Obviously the logic is flawed, but the evolution of companies is still important, especially as – so the theory goes – we currently stand at one of those major junctions of corporate development. Perhaps it always seems like this, yet one way in which the future is unfolding is that companies are starting to look more like those of the past – the dim and distant past.
In this context, let’s remember where the word ‘company’ comes from. Way back in 16th century England it denoted a band of brave fellows – they were always men – who joined together in an enterprise demanding derring-do, courage and a lump of capital. Its usual aim was to rob the Spanish or exploit the natives of a far-off and backward land. But the point was that the company was specific to one venture. The men pooled their capital for the project, took their ill-gotten gains and scarpered.
For really profitable projects, they repeated the trick. Then did it again and again, until the arrangement became permanent. That – more or less – is how the East India Company, the progenitor of the modern company and the vanguard of British imperialism, came about.
Back to the near present and just three years ago another great company, the Anglo-Dutch consumer goods giant Unilever (ULVR), took a leaf out of the book of those 16th century venturers. It raised capital for a specific purpose – it joined a small but growing band of companies that have raised money via ‘green bonds’. Unilever sold £250m-worth of 2 per cent four-and-a-half-year bonds and the proceeds were ring-fenced for environmentally friendly projects; for example, low-emissions factories in Johannesburg to make ice cream and liquid detergents (although, presumably, not in the same plant).
Green bonds have become fashionable, especially in the Far East, and there are now enough of them for S&P Global to provide an index and, in March, VanEck, a specialist US fund manager, launched an exchange traded fund to track it, the VanEck Vector Green Bond fund (US:GRNB).
Miserably, this fund isn’t distributed in the UK. But, for the purposes of this discussion, the significance isn’t in the use to which the money is put, but in the way that it is raised – green bond money is raised for a specific purpose, much like the money clubbed together by those 16th century adventurers. It’s a form of tailored finance, just as crowd funding and peer-to-peer lending fit that bill and they seem to be very much the shape of finance of the future.
Besides, raising capital for specific purposes can do for a company’s financing what a high ‘net promoter score’ does for its relationship with its customers – it tailors the product precisely to the requirements of the investor; to use the ghastly jargon, it demonstrates ‘high customer intimacy’, or what you and I would call ‘giving customers what they want’.
Even if you don’t know it, you’ve come across net promoter score. It’s ubiquitous and companies such as Apple rate it highly. You meet it every time you shop online and are asked, “would you recommend our products or services to a friend?” The higher the score, the more likely the answer is ‘yes’ and, implicitly, the better the relationship between the company and its customers.
More than ever, a good relationship is vital in business because technology now means companies no longer face a crucial trade-off on the path to being successful – either by being big and generating economies of scale or by being small yet truly customer-focused. Instant feedback and the technology to respond means that big companies can be customer-friendly too – especially if they run on flattened hierarchies, where decisions are devolved to the ‘customer face’.
Just as companies increasingly respond to customers in a finessed way, they can – and will – respond to providers of capital in a similar manner. Thus green bonds are already a useful source of funding for utilities providers, especially on the continent, where clean energy mixes it with the dirtier sort and the funding for specific projects is comparatively easy to isolate. But the principle can be applied across industries. You may object to investing in Boeing (US:BA.) because of its involvement with defence spending, but could be happy and eager to invest in its specific civil-aviation projects. Much the same could apply to almost any multi-nationals with a range of products and activities.
True, to bring this on in a big way would require the inclination and the innovation of the financial services industry. Yet for investors it would ultimately mean a portfolio more nuanced both by activity and by security. In effect, they could build their own miniature multi-national – the one they really want rather than the ones they are lumped with today. That would be a future to look forward to.
