Here’s how business can be a force for good
Britain’s business leaders are being urged to call on the Government to amend Section 172 of the Companies Act to ensure businesses are legally responsible for benefiting workers, customers, communities and the environment while delivering profit.
By Charmian Love, Co-founder and Activist in Residence at B Lab UK | May 6, 2021
November 2021. The stage is set. The Prime Minister prepares to step up to the podium as all cameras focus on this moment. The camera lights turn on. A hush falls in the conference centre as the UK – and the world – tune in to hear an announcement which will signal the UK’s commitment to addressing the climate emergency.
The headlines leave no room for doubt: The UK is going to be the first country in the world to make it mandatory for all businesses to advance the benefit of both shareholders and stakeholders (including our climate). The decision will enable businesses to focus their innovation, ingenuity and power on solving the problems facing people and our planet rather than creating or contributing to them. The UK has just voted into Company Law an amendment to section 172. The Better Business Act is here.
This vision for November isn’t just a hopeful flight of fancy. It is sensible, pragmatic and has real potential to become the reality. Scratch that. It can’t just be a potential. It needs to happen.
Let’s start by looking back. Since 1970, the doctrine of shareholder primacy has focused economic activity on maximizing profit. This has made business the primary driver of environmental and social degradation, leading society and the biosphere to the brink of collapse. But just as we look at the technology of the 70s with a: “wow – did we really use phones with rotary dials and depend on typewriters rather than computers?”, we should also think about those economic theories that now belong in museums rather than in our markets today. After all, when economists developed these doctrines, they did so with different data than what we have today on the state of the planet and the emergency we are facing.
In the UK, there is a clear opportunity at COP26 to step up this new era of economics by creating laws and supporting a change in culture which enables people in business to make decisions that truly harness their power as a force for good. This involves releasing the constraints that can block leaders from making big decisions – such as those required to radically transform business models to meet absolute net zero.
The good news
Over 500 businesses in the UK have already joined a coalition to support The Better Business Act which includes well-known brands such as John Lewis/Waitrose, Patagonia, Innocent, Brewdog and many more.
Beth Thoren, Director of Environmental Action, EMEA at Patagonia puts it clearly: “Directors today are punished for taking into account the needs of societies and the natural world on which their businesses depend. This makes no sense. We need to evolve our capitalist system to allow leaders to make more balanced choices – the choices that as parents and citizens they want to be able to make.”
Another supporter of this historic shift is the Institute of Directors, founded in 1903, and the UK’s longest-running organization of professional leaders.
The Better Business Act will amend section 172 of The Companies Act to ensure that company directors are responsible for advancing the interests of shareholders alongside those of wider society and the environment.
Even better news
We know that many businesses have already made this change to their legal articles voluntarily. Indeed, this is a requirement for B Corp certification. We also know that this does not negatively affect key performance metrics. On the contrary. A study from B Lab UK that looked at B Corp and non-B Corp SMEs found that between 2017 and 2019, UK B Corp SMEs’ mean average annual turnover growth was 24% (median average 15%) – compared to an average of 3% for all SMEs. Meanwhile, between 2017 and March 2020, UK B Corp SMEs saw their annual employee headcount grow by 8% – compared to 0% for all SMEs.
Another encouraging point of evidence relates to accessing growth capital: 65% of UK B Corp SMEs who sought equity finance secured all (or more) of the required amount, compared to 56% of all SMEs. It is increasingly being embraced by larger companies and by capital markets. For example, Coursera (using these legal articles) listed in the New York Stock Exchange (NYSE) last month, with shares surging 36%.
The best news
We know people in the UK want it. In a poll last year, we asked UK citizens a series of questions to better understand their view of what the role of business in society should be. Over two thirds, 76%, of the UK public think businesses should have a legal responsibility to protect the natural environment. The only question left is: when will the bill be passed?
We know this isn’t as easy as it sounds; there are definitely challenges and obstacles to what the Better Business Act represents. But we also know that we have the science, the data, the businesses and the people with us. And we can learn from the incredible work in 42 jurisdictions around the world that have passed voluntary legislation in the form of benefit corporation legislation. This is just the next sensible and pragmatic step on the journey, and a clear opportunity for leadership.
What next? If you’re in the UK, here are three ways you can support the Better Business Act:
- Sign up. Encourage your business to show their support by joining the coalition.
- Write to your MP. Ask them to support the Better Business Act.
- Spread the word widely. The more people know about the Better Business Act, the more people will see that it is time to retire the rotary dial phone and invest in a Fairphone instead! If every business signs up five more businesses, we’ll quickly be backed by thousands.
If you’re outside the UK, you have an important role to play too. Connect with your local business communities to see if there is already a coalition in place. If there isn’t – start one! And let us know so we can help.
Let’s plan a big party at COP26 to celebrate the passing of the Better Business Act – and the start of a wave of change around the world where laws are made that enable businesses to be the force for good we need them to be.