We met over the weekend of 29-31 October to compare views on either side of the Atlantic on what constituted business enterprise, our attitudes to it, whether it could be taught and what could be done to encourage it. All of us were clear that a thriving modern market economy required a plethora of small businesses some of which might become successful wealth creating operations with spin-offs for employment and revenue.
At the outset, and more insistently throughout the conference, a distinction was drawn between two categories of enterprise. The first, and smallest, sector was loosely described as high-tech, fast-growing, often involved with IT or biotechnology. The second category included the majority of new-business start-ups which were not so exciting nor attracted media-attention, but which were nevertheless important for employment and other market, including social market, reasons: the dot.com and the dry cleaning tendencies. We were concerned that, unless this distinction was kept in mind, policies would be badly framed since the needs of the first category were different in some important aspects from those of the second.
The question of “Culture” was a recurring theme in our debate. In this context it was defined as society’s attitude to enterprise and wealth creation. In a generalisation, which was not disputed, one participant described Britain as a country which regarded failure as a disaster and success as somehow suspect. An American participant contrasted this with a much more forgiving attitude to “failure” and the admiration, at times adulation, heaped on successful businessmen in the USA. We explored in some depth the various social, historical, educational and other factors which might account for this large discrepancy including immigration, social ranking, and more recently, media attitudes to wealth creation. We heard that, in Britain, successful businessmen or financiers risked being described as “fat cats”, a term far removed from the vocabulary of Forbes and other American publications.
Gleams of light were nevertheless discerned through the dark British clouds. Young people were increasingly opting to start-up their own businesses instead of going to well-established firms or heading for the finance sector in London or other large cities. The present Labour Government had, not without difficulty and misgivings among some of its members, embraced wealth-creation as a desirable and laudable activity. Prime Minister Blair was frequently photographed with leading businessmen, and occasionally criticised for doing so by some of his supporters who wished him to concentrate on the poor rather than the wealthy. But the overall message for businessmen was positive and was, we judged, likely to help encourage a risk-taking society capable of relying less on the state and a dependency culture.
We considered whether an entrepreneur could be taught his or her skills, but concluded that real risk-taking entrepreneurs were either born with particular characters and/or motivated by particular circumstances. In some countries like Germany for example the appetite for risk was still low, with the majority of graduates looking for jobs in Government or in large firms. Business management could, however, be taught and was being much more systematically tackled in Britain and elsewhere in Europe than had previously been the case. The education system, it was urged, should, from a very early age, make children and young people aware of the basic skills needed in business. IT literacy and a higher degree of numeracy were among the core skills. The need for skills training throughout a working life was emphasised.
Inevitably the role of Governments came in for careful examination. It was agreed that they could be both incubators and inhibitors. On the positive side it was noted that the US Government had a fund of $35 bn in public private partnerships, money which usually went to projects below the level where Banks or venture capital had an interest. The Small Business Scheme and other organisations such as The Prince’s Trust were tackling the same problem in the UK.
Tax incentives were important. One participant argued that the most efficient scheme in terms of enabling poor families to make a start in business was the working families tax credit. Others thought that generous treatment of stock options was a critical factor. They were often the only means of attracting and retaining highly-skilled and motivated people in the fastest growing sectors of business. US practice was thought to compare favourably with Britain in that a tax liability only occurred when an option was realised. The level of capital gains tax was also thought to be important in enabling an entrepreneur to exit from a successful business and to persuade him or her to recycle their talents through the market again. The size and comprehensive nature of the US venture capital and stock market operations were contrasted with the relative scarcity of venture capital and the divided state of stock-markets in Europe.
Overall, Governments were asked to do no more than provide a benign framework for business. Education was a key element at all levels. Government should retain responsibility for fundamental research and encourage research, and teaching of business and enterprise skills, at universities. While all were agreed that Governments should remain responsible for regulation, there was considerable dissatisfaction with its scope, quantity and quality. This dissatisfaction stretched to the regulators themselves whom it was thought were sometimes not up-to-date in the knowledge of their fields. It would be better, when regulations were framed, that those responsible should “think small first” and then seek to follow the rubric of easy to understand, simple to apply and difficult to avoid.
Overall it was the cumulative effect of regulations and their administrative burden (which fell disproportionately on small, compared with big, business) that was seen as a major disadvantage in the UK. The burden of compliance and frequency of audit on regulations was, it was claimed, also heavy in the US. But the big difference appeared to be the relative flexibility of the US labour market. Small British businesses were facing an increasing number of labour protection laws: The Working Time Directive, Transfer of Undertaking Protection of Employment Regulations and others which raised costs, and even those designed to help employees in the tax sector had to be administered by the businesses rather than the state, thus adding to the administrative burden. The only comfort for the British business participants seemed to be that, although conditions might have become more complex, when compared to the current rigidities in Europe Britain still seemed to be a more desirable investment area than its EU partners.
We considered carefully the various sources for the supply of capital. The chain from business angels through to stock flotation was checked for weak links as far as a young entrepreneurial company was concerned. Organisations like the Prince’s Trust and business Angels were considered critical at the stage when a company or enterprise had not grown to the point where it would be interesting to banks or venture capitalists. As crucial as the money was, the monitoring and experienced guidance which came with the money (“Value Added money”), were considered to be just as important. We debated the role of Government finance and Banks at this early stage. The Bankers among us argued that, apart from those banks who set aside limited funds for very early venture capital, it was not the role of banks to put their depositors money into very high risk ventures. Governments had a role but found it hard to target the funds and usually relied on partnerships with retired businessmen to supply the other essential ingredient, advice and monitoring.
The general assertion was made that the scarcity was not of money but of good ideas. But on closer examination of the operations of venture capitalists and corporate venture capital (not a significant factor in Britain) we found that there were gaps in funding sources for the ascending chain of capital requirements for new businesses. In Britain one of these gaps seemed to fall between £100,000 and £500,000 where operations like the Small Firms Loan Committee Scheme left off and venture capital moved in. Somewhat the same gap existed in the US. The Teaching Company Scheme was seen as a useful means of helping to improve the knowledge and quality of venture capital analysts to understand better the companies in which they might invest.
In case it should be thought that our attention was fixed too exclusively on the Profit and Loss line, we also considered the role of ethics and not-for-profit organisations (with activities now in excess of $1 trillion) in the modern business world. We discussed the ideas behind the Human Business Partnership and the value to business of being perceived in society generally as being engaged in a socially desirable activity. While it was thought that small start-up companies might have little time to put ethics at the top of their priorities, they nevertheless benefited from working in a market place where the larger players did give consideration to ethical considerations. Companies like Shell had experienced the high price to be paid when the public perceived, rightly or wrongly (as in the case of Brent Spar), that they had not given due weight to environmental considerations.
Overall the Director was left with the impression that while the US economy continued to forge ahead and the pace of change had been transformed by the internet (one participant described internet years as “dog years” where one was equal to seven non-internet years) and the variety of high and non-high tech start-ups was remarkable, the pace of change had also quickened in Britain and the beginnings of what might turn out to be a profound change of attitude among the younger generation towards business and wealth creation might also be under way.
The Director also noted statements from the British Prime Minister and Chancellor of the Exchequer to the Annual Conference of the Confederation of British Industry which started the day following the Ditchley conference. Their speeches included references to the importance of business and wealth creation as well as the value of stock options for new start-up businesses. Post hoc ergo propter hoc?
This report reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression.
Chairman: Sir Nicholas Goodison
Deputy Chairman, Lloyds TSB Group plc
PARTICIPANTS
CANADA
Professor Jeff MacIntosh
Faculty of Law, University of Toronto
Professor John Richards
Simon Fraser University, Vancouver
Mr Bernd Schroder
President and Chief Executive Officer, Business Development Bank of Canada
GERMANY
Herr Manfred Wittenstein
President, Wittenstein GmbH & Co
UNITED KINGDOM
Mr Colin Barrow
Head, Enterprise Group, Cranfield University School of Management
Mr David Durie CMG
Director-General, Regional and Small and Medium Enterprises, Department of Trade and Industry
Mr Andrew Frost
Owner and joint Managing Director, Photon (TG) Limited
Ms Patricia Hewitt MP
Minister of State for Small Business and E-Commerce, Department of Trade and Industry
Mr Barnaby Loehnis
Commercial Manager, W H Smith Online
Mr Jeremy Marshall
Former Chief Executive, De La Rue Co plc
Professor Colin Mason
Professor of Economic Geography, University of Southampton
Mr Graham Ross Russell
Chairman, Securities Institute; UK Business Incubation
Mr Christopher Saunders
Management Consultant specialising in start-ups and young businesses
Sir Sigmund Sternberg OstJ KCSG JP
Chairman, ISYS plc
Mr Christopher Swann
Correspondent on currencies and economics, Financial Times
UNITED STATES OF AMERICA
Mr Robert Conway
Limited Partner, The Goldman Sachs Group
Mr Michael Darby
Director of Business Development, Cisco Systems
Mr John Diebold
The Diebold Institute for Public Policy Studies Inc
Mr Francis Finlay
Chief Executive Officer & Co-Chairman, Clay Finlay Inc
Mr Harry Fitzgibbons
Managing Director, Top Technology Limited
Mrs Frances Hesselbein
Chairman, Board of Governors, Peter F Drucker Foundation for Nonprofit Management
HE The Honorable Philip Lader
Ambassador of the United States to the Court of St James’
Mr Kenneth Lipper
Chairman, Lipper & Company
Mr George M Newcombe
Partner, Simpson Thacher & Bartlett
Mr Frank A Weil
Chairman & Chief Executive Officer, Abacus & Associates
Mr Robert F Wright
President, Robert F Wright Associates Inc