What Will It Take To Get Companies to Care About the Next Generation?

Think Tank

4 min read

Mark Goyder is a senior advisor to the Board Intelligence Think Tank. He’s the founder of Tomorrow’s Company and co-author with Ong Boon Hwee of Entrusted: Stewardship for Responsible Wealth Creation.

What will it take to get people who run companies to care about what happens to the next generation?

I have been asking myself this question before and after two very different encounters in the last week.

First a business contact — let’s call him Hugh — who’s now an academic, studying what some call “stakeholder capitalism”.

Hugh could see two levers for getting companies to care about the next generation. The first — and most important — was the law. The second was external pressure from NGOs and stakeholders, increasingly reinforced by institutional shareholders taking up these campaigns.

“Aren’t you missing something important?” I replied. “There’s the stewardship role of the board. Investors influence companies because they elect their directors.”

The companies I most admire are founder-led businesses with strong purpose and values, and family businesses that have sustained those values through the generations. In companies with dispersed shareholding, we need stewardship by investment institutions. These institutions are investing our savings and we, the ultimate owners, expect the institutions to bring decent values to bear on the way listed companies do business.

To exercise this company-specific stewardship these asset managers and asset owners need to work together to ensure that companies have the right directors in place. And that those directors have affirmed and will uphold the company’s purpose and values. Hence the importance of the board mandate process. The stewardship of the company is in the joint hands of the shareholders and the directors, and the board mandate process helps keep the company true to its purpose.

“Aha,” said Hugh, “but it doesn’t work like that. You can have a set of purpose and values but in my experience, a new CEO gets appointed and changes everything.”

“But don’t you recognise that ownership really makes a difference?”

“Not really. I think all owners are pretty opportunistic. They may say the right thing but it’s only law that gets people to change.”

This depressed me.

Later in the week, I found myself listening to Saul Humphrey, an experienced housebuilder. Saul is frustrated that major housebuilders like Taylor Wimpey and Persimmon are still, today, building houses with gas boilers, knowing that in three years’ time, those boilers will be banned. He told me that those same companies are also still building new houses with the minimum insulation compelled by the law. Nor is this a question of tight margins: Persimmon is making over £60,000 profit on every house it sells. In 2017 it awarded its CEO a £75m bonus. There were complaints about missing or improperly fitted cavity barriers. To its credit, it commissioned an independent review. This found that the issue was “a systemic nationwide problem” in the company and concluded it was “a manifestation of poor culture coupled with the lack of a group build process.”

I wondered if Hugh was right. Perhaps it is only changing the law that will get companies like Persimmon to change their approach.

Then I looked at the detail. In 2019, Chancellor Philip Hammond introduced a Future Homes Standard, mandating the end of fossil-fuel heating systems in all new houses from 2025. There has been continuing consultation with the industry. In the meantime, housebuilders are still allowed to start building homes that will not comply with the 2025 standard.

Persimmon and Taylor Wimpey are not, yet, breaking the law by installing boilers that will be obsolete in three years’ time. They are, however, choosing to put short-term shareholder value ahead of sustainability and bequeathing avoidable future expense and inconvenience to their customers. In Suffolk, Capital Community Developments is building 75 sustainable homes. 33% of these will be affordable homes. The company is committing now to work to the Future Homes Standard — avoiding toxic materials, insisting on excellent insulation and air-tightness, with energy supplied by Air Source Heat Pumps, and EV charging points. Elsewhere, Human Nature, a company started by two former directors of Greenpeace, explains plans for the Phoenix Project — a housing development on a redundant industrial estate in Lewes:

“We aim to move further, faster, deeper in finding solutions rooted in neighbourhoods – at a scale and with a proximity all can relate to – that will help people to flourish while safeguarding the planet for future generations.”

So, while the law is setting a deadline and a minimum standard, values-driven companies are choosing to act ahead of the law. I would love to be proved wrong, but Persimmon still seems to me to be doing as little as possible as late as possible. Meanwhile, many housebuilders are making claims about net zero while ignoring the embodied carbon in the houses they build — which is rather like an oil company ignoring what their customers do with the oil they extract and refine.

To Persimmon and Taylor Woodrow I would offer the following challenge: don’t you see that the customers and the future generations you are short-changing by these choices may well be your shareholders, or have parents or friends who are?

To the investment institutions who hold shares in Persimmon and other housebuilders who are dragging their feet, I would ask this. Are you being robust enough in your challenge? Are you showing them how far short they fall of the exemplars around them? As the IPCC has again reminded us, we don’t have much time.

So here’s my answer to my own “what-will-it-take?” question. Yes, we need the law. It can set minimum standards and deadlines. Yes, the external pressure from NGOs and stakeholders is vital. Yet there is something extra that external pressure cannot give us — energetic, proactive, determined managerial implementation in effective ways suited to the particular circumstances of a company. And to stimulate that we need investors, using the board nomination process to give us the right boards with the right mandate to combine operational excellence with a dedication to the needs of future generations.

  The Fairer Future inquiry    Find out what keeps our community of business leaders awake at night, and what  it will take to create a fairer future for all. Download the report

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