The most noticed business news stories are almost always negative and reputation sapping.
Take last month, the most high profile business story was the collapse of Carillion and its terrible impact on the company’s suppliers. This story has hit the reputation of its directors, its auditors and the Government. The ripples have spread wide, raising serious questions – amongst some – about the role of the private sector in providing key public services.
Oxfam is another example. Its reputation has been shredded by the sexual misconduct of some its aid workers in Haiti and the laxity of its procedures in preventing this kind of behaviour. Acknowledging the damage to the wider aid sector Mark Goldring CEO to Oxfam, apologised to the International Development Committee of MPs.
However, on rare occasions companies make the headlines for the right reasons. The Royal Bank of Scotland (RBS) was one of the most noticed news stories in February because it has returned to profit for the first time in ten years.
A decade of pain
In 2008 the financial crisis shook the world economy to its foundations. Then, RBS was the biggest bank in the world, with a balance sheet of £2.2tn, broadly equivalent to the UK’s entire annual GDP output. It fell from grace spectacularly.
RBS collapsed and was rescued by the British taxpayer to the tune of £45bn. The bank’s CEO at the time of the collapse, who was implicated in the organisation’s crash, was stripped of his knighthood for bringing the honours system into disrepute. Revelations of bad and sometimes illegal behaviour have peppered the bank over the last ten years. It seemed to have been involved in almost every major banking scandal including mis-selling payment protection insurance and mortgage-backed securities, fixing Libor and FOREX rates, paying large bonuses while making a loss, mis-treating SMEs in its turnaround unit and closing hundreds of branches.
RBS became the poster boy of bad banking behaviour and was the principle target of public and political outrage. Its reputation collapsed and it remains the least trusted bank in the least trusted sector in the UK.
During the past decade it has made annual losses totalling £58bn and must take some responsibility for the greatest economic downturn since the Great Depression.
Turning the corner
At the end of February, RBS returned to the black with a £752m profit. Though modest compared to most of its major rivals, the current CEO, Ross McEwan, declared the return to profit a ‘symbolic moment’ and an indication that RBS is beginning to move on.
It is true that the bank still faces a reckoning for bad behaviour. This includes both an eye-watering fine from the Department of Justice for selling financial products linked to risky mortgages, and further sanctions for what the Financial Conduct Authority describes as ‘widespread inappropriate treatment’ of SME customers by the bank’s disgraced Global Restructuring Group. However, the return to profits is more than just a ‘symbolic moment’.
Profit is the sine qua non of corporate social responsibility
Business exists to make profit within the law. Delivering profit is the first and primary social benefit of any company. Business contributes to society by employing people, paying taxes and producing goods and services – which it can only continue to do if it is profitable. Profit generates investment, jobs and innovation.
Of course, rampant thirst for profit is likely to harm society, cause extraordinary economic inequality and damage the environment. It is the role of government to regulate and tax business to protect society from an excessive thirst for profit.
However, government and business are not in a titanic battle of good against evil. Well run businesses recognise that corporate social responsibility is at the core of sustainable business and profitability. They know that maintaining a benign environment where social equality and environmental sustainability reign is crucial to their primary purpose – generating profit to invest, employ and innovate.
Companies are coming under increasing pressure from politicians, journalists and the wider population to shift their focus away from profit and towards delivering social purpose including protecting the environment, promoting social equality and doing good. This puts the horse before the cart. Companies can’t do any of these socially beneficial activities without returning a sustainable profit. Social benefit should be seen as a by-product of profit, not the other way around.
It may pain some to pat RBS on the back after it has let so many down in recent years, but the bank should be congratulated. It has finally returned to profit and can begin again to fulfil its social purpose. It is finally able to start repaying the debt that it owes to long suffering shareholders including all of us, as RBS is still 71% owned by taxpayers.
To regain the trust of the British population, the bank now needs to take the next step and use its profits to invest in businesses, create jobs and transform its offer with innovative products and services. If RBS does this, the bank will finally leave its failing in the past – or as, as Ross McEwan says, move on.