The Relational Company

transforming-capitalism-from-withinShort-termism, excessive debt, huge and rising pay differentials, anonymous shareholders and tax avoidance are at the heart of public distrust of the corporate world. But few practical solutions have been put forward, other than increasing legal and regulatory controls. Relationships Global and Relationships Foundation responded to this challenge with Transforming Capitalism from Within: a Relational Approach to the Purpose, Performance, and Assessment of Companies in which Jonathan Rushworth, retired partner in a leading City law firm, and Dr Michael Schluter CBE, former World Bank economist and social entrepreneur, argue that these problems can be addressed if companies put relationships with stakeholders at the heart of their operations.

Rather than seeking solutions to systemic economic instability through regulatory or tax responses, Rushworth and Schluter seek changes in the structure and content of corporate stakeholder relationships. The authors set out a way of encouraging companies, shareholders and society into a more responsible, stable and relational form of capitalism, which will deliver long term profitability, productivity, sustainability and competitiveness. To drive this change, Rushworth and Schluter recommend establishing a Relational Ratings Agency to supplement the recently launched Relational Business Charter.

Commenting on the report, Michael Schluter said: “This is a clarion call for practical reform of our economic system. People are despairing that there is no alternative to the casino capitalism that has governed the last decades. The relational approach shows capitalism can be made to work again, but to do so, we need to put people’s relationships, not their capital, at its heart. It is now time for a system which allows no reward without responsibility; no investment without involvement; no profit without participation.”

Jonathan Rushworth added: “The Charter addresses many of the issues which continue to cause concern and loss of trust in the public mind about corporate behaviour. Shareholders, in particular, are seen to take financial reward and yet have no responsibility for the impact of companies on society. There seems to be no sensible solution for ever-widening pay differentials. Putting relationships with stakeholders at the heart of how companies operate would enable them to work more as communities with a common goal. At present all those relying on companies for their well-being tend to work towards their own individual interests. The understanding and promotion of a relational approach should lead to stronger long-term profitability and sustainability than is the case now with the short term financial return imperative. The Charter approach should encourage the long term success of companies as well as restoring confidence and trust in the reputation of the corporate sector.”

Former chief secretary to the Treasury, Rt Hon Stephen Timms MP: “The Relational Business Charter applies a different set of values to challenges we all face, and formulates, as a result, fresh responses and new ideas. There are things governments can do, but the tools available such as regulation and taxation, can’t always deliver a good outcome. That is why alternative approaches like this Charter can be very attractive. I warmly welcome this initiative, and I look forward enthusiastically to following the debate which I hope it will kick off.”

MP and former businessman Jeremy Lefroy: “Companies have sometimes been accused of concentrating too much on short-term results at the expense of long-term goals. A Relational Business Charter along the lines proposed in this report could transform our business culture. Not only would Britain be a fairer society; the quality of life would improve for millions of people.”

Richard Godden, Partner and former member of the Linklaters Global Executive Committee, Linklaters LLP: “The unifying issue underlying many of the current debates about corporate behaviour is relationships. This report takes that concept as its starting point; it offers a way of breaking out of the increasingly sterile current debates, by adopting a new approach to the evaluation and development of responsible business. I hope that it provokes both debate and change.”

For more detail, read the executive summary or download the report.