Capitalism’s own goal

Matt Smith

April 20, 2021

Matt Smith (pictured) is a director and chief content officer at WHJE and managing director of WPB

The proposal for a European Super League is most likely the opening gambit in a protracted negotiation for a re-invigorated Champion’s League but whatever the ultimate outcome, the opening salvo from clubs got me thinking about how often markets and businesses these days can appear disconnected from their stakeholders and customers.

History is replete with failures of capitalism to ‘do the right thing’ when the hour of need came (you can all recall recent examples I’m sure) which is why we have regulation. The good news is that more is coming in the shape of Environment Social and Governance (ESG). Our politicians get accountability to the public. Businesses need to as well.

The Prime Minister may well be jumping on a bandwagon in his highly visible interference in the European Super League debacle but, more generally, policy makers have already been playing an increasingly large role in business (it started post the Global Financial Crisis). Our relationship with ‘big government’ has fundamentally changed owing to COVID.

The idea of the small state is dead for now. The state is expected to manage and coordinate efforts to address big issues. In our own world of mortgage lending, the furlough scheme, mortgage deferral payments, 95%LTV guarantee scheme and stamp duty holiday have all determined lending confidence and activity.

Policymakers’ requests can be enforced by law and sanctioned by penalties and, as if to underline their concern about the lack of good behaviour in business, it was reported in 2018 that there were more than 4,000 non-financial regulatory initiatives (ESG) across Europe – including mandatory regulations and voluntary initiatives. A report last year noted that in the last three years, ESG regulations grew by 158% in the UK.

I am helping a few boardrooms formulate their thinking and responses to this change. It’s strategic and cultural. ESG is not the cost of doing business but about how you do business. Investors know this and are driving the evolution in conjunction with consumers’ changing attitudes.

Firms are having to re-calibrate their moral compass and understand how good or bad behaviours will impact their value. They will have help soon enough. S&P and Moodys are already well down the path of measuring corporates on their ESG performance.

If you’re not sure ESG is for you brace yourself – it will be. If your customers do not demand better behaviours, your shareholders, investors and supply chain will in good time. Unlike the wannabe members of the Super League, firms who neglect ESG are likely to feel left behind or worse be relegated.

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