Needed: Stakeholder Capitalism In Retail And Across UK Thinking Post Brexit
We begin 2020 in the United Kingdom with an excellent real-time example of stakeholder capitalism, which the embattled retail sector might want to consider - and which we need to emulate across the country in public policy thinking as we get ready to leave the European Union. Greggs plc, the UK’s largest bakery chain, is rewarding its 25,000 employees - shop floor staff and managers equally - with a £7m special bonus after the successful launch of a vegan sausage roll in 2019 hugely boosted sales and profits.
The company has already given shareholders a special dividend of £35m last October after stronger than expected trading. This one-off bonus payment to workers was made “in recognition of their crucial contribution to business success”, it said. The story stands out at the start of the year amid other mainstream media reports of a steady stream of disappointing UK retail sales for the bulk of the sector, a “US-inspired discounting jamboree”, a squeezed middle-market and blame on consumer reluctance to splash out amid economic uncertainty.
The bonus payment amounts to £300 extra in a pay packet in January, which is not to be sniffed at. When the story broke, the evening’s BBC News featured smiling Greggs employees giving their reactions on how they might spend their bonus : arguably an unquantifiable marketing boost for Greggs as viewers watched at the end of another working day exhausted by years of Brexit. Critically, the product responsible for the big smiles is a VEGAN sausage roll, which sounds like something of an anachronism but is in fact a brilliant story of adaptation which makes it all far more interesting from a ‘stakeholder’ point of view.
“Across Britain, people are spending more money on vegan products, and plant-based diets are trending online” reports the BBC this year. While health reasons appear to be paramount, animal welfare and awareness of a ‘climate emergency’ is escalating change in consumer choices on diet, particularly among a younger generation.
Greggs, a business originally founded in 1939, appears to have made itself a poster child for the sector as a whole combining as it has adaptation of product, delivery and marketing while ensuring employee buy-in to move with fast-changing times. In doing so, it is reaching those (like me) who may never consider buying a sausage roll on the go, but are now intrigued by the story. It has potentially broadened its consumer market in one fell swoop.
By contrast, others in retail seem in danger of limiting theirs, in part by assuming customer loyalty by stereotype based on what is an outdated British notion of ‘middle-class.’ Both John Lewis and Marks and Spencer come to mind. Take a look at how the German discounters Aldi and Lidl fared in the latest data on festive shopping. Wine was the fastest growing area for Lidl, with sales up 20%. Beer, wine and spirits were up 13%, its largest sales growth in the sector. ‘Never knowingly undersold’ as a company mantra looks horribly outdated for any brand struggling to compete as John Lewis continues to do, clinging to a cosy and expensive image of being the nation’s provider of a brief Christmas advert.
At M&S, even the popular food division appears to live in a small niche world of its own. ‘This is not just food, it’s M&S food’ is frankly cringe-making as a marketing slogan in a country where the rise of food banks is a disgrace, well-documented by the Trussel Trust. Talk to younger M&S staff (and I routinely do talk to strangers) and you will find that they might work there, but they are deeply uncomfortable with the slogan plastered all over their plastic ‘bags for life.’
There are clearly multiple complicated challenges facing the UK retail sector. But the point of my snapshot here contrasting a few retailers is that there is an important difference in moving from thinking about shareholders to thinking about the stakeholders for any business. It is about taking corporate focus on true diversity and inclusion beyond corporate employment walls out to also include a broader range of customers.
The commercial potential of focusing on an inclusive human face of capitalism remains largely untapped, but stakeholder capitalism allows for the introduction of disparate voices into the thinking. There is clearly a recognition among business leaders that it is somehow necessary to move in this direction, but it does not always work out as planned.
Earlier this week, Joe Kaeser, CEO of Siemens, the Geman multinational conglomerate, offered Luisa Neubauer, a 23-year-old German climate activist a seat on the supervisory board of the company’s soon-to-be created energy business. It was reported to be in response to a string of protests against the company’s involvement in the development of a controversial Australian coal mine. Well, she rejected it, although the offer has been publicised more than its rejection. Was it just a bid to make Siemens look environmentally friendly, or was it a genuine attempt at engagement ? The company’s stakeholders now await next steps from on its commitment to the environment around the decision to supply equipment to the mine.
In the UK there appears to be a certain wariness of stakeholder capitalism equivalent to boardroom horror at the prospect of workers on boards. But the fundamental premise that profits and shareholder value, at any cost, are not acceptable to the young will be ignored at the peril of business. When it comes to acting on climate risk, Mark Carney has already issued a warning to this effect and COP 26 lies ahead in Glasgow in 2020, with the UK hosting the UN climate change summit.
In the meantime, there are interesting signs from a newly elected UK government keen to make far-reaching changes suggesting the growing importance of a shifting emphasis on stakeholder focus in public policy.
As Prime Minister Boris Johnson launches a Treasury-driven spending review with a view to look at greater government investment for deprived areas, the FT reports that under his plan “the Treasury would be less focused on boosting overall national economic growth and instead would be urged to give greater weight to other criteria such as narrowing the regional productivity gap or improving the wellbeing of people in low-income areas. “ That sounds like a much broader approach embracing a concept of ‘public value.’
In an opinion piece in the FT earlier this week, (Lord) Richard Layard suggests Prime Moinister Boris Johnson now has a great opportunity: “To be the first male prime minister to promote a well-being budget.” The new science of subjective well-being, he argues, should be applied to the Treasury evaluation, asking “how much does each proposal increase the well-being of the people for each pound of money it costs ?” He has come to this argument, he points out, having worked on income inequality and unemployment all his life.
We have also been reminded this month by the High Pay Centre in its latest report that how major employers distribute pay across different levels of the organisation contributes in making the UK one of the most unequal countries in the developed world. It calls for better joined up thinking on the decision-making and strategy in business that dictates corporate governance and how it reflects corporate values and goals for shareholders and stakeholders alike.
This has been quite a loop-the-loop in terms of attempting to join dots. But these seemingly disparate strands of thinking share a freshness at a time when we often talk of challenges - whether they are business challenges or societal challenges as if they are unconnected, each operating within its own circumscribed circles.
We talk in the same breath for example, of corporate governance, concens about executive pay and regulation. But the reality is that regulation has been proven to be extremely slow moving and ineffectual in this regard. There are new rules on corporate reporting and pay disparities - but as the Financial Reporting Council’s own report states, there’s an awful lot of lip-service being paid to changes made in the UK’s Corporate Governance Code.
This is doubtless because the changes are all about changing company culture. Because, despite all the debate, the UK’s largest company boardrooms have barely changed in the last decade in composition and homogeneity. Greggs plc I see, does have three women on its main board.
Yet change is here - and all around us in terms of what concerns the person on the street. Stakeholder capitalism is not going away as a concept, it is only going to gain further traction around climate activism and a younger generation empowered by technology and choice.
Baker Mckenzie, the law firm, has produced a paper on the need for company boards to have a sharper focus on stakeholder governance and on long term sustainable stewardship - Questions directors need to ask in the age of stakeholder capitalism.
The paper offers a simple definition of stakeholders as “any parties interested in or affected by the operations of the company and, in addition to shareholders, are generally divided into employees, customers, suppliers, the community and the environment.” It’s time to broaden thinking in the UK to embrace this wind of change around the importance of collaboration with stakeholders in any initiative aimed at generating economic growth even as we get ready to make a historic exit from the European Union.
Image credit: Xavi Cabrera on Unsplash
