Comment: B Lab UK’s Chris Turner explains why more than 550 companies and the Institute of Directors are backing a campaign to put people and planet on equal footing with profit in the UK
Throughout the pandemic, citizens around the world have been faced with hard choices; we have had to rethink the way that we live and work to protect ourselves from the virus. Yet these choices, and their impact on our lives, are only the most visceral symptoms of a crisis that has also thrown increasingly urgent, global challenges into sharp relief.
These crises – the climate emergency, rising inequality, structural racism and discrimination – are systemic and overwhelming in scale. But connecting them all is business; from global brands to local enterprises, they are a common thread, bringing all of us together in the workplace and the marketplace. Business is the most potent tool in human hands for either contributing to these crises or for delivering solutions, and driving us all towards shared prosperity.
Over the last 50 years, business has veered towards the former. It has become separated from the communities it needs to serve, and legislation has failed to reflect the role that business must play. By failing to align the interests of shareholders with those of wider society and the environment, business has contributed to these enormous challenges, which now threaten peoples’ health, wealth and the natural world.
72% of the UK public think businesses should have a legal responsibility to the planet and people
The disconnection is apparent. It’s recognised by business leaders themselves – in 2019 the Business Roundtable of influential US CEOs committed to a new corporate purpose, resolving to lead their companies for the benefit of all stakeholders. The public agree: a 2020 poll revealed that 72% of the UK public think businesses should have a legal responsibility to the planet and people, alongside maximising their profits. ESG funds are expected to outnumber conventional funds by 2025, as markets move in step.
Faced with these pressures, business leaders must wrestle with difficult decisions. Their legal responsibility to deliver growth must be weighed against consumer, market, and in some cases regulatory demands – demands that now require accountability to a broader set of stakeholders.
It’s tempting for us to rely on business “heroes” who manage to thread the needle. But this will never be enough. We need every business to act. We need to establish a new contract between business and society.
The UK’s Companies Act of 2006, the current legislation, fails to deliver a practical framework for making these decisions. This 15-year-old experiment in “enlightened shareholder primacy” reflected early shifts in business culture, but it has now fallen well behind expectations, creating ambiguity and uncertainty for business leaders. Worse, it fails to remove the overriding principle of shareholder primacy. Even the most visionary of CEOs are handcuffed to prioritising short-term shareholder returns at the expense of people and planet.
We believe the Better Business Act (BBA) is the solution, an amendment to Section 172 of The Companies Act (2006) that will ensure every single company in the UK, big or small, puts the benefit of people, profit and planet at the heart of their purpose and the responsibility of their directors.
The BBA ensures that company directors are responsible for advancing the interests of shareholders alongside those of wider society and the environment. The fundamentals of the act are reflected in four principles:
1. Aligned Interests: the interests of shareholders now advanced alongside those of wider society and the environment.
2. Empowering directors to exercise judgement in weighing up and advancing the interests of all stakeholders.
3. Default change: this must apply to all businesses.
4. Reflected in reporting; on how businesses align the long-term interests of people, planet and profit.
BBA supporters recognise this unique opportunity to establish a clear default purpose for business
Businesses around the world, and across the UK, have proven this as a model for sustainable growth that drives innovation and entrepreneurship. The 4,000-strong B Corp community has led the way, while tens of thousands of businesses are now incorporated in equivalent, optional, “stakeholder governance” forms in the US, Italy, France, Columbia, and more.
Since its launch in April 2021, more than 550 businesses have joined the growing Better Business Act coalition, including some of the UK’s best-known brands -- John Lewis, Iceland, Danone, Innocent Drinks, The Body Shop and Bulb among them. They have also been joined by the Institute of Directors.
On 8 July, the government will close a consultation examining the future of corporate governance. Ahead of the deadline, we are calling on companies to respond, and highlight the opportunity to bring forward the BBA. During the autumn conference season we will also highlight the BBA in an effort to gain support from the main political parties.
BBA supporters recognise this unique opportunity to establish a clear default purpose for business, one that is fit for the challenges of the 21st century and fulfils its promise as a force for good.
Chris Turner is campaign director of the Better Business Act and executive director of B Lab UK, the non-profit organisation behind the B Corp movement in the U.K.
For more information on the Better Business Act, please visit betterbusinessact.org.