher years – not only by insisting that her party believes in society and communities as opposed to just markets and individualism, but actually delivering on that promise.

Abandoning the Thatcherite faith in the free market is not going to be an easy task and May is likely to face an uphill struggle against those representing the interests of shareholders and directors. The detail will be key to how exactly the model and balance would work. If successful, it could help transform the way capitalism operates in the corporate sector, for the benefit of all those who rely on companies for their livelihood and well-being, and for society more generally. It may also transform society’s view of the behaviour and standing of big business.

Arad Reisberg, Head of Brunel Law School; Professor of Corporate Law and Finance, Brunel University London

This article was originally published on The Conversation. Read the original article.


British business schools can take advantage of Brexit

By Zahir Irani, Professor of Sustainable Business Operations, Brunel Business School

On the face of it, Britain’s business schools are at the raw end of Brexit. One of their big draws is the idea that they are a stepping stone to one of the multinationals based in the UK or financial services firms that are based in London, Europe’s capital of finance. Brexit is a threat to these industries and EU students’ right to stay in the UK after graduating.

The scrapping of the post-study work visa in 2012 means that international students have to leave the country after graduation. Brexit could put EU students in this category and make UK business schools less attractive as a result. This would be bad for business schools, which benefit from the cosmopolitan environment they create, but also the UK economy.

British degree programmes make a significant economic contribution, with business and management attracting the largest proportion of international students, many of whom are from EU countries. Meanwhile, about 13% of academic business school staff are EU nationals and business schools are increasingly dependent on European funding. In fact, while UK government funding has been declining in recent years, EU funding has been on the rise (and was up 166% between 2010 and 2014).

But all the thorns of Brexit are an opportunity to demonstrate the strengths of the British business school. Brexit is the grand challenge of the coming decade for the UK and, with the economy forecast to stutter, business schools must put their high teaching and research rankings to practical use.

Stepping into the void

The argument of Brexit campaigners was always that the UK would have many more opportunities to control its own destiny and for economic growth when it was freed from the costs and limitations of the EU. But many that campaigned to leave the EU have since admitted to having no post-Brexit plan. Uncertainty dominates and the pound has dropped, which has serious knock-on effects for UK businesses and affordability.

So business schools must step into this vacuum with an injection of ideas, confidence and a toolkit of skills to operate and flourish in this new world of challenges. They must now step up and show they are able to take a lead.

They can do this by playing a more active role at a grassroots level of business. Schools should get more involved with the government’s Local Enterprise Partnerships, which support businesses and growth in new sectors across the country. The Small Business Charter, which connects business schools with small and medium enterprises, is a good start.

This way schools can develop deeper partnerships with the businesses that are directly affected by Brexit. Their challenges could range from how they are adapting to a weaker pound and how this will affect imports to opening new global markets outside the EU.

Business schools along with their international staff and networks are well placed to market themselves overseas and bring in foreign direct investment. Plus, whenever there is major change for society – and the extent of change as a result of Brexit isn’t yet understood – there will be opportunities for entrepreneurs. Business schools need to be providing ways to support and nurture the ideas that will solve new problems, as well as challenge accepted norms that everything will be work out rather than leading on the way through these uncertain times.

New horizons

There are still question marks over the role of business schools – particularly those in the US – in encouraging the attitudes and culture of excessive risk-taking and their inability to admit the failures and problems that led to the global economic crash of 2008. There are also question marks over the way that business education has failed to address core issues like ethics, responsibility and sustainability. Many sell the merits of a globally connected world, but often fail to understand or embrace the complexities of globalisation.

Now’s the time for schools to tailor their offerings and look beyond Europe: how to create and establish new markets and how to accelerate an organisation’s ability to deal with the next generation of high-growth countries like Turkey, Iran, Indonesia, Kazakhstan to name but a few.

In some ways Brexit means a blank sheet of paper for the UK. For some this might be a frightening prospect, but ultimately it just means it’s time for some hard work, determination, creativity, and to make sure the UK looks to its strengths. If there’s one British sector with world-class status and the muscle to make a difference it should be higher education.

This article originally appeared on The Conversation.