Social contract: The relationship between business and society after the crisis

The pandemic has shown that business can be a key part of the solution to global and societal challenges. As leaders look to reframe their future beyond COVID-19, they need to define how their companies will create sustainable value for their employees, investors, customers and society.

This important topic was the recent subject of a panel event hosted by the think tank Onward and supported by EY. The discussion focused on the relationship between business and society and how the COVID-19 pandemic may have changed it. A full summary of the discussion can be accessed here, but there were a number of a key themes that resonated with me personally.

Through our own research, both in the UK and across Europe, we have observed how the ongoing COVID-19 crisis has made it critical to reconsider the ‘social contract’ and reinforced the importance of a long-term value approach: it has increased the expectations of stakeholders — including employees and wider society — that organisations should play a more active role in tackling major societal issues, such as inequality and climate change; CEOs and boards have questioned and changed the role of their organisations in terms of who they are serving, the contribution they can make to society, and what constitutes value. Many have used these uncertain and anxious times to lead with increased purpose — focusing on employee well-being, developing products and services for frontline workers, making financial donations and cutting executive pay.

Businesses are increasingly aware of their environmental impact. Many now recognise that, rather than a trade-off between doing good and making a good return, the two actually align, with Long Term Value?the common aim. Or, to put it more simply, leaders are increasingly seeing that there is no such thing as a long-term investment on an unsustainable planet.

As a firm, we encourage a coming together of governments, regulators, local authorities, corporations, investors and financial institutions to set objectives, develop opportunities, and address economic and social challenges as well as examine how corporate governance can enable companies to become more effective in creating value and inclusive growth for the long term, with a focus on initiatives that are within the control of organisations.

The Government’s consultation and future work on audit and corporate governance reform could significantly contribute to achieving an ecosystem which better meets society’s expectations. We’ve taken the demands of politicians and society very seriously and are already delivering some of the key elements of audit reform through the establishment of our UK Audit Executive Committee and other steps we are taking to create an operationally separate UK Audit practice. But it’s crucial that wider governance, reporting and the scope of audit are also addressed.

As Chair of EY I am personally up for change – change we are bringing into effect – but we have always been clear that any reforms, in order to be effective, have to extend to the wider business ecosystem. Robust corporate frameworks support trust and for these to work effectively, there need to be appropriate checks and balances. I am of the view that greater scrutiny and accountability supports attractiveness for investors – however the Government’s key role will be to strike the right balance between new measures and allowing some of the reforms time to prove their merit and impact on the market before introducing additional remedies.

To read more on this topic, a summary of the event we hosted with Onward – called the Social contract: The relationship between business and society after the crisis - can be accessed here: www.ukonward.com/social-contract-summary/