Oxfam believes the ‘shareholder-first’ business model – based on maximising profits for those who own financial shares in a company – contributes directly to inequality and prevents businesses from making a sufficient contribution to sustainable development.
Companies that prioritise maximising shareholder profit over ensuring that a more equal share of value (both profit and power) is captured and held by different stakeholders involved across value chains, reinforce fundamental inequalities that keep millions of people trapped in poverty. Mainstream business models, in which the “value” of a company is determined primarily by its share price and the level of returns to shareholders, ensure that the balance of power stays with the wealthiest. Today, the world’s richest 26 people own as much wealth as the world’s poorest 3.8 billion people. Executives earn excessive salaries, while the farmers and workers who contribute to corporate success are denied fair wages, human rights and dignified working conditions.
At the same time, small businesses struggle to access the finance, knowledge and resources they need to succeed, despite supporting the majority of workers in developing communities. And the exploitation of tax loopholes stops countries deriving value from corporate activity, preventing them from investing sufficiently in their people’s health and education.
Our vision is for equitable business models and companies that are designed to share value fairly from the outset. All stakeholders should have a meaningful say, and ownership, risk and power should be distributed more equitably, with companies incentivised, valued and rewarded for tackling in-work poverty, promoting shared value and protecting the environment, and for “baking” these goals into their mission.
We are exploring opportunities and taking action to help businesses of all sizes – from global corporations to small, family-owned enterprises – to prioritise purpose, fairness and sustainability as much as profit (which is, of course, an essential part of being a business), helping to create a ‘human economy’.
Our challenge to companies
Oxfam is calling for a transformation in the way business is conducted, with businesses moving beyond incremental sustainability efforts, limited by the confines of shareholder first model, to transform their priorities, business models and ensure a fairer share of value is created for everyone who contributes to their success. Understanding what this means will require businesses to do more listening to and taking account of the concerns of different stakeholders, prioritising strategies to address inequality, and investing in responsible purchasing practices.
Future of Business Initiative: beyond profit
Our quest to transform the shareholder-first model, starts with reducing excessive shareholder profits and disproportionately high CEO salaries, and rebalancing power between workers and shareholders. Directors’ responsibilities should be reformed to prioritise all stakeholders’ needs, and employees should have a far greater say in business decisions, through employee representation on boards or employee ownership, for example.
Beyond this, we are working to realise a vision where co-operatives, social enterprises and other equitable, ‘purpose over profit’ business models become mainstream. We campaign for change on global platforms, such as at the United Nations and World Economic Forum; invest in and support alternative businesses, for example we co-founded the world’s first farmer-owned enterprise, Café Direct; and help create the right conditions for fairer business to flourish, like helping small businesses to access finance and global markets.
We know a fairer way of doing business is achievable, social enterprises are already leading the way:
- In the UK, 41% of social enterprises are led by women, compared to 7% of FTSE 100 companies. Ethnic minorities represent 12% of UK social enterprises leaders compared to 5% of FTSE 100 companies.
- 78% of UK social enterprises pay the real Living Wage, with the highest paid employees being paid, on average, 2.5 times the lowest paid employee’s salary. In comparison FTSE 100 CEOs are paid 400 times the salary of their lowest paid employee.
- In the UK, the top five co-operatives pay more tax than Amazon, Facebook, Apple, Ebay and Starbucks combined 1.
Connecting fairer businesses with global markets is vital to expanding fairer, more responsible business worldwide. In 2019, Oxfam launched a fair procurement tool to help our own buyers - and others - source products from fairer businesses. The tool asks three questions:
- Does the company have a social mission and is it formalised through their corporate governance?
- Who has power? Do workers, suppliers or members of the community have a say in decisions?
- What happens to profit? Do all those who contribute to the company’s success get a share?
To further explore how companies can transform their procurement approach, we are working with the University of York to help brands and retailers that are serious about promoting social enterprise in their supply chain.
Enterprise Development Programme
Small and medium enterprises (SMEs) are the backbone of most economies in developing countries, providing more jobs than the formal business sector. Yet they are often neglected by investors and policymakers. And with a distinct lack of access to finance, markets, resources and knowledge, farmers, poor households, and particularly women, struggle to establish and grow a thriving business.
Oxfam’s Enterprise Development Programme (EDP) seeks to help overcome poverty in remote, rural communities by supporting entrepreneurs in creating and building viable, sustainable small-to-medium sized businesses. Established in 2008, it aims to increase the income of 75,000 farmers, including 25,000 women, create a minimum of 250 new full-time equivalent jobs, and influence both policy and business practice. EDP is currently active in Bangladesh, Honduras and Rwanda, Ethiopia and Nepal, supporting projects from fish and duck hatcheries to bee-keeping and dried organic pineapple exporters.
To help provide loans to small companies that are overlooked by traditional banks, the EDP team and its independent investment committee select potential enterprises based on their development impact, focus on women’s empowerment and commercial potential. We negotiate with a local bank, providing the necessary guarantee to facilitate bank lending to the enterprise and help entrepreneurs to access practical business training, mentoring and market networks. This includes efforts to improve women’s involvement and opportunities (including through gender-awareness and business training, capacity building and literacy lessons). An average of 12% of each EDP investment goes towards WEE activities to ensure vulnerable women aren’t left behind as the enterprise grows. Importantly, we support all our entrepreneurs to the point where they can stand alone.
In 2014 the pineapple-growing cooperative of Tuzamurane in Rwanda used the loan they gained from EDP to invest in improving its production and attain organic certification, while increasing its supplier base. With additional support from the EDP team, this co-operative now exports organic dried pineapple internationally, and its revenues have increased tenfold, enabling it to further invest in both empowering its people and further growing its business.
Similarly, Pokhara Women’s Skills Development Organisation (PWSD) in Nepal supports women on improving the value and marketing of the handicraft items they produce. With EDP’s support, these enterprises have doubled their annual revenues.
Towards a fairer global tax system
When individuals or multinational corporations place their wealth in tax havens or exploit weaknesses in the system, they avoid paying taxes in the countries where they do business and make profits. This deprives governments of much-needed funds for education, healthcare and vital services such as access to safe water. Ultimately, it prevents people, particularly the most vulnerable, from achieving their basic human rights and an adequate standard of living. Women suffer the most, often filling the gaps in public services with many hours of unpaid care.
Oxfam encourages governments to work together to create a fair global tax system and bring an end to tax havens. Companies should pay a fair share of tax, which may exceed legal obligations, in every country where they benefit from economic activity, report transparently and undergo regular audits of tax incentives and reliefs, which helps to establish the extent to which corporate presence is really helping to advance sustainable development.
To support our advocacy efforts, Oxfam conducts research and promotes existing research to demonstrate the human rights and development benefits of fairer tax systems. For example, our ‘Public good or private wealth’ report reveals that if the richest 1% paid just 0.5% extra tax on their wealth, it could raise more than enough funds to educate all the 262 million children out of school. Similarly, an independent study of 13 developing countries with reduced inequality levels found that improved public services accounted for 69% of this reduction.
Together with other NGOs and trade unions, we have worked with the UK government to push for more ambitious corporate governance reforms. This resulted in the Company Miscellaneous Reporting Regulations for 2018, requiring UK-listed companies to disclose CEO-to-worker pay ratios.