The Notebook, where the City’s movers and shakers have their say. Today it’s James Reed with the pen
The traditional model of capitalism is outdated and unsustainable — and I’m on a mission to change it.
Yes, free markets based on short-term shareholder returns have delivered opportunities for people to succeed, encouraged innovation and entrepreneurship and increased consumer choice.
But too many businesses are not serving society. Take the FTSE100. Less than one per cent of their net profit goes to charity. Indeed, while FTSE100 profits have soared 49 per cent over the past decade their charitable donations are 13 per cent lower in real terms than they were ten years ago.
In my new book Karma Capitalism, published by Penguin tomorrow (Nov 6), I propose a new model of purpose-driven business, one in which companies embed social value, employee and community wellbeing and long-term legacy into their DNA.
The key concept is that of the PhilCo, or philanthropy company, where at least ten per cent of the shares are owned by a charity or foundation.
My own company, the recruitment group Reed, is a PhilCo, 18 per cent owned by the Reed Foundation, and we have also created Big Give, a match funding platform which has become the biggest public fundraiser in the UK. This informs every aspect of our way of doing business.
What became clear in the course of researching the book is that PhilCos perform better in terms of longevity, culture, employee retention, social impact and financial performance – because they align purpose with profit.
The idea of PhilCos is much more prevalent in Europe, particularly in Denmark, where tax breaks have encouraged it.
Some of the world’s biggest brands — Ikea, Rolex and Lego — adopt this model. In Denmark, only ten per cent of traditional companies survive for 40 years, but 30 per cent of PhilCos do.
The change in culture is much more fundamental than any tick-box Environmental, Social and Governance (ESG) exercise could ever be.
Karma Capitalism’s key message is that doing good isn’t a distraction from business; being good IS good business. I hope many more entrepreneurs will join the PhilCo movement, because a company without a strong sense of purpose is ultimately a hollow one — and one less likely to succeed.
Karma Capitalism by James Reed is published tomorrow (Nov 6) by Ebury Edge
No more tax rises without spending cuts
It is hard to avoid the conclusion that a lot of spending by governments of all descriptions is wasteful, whether it’s £15 billion for asylum hotels or the billions squandered on useless PPE in the Covid pandemic. I suspect we may be at the limit in terms of coming back to hardworking taxpayers again and again and asking them to pay more tax. So while I appreciate the Chancellor is in a difficult fiscal position, I would argue that any Budget that increases taxes still further while failing to cut expenditure significantly will not be fit for purpose.
The importance of Stephen Fry
The Importance of Being Earnest, playing at the Noel Coward theatre, is a joyous, high camp interpretation of Oscar Wilde’s masterpiece. My wife Nicola and I enjoyed it immensely. Sir Stephen Fry, having the time of his life as Lady Bracknell, may have been banished from Celebrity Traitors but you can catch him here nightly until January 10.
All about business
I have just come back from a trip to Rome where I celebrated the one-year anniversary of the launch of my podcast, All About Business. I marked the occasion by interviewing the legendary hotelier Sir Rocco Forte about the ups and downs of his incredible career. We stayed at his Hotel de Russie, where the service and attention to detail — including face towels with our initials in the bathroom — was amazing. Our carriage there and back with Ryanair may have been less glamorous, but efficient nonetheless. Both flights arrived early.
Yes we canal
I went to the recently opened Canal restaurant on the Grand Union Canal, and thoroughly enjoyed it. It’s a lovely setting and serves excellent modern European food. I had a very nice burger. Highly recommended.