Businesses must focus on being the best they can 

A FORMER economic adviser to the First Minister has called for a major change in corporate culture. Economist Sir John Kay issued a call for companies to turn away from the idea that their overriding goal is to maximise shareholder value – and instead focus on building great businesses. During his talk at the recent Wigtown Book Festival, Sir John argued that modern corporate philosophy has downgraded the concept that businesses exist to be the best they can, to serve their customers, provide for their workforce and be responsible parts of their communities. And he told the audience that management culture has also changed. Sir John, who was a member of the Council of Economic Advisers to the First Minister of Scotland from 2007-11, said: “Not only has the nature of business changed but so has the culture surrounding business and management. “Corporate management in large companies was once dominated by talented specialists, with little formal training in management. “Nowadays, large corporations are dominated by a class of managers more likely to be financially trained in McKinsey’s graduate programme or an MBA class than at the bottom rungs of a large corporation. “This has fundamentally changed the way large corporations are managed, and not necessarily for the better. “Instead, the pursuit of shareholder value has destroyed some of the leading companies of the 20th century. “This gives some insight into Britain’s economic stagnation and attempts to identify the factors that led to the downfall of many of Britain’s corporate giants.” He argues that change is essential if our economy is to thrive, adding: “As the management of these organisations has changed, so has their corporate culture, with modern business ethics still largely rooted in Milton Friedman’s doctrine on shareholder primacy. “However, the goal of the entrepreneur should not be to maximise shareholder value, but to build a great business. “Only then can we discard the short-termism that currently leaves corporate managers at the mercy of their latest quarterly earnings report. “This is a theory of business based on Aristotelian virtue ethics, rooted in a core belief that business exists to benefit society as well as its owners.” Pic: Colin Hattersley