The recording of our live cast on ‘the future role of business as a force for good’ (28 September) with economist Rebecca Henderson and management scholar Colin Mayer is now available (see video above), as is a short written summary of the dialogue by Eefje van Gelder (below). The interview with Henderson and the interview with Mayer, part of the episode, are also available as separate videos.

In a conversation last Monday (September 28) in Pakhuis De Zwijger, professors and economists Rebecca Henderson (NBER) and Colin Mayer (Said Business School, Oxford University) met. The speakers in our dialogue, the American Henderson and the British Mayer, agreed on many things; companies must have a social purpose in addition to profit creation and focus on solving social problems. Too often management boards and investors only think about creating shareholder value, while ultimately no trade-off exists between financial and social interests.

At the same time, it is a myth, Mayer pointed out, that by definition investors are only interested in the short term, and cannot be induced to invest in social themes. It is only important that such a focus on the long term also yields profit, and actually contributes to a better world. Both professors emphasized that good metrics are important for this, so that the company can show that it is doing well in all respects and is under control. A good example of this is the (increasing) use of the so-called ESG ratings (Environmental, Social and Corporate Governance ratings).

Good Examples or Legislation?

The economists differed on how we can ensure that more and more companies put the desired social orientation or purpose into practice. While Henderson focuses on an exemplary role for social enterprises (“come one, come all”), Mayer focuses more on the importance of reforming corporate law and enshrining corporate purposes in law. There is a great deal of variety between European countries in how business operations are regulated by law, which means that in Europe there are many opportunities to experiment with ways to shape this. Henderson indicated that she found such a legal basis politically not viable, she moreover believes it will have too little effect.

To bring about a further shift away from the shareholder value-only way, as both economists agreed, a renewed relationship is needed between government and businesses. The same mistakes that were committed earlier during the banking crisis by a government bailout cannot be made again. That would further undermine confidence in the capacity of the state and capitalism. If the social problems are too great to be solved by a single company, such as problems surrounding inclusivity and equal opportunities, government intervention is necessary. This regulation must be proportional and targeted, not on harsh punishment of companies. In other words: purposeful regulation.

Both professors emphasized in the dialogue the benefits of the free market. According to Henderson, this is a great invention that ensures freedom and autonomy for people. When a state controls all the means of production, it becomes difficult to realize those values. However, a focus on fairness and sustainability, pricing of externalities, as well as a properly functioning democracy are essential for the proper functioning of markets.

The debate concluded with a brief reflection on the importance of good citizenship and local communities, and the relationship to purpose-driven business operations – a topic that will receive more attention in the conversation between Paul Collier and Raghuram Rajan in the next dialogue on October 5.

Read More

A Capitalism for the People (cover)

Reimagining Capitalism in a World on Fire (2020)

Prosperity; Better Business Makes the Greater Good

Prosperity; Better Business Makes the Greater Good (2018)

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Also available in: Dutch