Social Enterprise: UK Staffing Firm Cordant Moves to CEO Pay Cap and Profit-Sharing

September 11, 2017; Guardian

A leading 60-year-old UK-based temporary staffing firm, Cordant, is altering its structure to become what it is calling a “social enterprise,” complete with a CEO pay cap and profit-sharing plan. Cordant is a large firm that places 125,000 temporary workers at 5,000 firms a year.

Some of the new rules, the Guardian reports, include a company restriction that top earners will not be able to take home more than 20 times the salary of its lowest-paid staff. Effectively, this would result in a salary cap of £400,000 (about $531,000). A ceiling on dividends paid to firm owners will be implemented. Profit, after retained earnings and dividends, will be shared with the company’s 1,500 permanent staff.

The company also plans to increase its community contributions by offering staffing and IT systems to the state-run National Health State at cost, which it says will save the health service “millions of pounds.” Cordant also plans to increase donations to education initiatives to help teachers and improve workplace skills.

Temporary staff employed by Cordant would not share in the profits but will be able to enjoy “more choice in where they work, rate temporary employers and sign up for extra shifts when they want them.”

The Guardian report claims that Cordant’s profit-sharing scheme is “reminiscent of John Lewis’s annual staff bonus scheme,” and maybe it is after a fashion. The John Lewis Partnership, the British department store and supermarket retail outfit (which also runs additional subsidiaries), is directly owned and governed by its 84,000 employee-owner “partners.” By contrast, no change in ownership or governance of Cordant is envisioned. Ullman family owners will be restricted to collectively earning £3 million (about $3,982,500) a year in dividends, but their majority ownership share is unchanged.

The Guardian article also notes that Cordant staffing is currently rated low in customer rankings compared to its competitors and had a pre-tax loss of £9m last year. In 2015, the firm did post a small profit of £3.9m, but it has not paid a dividend in either of the past two years. Evidently, the benefits of profit sharing are zero if there are no profits to share, and dividend ceilings are not very meaningful either if past practice has been to not distribute dividends. On the other hand, the executive pay cap, reduction in pricing of services to government, and efforts to empower temporary workers are not insignificant.

So is Cordant’s new “social enterprise” face sincere or just the latest effort at corporate greenwashing? It may be a little bit of both. Surely, it is a positive development when a leading family-owned firm endorses and implements limitations on executive pay. But without a change of ownership, there has been no effective change in power. Benefits and rules announced today could be, if profit levels don’t go up, removed by the Ullman family tomorrow.

This raises broader questions too about what should and should not be deemed “social enterprise,” which has been a vexing issue on this side of the pond as well as in Great Britain. Some of us would like to restrict the term “social enterprise” to either mission-related businesses run by nonprofits directly—like D.C. Central Kitchen’s Fresh Start Catering, which trains and employs citizens returning to society from prison to prepare healthy meals for school children and cater social events—or businesses where employees share not just in the profits, but in the ownership of the company.

Of course, enlightened corporate leadership is to be encouraged. The concept itself is hardly new. For example, Kellogg famously instituted a 30-hour work week in 1930 to spread existing work during the Great Depression. But absent a change of ownership or government regulation, it is hard to imagine corporate “social enterprise” as anything more than a passing phase.—Steve Dubb