The symptoms of out-of-kilter relationships can be seen in:
- Excessive remuneration. Lack of engagement by shareholders has been one reason for the growth of the so-called ‘bonus culture’ and the excessive remuneration (or pay-offs for failure) of directors loosely based on the financial success of the company.
- Employee treatment. Employees are often subject to demanding terms of employment, work long hours feeling under pressure and stress, paid the minimum wage (and not the living wage) and significant numbers face the uncertainty of zero hours contracts.
- Debt. High levels of debt can cause concern for the stability of a company. If there is a downturn in the market in which it operates or there are problems in its business, its income may not be sufficient to service its debt and a refinancing may be required or formal insolvency proceedings commenced.
- Tax. Multinational groups paying little or no tax on profits earned in a particular country, often by sheltering tax liability through other companies and in other countries, has generated widespread concern and condemnation from Government, the media and the public generally.
Relational Distance between providers and users of capital is the root of the problem
Given the structure of companies and the development of the share trading markets, many capital providers, who usually invest in companies through intermediaries, have little or no knowledge of where their funds are invested, and no knowledge or interest in the operations of the company and its impact on other stakeholders. Shareholders as a body have an ownership interest in the company and they benefit financially from it, yet they take no responsibility for its operation and impact on society, and they rarely hold the directors to account. Quarterly reporting and pressure to maximise shareholder wealth drives the push for consistently increasing dividends and continued growth in capital value. This short-term approach can stifle long-term planning and funding of research and development and hinder long-term growth.
Building more relational companies
A relational company is one where the interests of all those who have a stake or interest in the company are put at the heart of the decision-making, management and operations of the company. These stakeholders include those who rely on the success of the company as an investment, a job and career, a livelihood (as a supplier), a customer (who buys goods or services), the local community where the company operates, and society more generally. If the interests of stakeholders are aligned with the company so the business is run with a sense of a community of interest for the benefit of all stakeholders, it should become more competitive, productive, stable, sustainable and successful.