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Dominant business practices and mindsets stand in the way of inclusive capitalism

While recent political developments in the US and Europe emphasise that businesses need to advance more inclusive models of capitalism, initiatives focussed on promoting these models are struggling to change business behaviour, reveals new research by Saïd Business School, University of Oxford and Monitor Institute, supported by the Ford Foundation.

The study, In Pursuit of Inclusive Capitalism, reveals the approaches taken by these organisations and the challenges these and other leaders and innovators face in catalysing significant change.

  • The majority of organisations in the study are focused on influencing CEOs and leaders directly to affect change, with fewer targeting investors, consumers, or employees.

  • However, there is uncertainty regarding the capacity of CEOs and boards to enable change, as they are hampered by narrow, short-term financial targets.

  • In particular, current corporate governance and performance metrics, such as quarterly reporting, do not support necessary, healthy changes in business practice.  New metrics and processes to organisationally embed them are needed.

  • Organisations helping to promote more inclusive economies need to proliferate in Africa, Asia and Latin America as well as the US and Western Europe, where they are already active.

The study was conducted among over 40 leading Business Collaborations and Non-Governmental organisations active in promoting more inclusive economies through changing business practices. Many of the organisations—the B Team, B Lab, Just Capital, the Sustainability Accounting Standards Board (SASB), and others—are backed or advised by some of the world’s most successful entrepreneurs and innovative companies.

The main strategy of the organisations for achieving change is to directly influence CEOs and other leaders, but two conflicting views of CEOs emerged. As one respondent relayed, ‘CEOs and leaders are the decision makers, and if we change their value set, then we can change the way that business works.’ However, others were sceptical about the effect CEOs could have, ‘CEOs are highly constrained by the need to perform on financial targets on short timescales. How much scope do they really have to make change?’

Existing corporate governance and performance metrics were viewed as counterproductive to the pursuit of more inclusive economies, with a view that boards could better empower CEOs with longer-term mandates for purposeful change. Short term metrics, such as quarterly reporting focused only on financial performance were frequently cited as barriers to more inclusive approaches to business behaviour.

The study identified that a major challenge is to develop and create systems to adopt a set of long term metrics, universally recognised, that measure environmental factors, contributions to wider social and employee wellbeing, as well as financial performance. One respondent concluded, ‘If you get the rules of the game right, it’ll lead to better outcomes. The holy trinity is a strong standard that has industry buy-in that is then captured in a regulatory mechanism with civil society support behind it.’ A strong example appeared to be SASB, which develops and disseminates industry-based sustainability standards for companies publically traded in the United States.

‘The research reveals a number of barriers to more inclusive forms of capitalism. Despite the good intentions and good work done by firms and the organisations we studied, the challenges are complex and need to be tackled together at a global level by the organisations, business and the investment community,’ said Peter Tufano, Peter Moores Dean, Saïd Business School, University of Oxford.

Nevertheless, the organisations studied expect to see significant progress within the next decade. Indeed, they anticipate they will be operating in a context that is friendly to, or might even demand more work to help transform the role of business in creating inclusive economies. There is an expectation that organisations supportive of inclusive economies will increasingly proliferate in Africa, Asia and Latin America. As the head of one organisation described, ‘We’re going to see more types of organisations, more adhoc, more self-organised coming from the Global South, playing an increasing role.’

Disruptive technology is also predicted to have an effect on how companies report to the public, as it will mean greater transparency of how business is operating. 

‘Though much has been said about the potential role of business in creating more inclusive economies around the world, we have lacked realistic appraisals of how much and how rapidly we can realise that potential,’ said Darren Walker, president of the Ford Foundation. ‘This sober but hopeful new study confirms that much hard work remains—to shift concepts of business purpose and success.’


Peter Tufano

Peter Tufano View profile

Peter Tufano is Peter Moores Dean and Professor of Finance at Oxford Saïd and a Professorial Fellow at Balliol College. As Dean, he seeks to advance the model of integrating business education within the university. His on-going work focuses on household finance, financial innovation, and fintech.

Colin Mayer CBE View profile

Colin Mayer is Peter Moores Professor of Management Studies, a Professorial Fellow of Wadham College, an Honorary Fellow of Oriel College & St Anne’s College, Oxford, a Fellow of the British Academy and the European Corporate Governance Institute and a member of the UK Competition Appeal Tribunal.
Mary Johnstone-Louis

Mary Johnstone-Louis View profile

Dr Mary Johnstone-Louis examines means through which business interacts with social impact and development outcomes. She is a Senior Research Fellow at the University of Oxford's Saïd Business School managing the School's work on Inclusive Capitalism and Purposeful Ownership.

Richard Barker View profile

Richard Barker is Professor of Accounting at Saïd Business School. Richard’s current research is focused on natural capital accounting, business responsibility and sustainability, and institutional structures for the regulation of ‘non-financial’ corporate reporting.

In pursuit of inclusive capitalism: Business and approaches to systemic change