What links UK businesses as diverse as Abel & Cole, Freud Communications, Sipsmith, and Octopus Group?
The answer is that they have all achieved Certified B Corporation status, signalling to consumers, workers and investors that "they are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment" (from the B Corporation website). Household names such as Waitrose, Ocado and Boots have also created online "B Corp aisles" so consumers can buy from the B Corps whilst doing the weekly online shop. In order to achieve B Corp certified status, UK companies must go through the three-stage process outlined on the website. This includes amending their articles to state that the company's objects include its business and operations having a material positive impact on society and the environment, thus embedding this in the company's constitution.
Now the B Corporation movement wants to go further and extend this concept so that all companies would have a legal responsibility to stakeholders, and not just to their shareholders.
The change it wants to see involves a key section of the UK Companies Act 2006 which sets out the duties that directors owe their companies. S. 172 of the Act provides that directors must act in the way they consider most likely to "promote the success of the company for the benefit of its members as a whole". "Success" for a commercial company is generally considered to mean a long-term increase in value. Directors must take wider stakeholder interests into consideration, but the interests of shareholders take precedence over stakeholder interests if there is any conflict between the two. This concept is often referred to as "enlightened shareholder value".
The Policy Council of B Lab (UK) wants s. 172 to be redrafted so that the directors' duty will be to advance the purpose of the company, rather than to promote the success of the company. The purpose of a company would be not only to benefit its members as a whole, but to do so whilst operating in a manner which:
- Benefits wider society and the environment (commensurate with the size of the company and the nature of its operations); and
- Reduces the harm the company creates or costs it imposes on wider society or the environment, with the goal of eliminating any such harm or costs.
Supporters refer to this as the Better Business Act, and regard it as establishing a mandatory "triple bottom line" for all companies which would require them to operate their businesses not just for the benefit of shareholders but also wider society and the environment. The proposed change is supported by the Institute of Directors, amongst others.
Many other organisations also believe that moves to encourage "purpose-driven" companies could be hugely beneficial. ReGenerate, a pop-up think tank led by Ed Boyd, a former Tory special adviser, identifies this legislative change as one element of its three-point plan to unlock the power of business to do more good (https://www.re-generate.org/helping-purpose-driven-business-thrive, published 1 June 2021). ReGenerate's recommendations are based around a three-point plan to:
- Provide global leadership on impact measurement to make it easier for companies to report and stakeholders to understand a company's social and environmental impact.
- Create a clear, obvious legal framework for purpose-driven companies.
- Turbo-charge support for companies that intend to profitably tackle the challenges we face, such as recovering from Covid-19, reaching net zero and levelling up the UK.
So, what might this achieve? James Kirkup, in a recent Times opinion piece, argues that it could make a real difference in terms of pushing environmental and social issues further up the agenda. It would make it clear that companies are still expected to make a profit, but that in doing so they must look after people, places and the planet, and must report on how they are doing both.
He also argues that putting purpose-driven business at the top of the agenda isn't just good for society, but crucial for business itself:
"Enshrining 'purpose' in corporate life isn't a left-wing attack on capitalism; rather, it's a broader move to renew capitalism's social licence and to ensure that companies stay in business by moving with the times."
It's seems likely that the change would be popular electorally. A May 2020 poll found that 72% of the UK public believed that business should have a legal responsibility to people and the planet, alongside maximising profit, while 76% thought business should have a legal responsibility to protect the natural environment.
So, an easy legislative win for the government, which ought to garner wide support and be welcomed by voters too? Despite a high-profile Parliamentary Reception in April, the Better Business Act was not included in the Queen's Speech, so there is as yet no clear indication of when it might be passed into law. However, there is no doubt at all that ESG issues continue to move up the business agenda and that the concept of the B Corps and of purpose-driven business is here to stay.
If you would like more information about any aspect of this, please do get in touch.