Governance perspective Empowering directors to deliver a cleaner, greener, fairer recovery for all
As winter turns to spring, the country prepares to emerge from lockdown, and with Easter on the horizon it’s a moment to think about new beginnings.
The past year has tested us all, both personally and professionally, and many will be looking forward to a fresh start. It’s an opportune moment then for the launch of a new campaign that seeks decisive government action to enable all British business leaders to play their part in creating a cleaner, greener, fairer future for all.
As winter turns to spring, the country prepares to emerge from lockdown, and with Easter on the horizon it’s a moment to think about new beginnings.
The past year has tested us all, both personally and professionally, and many will be looking forward to a fresh start. It’s an opportune moment then for the launch of a new campaign that seeks decisive government action to enable all British business leaders to play their part in creating a cleaner, greener, fairer future for all.
The COVID-19 pandemic has magnified existing crises of inequality and environmental damage. In response, we need business at its best – creating good jobs, helping to fix pressing problems and adding value to society. We need to harness the enormous potential of entrepreneurs, innovation and enterprise.
The Better Business Act coalition brings together over 200 businesses including the likes of Bulb, innocent and Brewdog. Our mission is to change UK law so that businesses put balancing people, profit and planet at the heart of their purpose and the responsibility of their directors. To achieve this we are calling for an amendment to Section 172 of the Companies Act in line with these objectives.
We want to ensure decision makers in business are free to act in everyone’s long term interests – combining traditions of good stewardship and responsibility with new ideas to meet the challenges of the 21st century. By amending Section 172 of the Companies Act we can use existing legal principles to empower directors to benefit all stakeholders.
For many directors, this change in law will not materially affect their behaviours or the actions of their companies, but by becoming law they will ensure that no business can use short-term profit maximising to justify behaviour that’s harmful to society or the environment. Specifically we want an amendment to achieve four changes:
- Governed for Stakeholders: Stakeholder governance becomes the governing principle of fiduciary duty within Section 172 of the Companies Act.
- Empowering Directors: This change must empower directors to exercise their judgement in weighing up and advancing the interests of all stakeholders.
- Default Change: This change must apply to all businesses by default. It must no longer be optional to benefit wider stakeholders beyond shareholders.
- Reflected in reporting: Following this change, businesses must report on how they balance people, planet and profit in a strategic report or impact report, where one is currently required.
The campaign has published draft legislation which we think can achieve these objectives and can be viewed at betterbusinessact.org/about-the-act/.
The campaign is far from an attempt to impose new liabilities on directors. Rather, the Better Business Act seeks to liberate business leaders to do the right thing in difficult situations. Under company law, the directors owe their duties only to the company, and only the company, or a shareholder acting on behalf of the company, can take action against a director for a breach of their duty under Section 172. The Better Business Act would not change this position in law. We are not seeking to create new legal rights for other stakeholders but we do want to see the conversation in boardrooms change.
Updating the law is not just the right thing to do, it is the smart thing to do. According to independent analysis conducted in November 2020, companies run in line with the principles we propose have demonstrated faster growth in turnover and employee headcount, greater levels of employee retention, engagement and diversity, and higher levels of innovation, as measured by applications for R&D tax credits and new goods and services.[1]
The changes are also backed by the majority of UK consumers. Polling carried out for B Lab UK in May 2020 found that 72% of those surveyed believe business should have a legal responsibility to people and the planet, alongside maximising profit. In addition, 76% of the UK public think business should have a legal responsibility to protect the natural environment. The same poll found that businesses acting in this way would also find favour with consumers, with a majority favoring brands that are doing good in the world.[2]
This spring, as you turn your attention to life on the other side of the COVID-19 pandemic, we’re inviting you to join a movement that will make better business the norm and allow society to reap the rewards of business at its best.
The Better Business Act will launch in Parliament at an event on Wednesday April 14th. Ahead of that we are eager to speak to more businesses and company directors to gain their support for our campaign. To find out more, see a full list of our supporters and get in touch, log on to betterbusinessact.org.
Chris Turner, Better Business Act Campaign Director
The Better Business Act coalition currently consists of over 200 businesses. The campaign is convened and run by B Lab UK. B Lab UK is a non-profit established in 2015 to serve a growing community of UK-based companies — Certified B Corporations — using business as a force for good.
