David Watt: Good business makes good sense

My sincere hope, when we endured a crippling financial crash and suffered such a deep recession due to poor behaviour in the banks and other financial institutions, was that we would see long overdue changes in structures and improvements in conduct which would reflect the public concern and the need for change.

David Watt, executive director of the IoD in Scotland. Picture: Contributed

It seems that the financial sector has learned some lessons and made some improvements, but sadly, this does not appear to be the case across the business sector in general.

There are too many businesses that, having battened down the hatches some time back, are emerging and returning to a new form of “business as usual”. Indeed, taking stock of the recent stories of corporate misbehaviour from some of our best-known high street names, some may say it is getting worse.

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When will companies learn that corporate governance – the way they run their businesses – has a direct impact on the bottom line, and the long-term health of their business?

The problems that have come to light at Sports Direct are fundamentally about weak corporate governance. Its board of directors was just not willing or powerful enough to challenge the founder’s decisions. The firm’s review of conditions at Shirebrook, the nucleus of the business, should have been conducted by an independent director, not the founder himself.

Of course, Mr Ashley deserves credit for building such a successful brand, but because of its rapid growth, the range of people he is responsible to has also grown. His employees and investors deserve far better. So does the rest of Britain’s business community, because when the image of capitalism is tarnished, it gives ammunition to those who would like to erode the system that has done so much to create jobs and spread wealth throughout society.

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Many companies also seem surprisingly slow to realise how damaging a bad public perception or reputation can be for them. They also underestimate just how quickly that damage can be done, and felt, in today’s social media age.

There is a lot of evidence to prove that image directly affects spending decisions and negative perceptions spread via the world wide web really can affect the bottom line to the point of extinction. Gone are the days where companies could “get away with” poor corporate social responsibility, inadequate customer relations and derisory employee care because it was hidden away. In an outspoken and connected community, that just isn’t going to stack up – bad news travels very quickly.

Why then do some companies and some individuals behave so badly? For sure, some of it is hubris – a belief they have a right to exist and operate as they see fit. This misguided position has no place in modern business, and can take down even brands that have previously enjoyed longevity – BHS is the latest example that underlines the fact that big names don’t go on for ever regardless.

Thankfully this bad behaviour is not the norm, but isolated scandals will have a lasting impact the shape of which we are yet to see, and which will affect all businesses. There are so many options for business, and many opportunities to behave well.

The options for new structures include social enterprises where the profits are re-invested into charitable or social purposes as opposed to individual’s pockets, or indeed employee-owned structures – famously like John Lewis – where staff benefit from an annual bonus based on the company performance. Both of these models work to make profit but the benefit is shared responsibly, and performance is positively impacted.

Business is a complex beast, and yes, trends and legislation change the way things are run. However, having good corporate governance at the core of a business is not a trend – it’s a good business decision that reaps myriad benefits for investors, shareholders, suppliers, employees and customers. That equation can’t be too hard for brilliant business minds to grasp.

Finally, perhaps business could take some lessons from the Royal Marines Reserve in Scotland, in which I have the honour of being an Honorary Colonel. Their Commando values of excellence, integrity, self-discipline and humility would work well in the modern business world.

• David Watt is executive director of the IoD Scotland