In the first of a series of talks under the title “Looking to the Future”, James Featherby, a partner at Slaughter and May in London, gave a talk entitled “Rebuilding Trust in Business”.

The event, held on 28 January 2010, was hosted by Scottish Widows and business matters is very grateful to them for their hospitality and organisation.

At the start of his talk, James referred to an article he had read in the current Harvard Business Review under the headline “The age of consumer capitalism” which suggested that while executives often focus on shareholder value, shareholders actually do better when firms put the needs of the customer first.  Referring to the venue for the talk, he drew our attention to the fact that Scottish Widows was a long-standing mutual company for many, many years.  He suggested that this model or others where people work together for a common financial purpose might be worthy of consideration and of learning from as we seek to look at the way forward for business today after the events of recent months.

James recalled a couple of key days from the last two years. The first was in March 2008 just after the collapse of Bear Stearns when he visited his financial advisor and decided to continue being, in his own words, “an adventurous investor”, a mistake on which he has often reflected over the past months.  The second day was in September 2008 in the week that saw the collapse of Lehman Brothers, Bank of America acquiring Merrill Lynch, the US Fed rescuing AIG and Lloyds announcing their takeover of HBOS – a busy week.  A headline in the FT caught his eye – “What’s the future of capitalism?”  James reflected that, while this was an unusual question then, it is one which is being more frequently asked today.  The UK has been through a number of booms and busts but it would appear that we still have a window of opportunity to change the way in which we approach business as we move forward.  Whilst there were many “technical” reasons for the problems we have experienced, James suggested that there is also a human behaviour which we require to address – the adoption of good values in our business dealings.

Having set the scene, James then expanded on the topic.  Some salient bullet points are given below:

• there is an intellectual case for good values and the fact that morality should be part of business
• good values do the same thing at both a business and country level: an organisation that has good values, seeks to do business for the common good and benefits all stakeholders will prosper – as the result of a mutually reinforcing upward spiral
• good values themselves are often seen, wrongly, as wielding a “big stick” or encouraging a judgemental approach; today’s culture needs to re-engage with good values in order to see business prosper
• business is important; it alone will not solve the world’s problems but without business the world will struggle

James suggested four key lessons which we should learn:

• we are all prone to temptation – can we resist the lure of more wealth any more than we can allow the pudding trolley to pass?
• we are not as clever as we think we are – we create structures and systems which we can’t always control
• the prosperity of each of us is linked to the wellbeing of others – it is clear that, despite portfolio diversification, all asset classes and all people are correlated
• the market does not protect us from disaster – ideologies on their own are not enough.

A couple of problems with behaviours which have been identified are:

• compartmentalisation – Stephen Green, the Chairman of HSBC says that we have started behaving towards third parties in ways which we would never behave towards our families and friends
• lack of specificity – most people know most of the time what they should have been living up to – company mission statements are generally laudable.  Does the reality of putting them into practice match up?

The UK is still one of the richest and best educated nations in the world.  James suggested that we need to promote business focussed on mutuality – business for the common good. G20 conferences will not deliver this – only the sum of individuals’ actions.

We must not let the system drive our values – rather our values must drive the system. James identified some of the misconceptions that we have in this area:

• the market is a substitute for morality – in reality the market depends on morality
• morality is the enemy of business, profit is about being selfish – there is actually no disconnect between profit and service; the current Pope has said “the creation of wealth is our inescapable moral duty”
• obeying laws and regulations is a substitute for morality – the recent MPs’ expenses issues have shown that following the rules is not enough; values provide a plumb-line for us to see how far away from dead centre we really are
• values no longer matter because businesses are decentralised and fragmented – well, who would have thought that the reality is that a poor family in downtown Chicago could wreck my pension position; but it has happened.  A series of lawful trades between individuals when accumulated can add to systemic risk.  I may not be my brother’s keeper but he is my neighbour.
• economic growth must silence all other voices – however, the evidence since World War 2 is that Britain has seen great economic growth but that happiness levels have not risen
• values are black and white standards which are impossible to make work – in reality values send up “red flags” to alert us while providing positive, purposeful momentum, which builds character and wisdom

James finally identified that we must be consistent between our public and private lives and suggested that we practise this values-led approach on little things, so that when we are faced with major issues we are well able to handle what life throws at us.  It is not the nanny state which creates character; it is down to us, putting others first as we push forward business for the common good.

A lively question and answer session then took place covering a range of questions from “where does consumerism fit in the bigger picture?”  through “what will happen if people save rather than spend – can the system survive?” through “are there any other ways in which to measure prosperity apart from GDP?” to “are city bonuses inherently bad?” and “have you seen any evidence of this topic being discussed within the banks, the Government and the Treasury?”. James answered each question thoughtfully and commended balance, personal responsibility and value-led decision-making to the audience.

Iain Archibald, on behalf of business matters, thanked James for his talk and encouraged those attending to take away copies of James’s booklet “The White Swan Formula, rebuilding business and finance for the common good”.

You can access the e-text of that booklet, a recording of his talk and the Q&A time using the icons below.

Eric Smith
for business matters