This article first appeared in The Daily Telegraph.
There is a sense, particularly among the young, that capitalism has stopped being a force for good in their lives. We need to ask some soul-searching questions as to why this is the case. Because if we don’t stop the rot we risk losing the hearts and minds of a generation who will instead seek unrealistic solutions in all the wrong places.
Let’s start with some home truths. Trust between consumers and companies has fallen dramatically. In too many sectors, such as energy, banking and financial services, the relationship between businesses and consumers has taken a hit. Customer loyalty has been viewed as something to be exploited, not cherished. A recent YouGov poll suggested that even a full decade after the global financial crisis, two-thirds of Britons still don’t trust banks to work in the best interests of society. A similar number fear banks causing yet another financial collapse.
Companies have too often taken a self-destructive short-term approach. Management teams, particularly in the case of large quoted companies, have learned to put their own interests first. We haven’t quite reached the merry-go-round status of Premier League football, but the average tenure of a modern-day FTSE 100 CEO is just under five years.
When your job is up for review on a regular basis, we shouldn’t be surprised we’re left with a business culture that makes the company’s share price the number one focus, and rewards maximising short-term profits rather than investing for long-term success. Whenever that happens, customers will be the ones who get squeezed.
But today’s consumers are fighting back. Businesses that behave badly are being held to account in ways never imagined a few years ago. Customers have a much louder voice now, made possible by technology. In the past, if a company treated you badly you might have written an angry letter to the editor, or grumbled about it to friends down the pub. Today, you can post an online review on social media and instantly tell the world.
To build a stronger capitalism, we need businesses to behave in the right way towards their customers. And where they aren’t behaving properly, and it’s causing doubt in the value of capitalism, the Government must step in and set the direction of travel and to keep holding these businesses accountable. This needs to be done carefully, and regulators need to understand the sectors they choose to step into properly. They must have a clear understanding of the needs of the customer, while at the same time grasp the importance of competition, disruption and the role of new entrants.
In this respect, Theresa May’s party conference speech was hugely encouraging. As well as emphasising initiatives such as toughening corporate governance rules and giving workers a stronger voice in the boardroom, the speech also highlighted the significance of the energy price cap, to be in place this winter. In her own words this will “stop energy firms charging their most loyal customers unfair prices… Any other companies charging their customers a ‘loyalty penalty’ should know – we will take action”.
At the same time, the Government must do more to speak up for business. It has to champion its role in society, celebrate successes, and recognise that business should be the main conduit for providing solutions to many problems in society. We must be careful to ensure businesses do not become over-regulated or smothered in red tape. But if there is a moral case to be made for capitalism, companies themselves have to start making it.
My question to anyone running a business is this: what do you stand for? What do you want to tell your grandchildren you achieved? I want to be able to tell my grandchildren I built a business that was loved by its customers and made a valued contribution to people’s lives. Surely this is what modern capitalism must be about – businesses that have a purpose.
Within the Octopus Group, we set up an energy business a couple of years ago because we want to give customers a better deal. We wanted to give them fairer long-term pricing, and delight them with conspicuously superior customer service. Octopus Energy has been championing this cause for two years now, so we know that change can happen.
The irony is that when you make purpose rather than profit the core of your business, the profits come naturally anyway. Because it all comes back to the customer. Companies need to start proving to consumers that they are beneficiaries of capitalism. If businesses get that right, they will thrive, and society will be stronger for it.
For journalists in their professional capacity only. Issued by Octopus Group February 2019.