CBI takes a big financial hit

The CBI has informed members it had slumped to an £8.3mn loss last year after a governance crisis and allegations of serious sexual misconduct against some staff caused members to flee, pushing the group close to collapse. Revenues fell 12.4 per cent to £20.6mn as the self-styled “voice of business” in the UK suffered the loss of subscriptions and commercial revenues after it was forced to suspend its events and other operations for several months.

The accounts for the year ended December 2023, sent to members on Tuesday, show the CBI spent £3mn on costs directly related to the crisis, including lawyers and consultants called in to respond to the allegations and overhaul its culture and governance. It spent £729,000 on severance payments as it axed staff to stave off collapse. It had an average of 255 staff in 2022 but the number was now about 160. The group could have stemmed losses more quickly by making more economics and policy experts redundant but judged that without them it would be less useful to corporate members.

The group lost about one-third of its members during the crisis but some have begun returning, including nine FTSE 100 groups. BT, National Grid, GSK, AstraZeneca, Schroders, Phoenix Group, KPMG, NatWest, Anglo-American and Centrica have all rejoined this year.   The organisation is focusing more on across the board issues rather than ones dealt with by sector specific trade associations.

The accounts included a warning from auditors over the CBI’s ability to continue as a going concern. It remains reliant on banks to fund its operations, but its lenders were aware of its financial modelling. Revenues would fall further in 2024 because many members had already paid their subscription fee for 2023 before quitting the group, meaning the financial impact would only be felt in 2024, he added. This further drop would be offset by lower legal, consultancy and redundancy costs in 2024, he said.

The CBI is confident it can survive in the long term, but ultimately there may be some rationalisation of business representation.

Article on CBI free to view

My article on recent challenges at the CBI should be available free to view for a month: https://onlinelibrary.wiley.com/doi/epdf/10.1111/1467-923X.13295

What will happen to the CBI?

 My thoughts here: https://politicalquarterly.org.uk/blog/the-crisis-at-the-cbi/

Can the CBI survive?

The crisis at the CBI has deepened following further disturbing revelations and a number of leading firms have resigned.   They include Aviva, BMW, Jaguar Land Rover, John Lewis, Mastercard and Vodafone.

The CBI claims to speak for 190,000 businesses, but the number is boosted by the fact that it has a hybrid membership model made up of individual businesses and trade associations.  Hence it can claim to represent the 46,000 members of the National Farmers' Union.

It is difficult to work out how many individual companies there are in membership, but the Financial Times estimates there are about 700.   These companies pay the bulk of the £20m subscriptions.  It is thought that some companies pay over £100,000 a year.

The CBI has now suspended activities until June, but can it recover?   Who else can speak for business? MakeUK and HospitalityUK effectively represent their sectors.  The Institute of Directors have individual members.   The British Chambers of Commerce are made up of local chambers of varying strength and largely speak for smaller businesses.

If the CBI disappeared, it would have to be reinvented.  Business interests are in many ways divergent, but there are common concerns about macro economic policy such as corporate taxation.   However, a new organisation based on big businesses might lack legitimacy.

The CBI in crisis

The CBI has suspended all its external events including its annual dinner after it deals with allegations of rape, sexual harassment and other misconduct at then organisation.

A number of members have distanced themselves from the CBI, some saying that they are reviewing their membership.   Of course, it could give them a convenient excuse to leave.

The allegations are being investigated by a law firm, but there are deeper structural problems at the voice of British business.

These can be dated back to the late 1960s when it decided to become a de facto Confederation of British Business by admitting retailers and other non-manufacturing firms as full members.  Although that may have boosted income as the manufacturing sector declined, it diluted the CBI's voice as a spokesperson for manufacturing.   That vacuum has been partly filled by MakeUK, formerly the Engineering Employers' Federation.

The CBI reached the peak of its persuasive power in the 1970s as a part of a tripartite arrangement for economic policy.  Its voluntary prices initiative helped to shore up the Heath Government's prices and incomes policy.  The 1974-79 Labour Government often referred to the 'Government, the TUC and the CBI' in the Queen's Speech.

As far as Mrs Thatcher was concerned, the CBI was a relic of harmful corporatism and its influence waned.  It did recover some ground under the Major Government and New Labour, but government increasingly consulted directly with leading firms, sometimes formalised in business advisory councils.

With business being overwhelmingly remain, Boris Johnson had little time for their views as he expressed with an expletive.  

Weathering this crisis and remaining a credible voice of business is going to be challenging.

Poor relations between business and government

Forty years ago I published an article in Government and Opposition on big business and the Conservative Party in which I stated, 'The basic theme of this article is that this relationship is more problematic and tenuous than is often assumed to be the case.'   More recent events appear to confirm this thesis.

The CBI likes to present itself as the voice of British business.   Its heyday was in the days of tripartite economic policy in the 1970s when it became a governing institution alongside the TUC.  Its cooperation was needed to make prices and incomes policy, the central plank of economic policy, function.  Its role is evident in the chapter on economic policy I contributed to the recent book on the Callaghan Government edited by Kevin Hickson.

It suffered a body blow under the Thatcher Government when it was seen as a throwback to failed corporatism.   Matters weren't helped when one director-general promised a 'bare knuckle fight' with the Government.   Mrs Thatcher preferred to talk to the Institute of Directors which was seen as a more resolutely pro free enterprise organisation.

Influence was regained under the Major Government and New Labour, but in some respects the organisation has been 'hollowed out' like other British institutions.   A complicating factor is that Britain is a 'company state' where direct relations between leading companies and government are often more important than those mediated by associations.

The Brexit referendum posed new difficulties for the CBI.   Most businesses and business leaders (Wetherspoons aside) were opposed to leaving, although consumer facing companies were reluctant to put their heads above the parapet.   In any event, the CBI came under fire from leavers for its stance.  This culminated in Boris Johnson being reported as saying '**** business.'

Now Boris Johnson has called in one of his Oxford pals to set up a Business Action Council.  Maurice Ostro is a little known former frozen yoghurt manufacturer.   The new body is made up of 32 trade associations.   In the past British trade associations had a poor reputation for lack of professionalism, although doubtless they have improved in a digital age.    In any case the stated aim is to help small entrepreneurs rather than big listed companies.

If a report in the Financial Times is to be believed, the organisation comes across as a something of a shambles which is no surprise when anything emanating from 10 Downing Street is concerned.   Its business is apparently conducted in half hour group conference calls and it appears to have achieved very little in seven months.

Business has been disappointed by the lack of effective engagement with government over the consequences of a no deal Brexit, but government has been trying to establish a narrative in which business gets the blame for inadequate preparation.  Either way, the relationship between government and business is as bad as it has ever been.

Who represents business?

Dethroned guru: some reports suggest that he has lost the beard.

Dave Cameron's government tended to have an over cosy relationship with big business. When Theresa May came into office, it was apparent that she wanted to distance herself from big business as part of her appeal to the just about managing, although many suspect it was eminence grise Nick Timothy who was really behind this stance.

In any event the May Government's relationship with business has subsequently blown hot and cold. Business (by and large) wasn't happy about Brexit in the first place, but has been even less unhappy since then about the uncertainty that has been created (secret deals for Japanese car manufacturers aside).

The CBI has had an up and down relationship with governments. It was at the peak of its persuasive power in the tripartite structures used by both Conservative and Labour governments in the 1970s. Mrs Thatcher regarded them as corporatism incarnate and preferred to talk to the more ideologically sound Institute of Directors. They were rehabilitated under John Major and were seen as on message by Tony Blair who wanted to make New Labour 'the natural party of business'.

Now it has kicked off again. It started when Downing Street tried to get companies to voice their support for the Government's exit strategy which they were understandably reluctant to do. The stance taken on immigration has upset some companies.

Further offence has been caused by the failure to invite leading business lobby groups to a meeting at Chevening, the country residence available to Brexiteer ministers. The CBI, the Institute of Directors and the Association of British Chambers of Commerce have all been excluded. Senior business people are expected to attend, but there is some suspicion in business circles that it is a public relations exercise to show that Government is 'listening' to business.

I think there is a possible alternative explanation. When I was involved in the Organization of Business Interests project in the 1980s, the German leadership (Wolfgang Streeck) were preoccupied with the German associative state model which they saw as the norm. I had an uphill struggle to persuade them that in the US and the UK, a company state model tended to prevail with direct interactions between big companies and government being the norm. I also pointed out that big companies were forming government relations divisions to make their operations more sophisticated.

One interpretation of what is going on is that the Government is simply adhering to the British company state model and dealing direct with companies.

BTW, the FT had a very interesting article on the role of Vereine in producing a particular political culture in Germany recently: Clubby Germans

The plight of the CBI

An academic friend asked me recently why I had not returned to my early work on the CBI. (Grant and Marsh, 1977). My answer was that the organisation was a shadow of its former self. Its heyday was in the days of tripartite economic policy in the late 1960s and 1970s. It suffered a body blow under the Thatcher Government when it was seen as a throwback to failed corporatism and more ideologically attuned organisations such as the Institute of Directors found favour. Influence was regained under the Major Government and New Labour, but in some respects the organisation had been ‘hollowed out’ like other British institutions. Now it finds itself in a dilemma over the referendum of British membership of the European Union.

Opponents of membership, two of whom turned up with a banner ‘Voice of Brussels’ when David Cameron addressed the CBI , argue that its pro-EU stance misrepresents the views of British business. Scepticism was expressed about a survey which favoured continued membership. It was only a survey of CBI members and Eurosceptics argue that many of its claimed members are not direct members but only indirect ones by virtue of their membership of trade associations affiliated to the CBI. Nevertheless, the CBI is reasonably representative of big business (even if it has failed to publish a list of members) and, leaving aside some hedge funds and private equity businesses, most big businesses think that Britain would be better off inside the EU than outside it.

Chief executives of some of the Britain’s biggest companies linked to the CBI have been targeted in letters by Eurosceptic campaigners urging them to remain apolitical ahead of the EU referendum. The Scottish referendum has encouraged some business leaders to speak out on the issue. However, other chief executives are remaining neutral in order to avoid getting drawn into a partisan debate. Dave Lewis, the chief executive of Tesco, has said that the retailer would maintain an entirely neutral position in the referendum out of respect for the diverse views of its stakeholders. However, Tesco does not really need access to the internal market and would be less impacted by a Brexit than a manufacturer.

Paul Dreschler, president of the CBI, has said that it has been subjected to a ‘series of systematic and sustained attacks’ by Eurosceptics designed to undermine its credibility. Vote Leave issued an ad campaign to coincide with the CBI conference with the words ‘Wrong on ERM, wrong on euro, and wrong on EU.’ Addressing claims that the CBI was EU funded, Mr Drescher said that only 0.6 per cent of its income came from the European Commission. These were contracts won in competitive tenders.

John Cridland is about to step down as director-general. An insider with 33 years service, he was promoted from deputy director-general in 2010, the first time this had happened in the organisation’s history. In manner and appearance, he reminds me of an old style civil service permanent secretary, perhaps recalling the days when Sir Norman Kipping was the long-serving head of the predecessor organisation, the Federation of British Industries and was a familiar face in the corridors of Whitehall. Indeed, the CBI’s old offices in Tothill Street reminded me of a rather run down out station of a government department Cridland appeared to be in the same wavelength as the coalition Liberal Democrat business secretary Vince Cable who favoured an industrial strategy. His Conservative replacement, Sajid Javid, has a more free market orientation and rebuked the CBI for coming out in favour of the EU before the renegotiation process had even started.

The new director-general, Carolyn Fairbairn, is formerly of the BBC. A consultant and journalist, she is untried in such a high profile post. Katja Hall, Mr Cridland’s deputy and policy chief, is leaving after she failed to get the top job.

Paul Dreschler has just taken over as president, replacing Sir Mike Rake, chairman of BT. Mr Dreschler chairs Bibby Line, a family-owned shipping group. He only got the job when the president-in-waiting. Paul Walsh, the former chairman of Diageo was judged to be too openly Conservative.

A cloud on the horizon is that new Labour leader Jeremy Corbyn refused an invitation to speak at the CBI’s annual conference. There has been no contact between the CBI and Mr Corbyn or the new shadow chancellor, John McDonnell, since they took on their roles in September. Any contact has been through Angela Eagle, the shadow business secretary.

Things aren’t what they used to be!

Reference: Grant, W. and Marsh, D. (1977) The CBI (London: Hodder and Stoughton).