“There is much to do to address the distrust and lack of confidence that many citizens have in institutions such as banks, business, government, and universities.”
Professor Richard Black writes for the Birmingham Business School Blog:
The 2008 financial crisis was – or at least should have been – a wake-up call for us all. Triggered by risky loans in the sub-prime mortgage market in the US, the crisis spread through the financial system rapidly — not least because a myriad of practices, at best described as “risky” and at worst as “irresponsible” or “fraudulent” made that sector highly vulnerable to shock.
The fall-out was not limited to the financial sector. Some banks failed, but it was the blow to wider society that took the hit that contributed to an undermining of public confidence, not just in the banks but also in businesses in general, the government, and international institutions.
This is the background to where we are today. The big political news story of the coming year and beyond – the UK’s departure from the European Union – was not caused by the 2008 crash, but this provided a fertile breeding ground for the levels of dissatisfaction and distrust that led to the Leave vote in 2016. In turn, the crash was not caused by irresponsible business practices alone, but such practices provided fertile ground for the crash to spread through the financial, economic, and political systems. One lesson we learned since 2008 – if we did not already know it – is that finance, economics, politics, and society are intimately connected.
Putting Responsible Business on the Global Agenda
The UN’s Sustainable Development Goals, agreed in 2015 by governments, are aspirations for how the world as a whole – not just the Global South – can and should look different and better by 2030. It envisages a leading role for business, and for all of us, in delivering change. At the core of this conversation is whether we think about better business models than we have had in the recent past. Can we define and then promote what is responsible rather than irresponsible business? What are the conditions in which such responsibility will flourish, and what can we achieve if it does?
For a business to be “responsible”, that responsibility must be core to its values and lived out in its practice — it cannot just be an add-on. This is part of the mission of our Centre for Responsible Business which addresses these challenges to explore how businesses can be “rewired responsibly” to help embed these practices and deliver change, not just here in Birmingham but across the globe.
Birmingham’s Civic Mission
I am no “expert” here – either in business in general, or in responsible business in particular. However I have a vested interest in us getting this right and there is nowhere better than this city, this region, and this university to be addressing these issues. Birmingham is the city, and the university, of Joseph Chamberlain, who laid some of the foundations of how business could act with civic responsibility to the benefit of its employees, customers, students, and the wider region
The achievements of the Chamberlain era in Birmingham were nothing short of extraordinary. The Birmingham Education League, founded by Chamberlain and others in 1867, evolved into the National Education League, which held its first Conference in Birmingham in 1869. It proposed a secular school system, funded by local rates and government grants, managed by local authorities, but subject to government inspection. After coming to power as Mayor in 1873, Chamberlain led a series of projects that transformed Birmingham, and established a new model for civic action, including:
*”Municipalization” of two local energy companies and the water company to run them for local people and not for profit;
*The compulsory purchase of city centre land to provide for slum clearance and other improvements;
*Cultural improvements including libraries, swimming pools, and a university, this created an enduring legacy
This legacy was founded on a financial innovation, as much as on practical politics and a responsible vision.
I also had the pleasure recently of taking my son to Cadbury World. Whilst perhaps overwhelmed with chocolate, the exhibition there tells the story of another dimension to Birmingham’s history of responsible business. It was Richard Cadbury’s vision that employees were crucial to business success, and that provision for them should go beyond wages, to the provision of decent housing, social care, and educational and cultural provision. Yet poverty, housing shortages, educational underachievement, and inequality – all things that Bournville aimed to address – remain pervasive features of Britain, and indeed parts of Birmingham, today.
Making Responsible Decisions
Making the right and indeed responsible decisions for businesses and their employees can be complex. The experience of Wells Fargo, both in 2008 and more recently, demonstrates this.
Wells Fargo was lauded as a bank with a stable and sustainable business model in 2008. Not only was it not exposed to sub-prime mortgages, but it engineered the takeover of one of the leading banking groups that had failed through such exposure. It treated both employees and borrowers in what appears to have been an exemplary way.
Yet it was this same bank that was recently caught in a scandal over the creation of fake accounts in the names of existing customers, under which those customers were charged interest and service charges – all, it appears, as part of a culture of target-setting in the bank that placed extraordinary pressure on its staff and threatened public confidence in its probity.
It looked as if “responsible business” was part of Wells Fargo’s core values, yet in time this appeared not to be the case. We need to be both extraordinarily careful about hubris, and realistic about human nature, when we tackle this agenda. We need to judge by actions, rather than grand statements. And we need to be rigorous and dispassionate in our analysis.
It is our aspiration to embed responsible business values at the heart of our activities in order to achieve our civic mission, and that goes beyond the Centre for Responsible Business to whole of the University. There is much to do to address the distrust and lack of confidence that many citizens – including young people and students – have in institutions such as banks, businesses, government, and universities. Ten years on from the financial crisis, action is surely overdue.