Government urged to introduce “benefit companies” in England

The government should explore creating a new “benefit company” status in English law to make the most of the current wave of millennial entrepreneurs who are driven by a desire to make a positive difference to society.

This is one of the recommendations from an independent panel report into how “mission-led” businesses can be promoted. The report was commissioned by minister for civil society Rob Wilson.

The report, published on 5 December, points out that net creation of companies in the UK for 2013 and 2014 was the highest on record.

It adds: “There is an exciting opportunity to ensure that [company] founders take a mission-led approach from the outset and are able to access legal forms and governance structures that match their ambition and the definition of what success is for them.”

We need to reframe the concept of success in business if we are going to harness the tremendous power of the profit motive to create a more inclusive society

Mission-led businesses, as defined by report, are “profit-driven businesses that make a powerful commitment to social impact. They commit to contribute positively to society through their operations, goods and services and are transparent about how they do it”.

The report says that over the past two decades many of the world’s companies, led by Unilever and others, have evolved their thinking to place social impact at the core of all their operations.

It adds that millennials (born between 1982 and 2004) believe the primary role of business is to serve society and that start-ups led by millennials often focus on solving social issues such as climate change, food waste or educational attainment.

The report draws upon research which identifies around 123,000 mission-led businesses in the UK, with a combined turnover of £165bn and 1.4m people employed. It sees these businesses as distinct from many social enterprises, co-operatives and voluntary organisations, citing Timpsons, Patients Know Best and Cook as examples.

The aims of benefit companies

The benefit company legal status is already being used in Italy and 32 US states. It allows businesses to declare a public benefit purpose, commit to serve stakeholders as well as shareholders and commit to being transparent about their impact. Most mission-led businesses in the UK are set up using the traditional company limited by shares, which is simple and flexible, but does not emphasise a social purpose.

A Department for Culture, Media and Sport spokesperson was unable to clarify whether Rob Wilson had committed to exploring benefit companies. However, she said: “We are carefully considering their proposals.”

The minister responded to the report's publication with a letter thanking the panel members and highlighting some of the work that the government was currently undertaking on this theme.

The law firm, Bates Wells Braithwaite, welcomed the proposal to introduce benefit companies. Luke Fletcher, head of social ventures and social finance, said: “It is hugely encouraging to see that – as well as encouraging businesses to use the flexibility under the law to act with a social purpose – the government is actively exploring the creation of a benefit company. We need to reframe the concept of success in business if we are going to harness the tremendous power of the profit motive to create a more inclusive society.”

Bates Wells Braithwaite and social enterpreneurs' support body UnLtd have been part-funded by the Office for Civil Society to create an online portal to help businesses to articulate and embed social purpose.

£1bn for social investment from UK plc

Another recommendation included calling upon UK corporates to invest £1bn by 2021 in corporate social impact investment funds targeting businesses that achieve financial growth and measurable social impact.

Nigel Wilson, chief executive of Legal & General, who chaired the review, said: “The UK’s collective economic success will be increasingly led by organisations of all types with a clearer mission and purpose. I’ve particularly been inspired by several leading corporates such as Johnson & Johnson, Centrica and Danone who have deployed their own balance sheets into mission aligned businesses. We are calling for an additional £1bn from corporate balance sheets and social pension funds to drive more mission led finance into the UK economy.”

Peter Holbrook, chief executive of Social Enterprise UK, was initially sceptical about the review’s potential impact. 

Following the report’s publication, Holbrook said: “It’s a well-written and thoughtful piece of work…Perhaps defying initial expectations the report’s recommendations seek to build on the strong foundations that already exist rather than seek eye-catching but unproven solutions…The prime minister, Theresa May, has promised to build an economy that works for everyone. But the jury’s still out as to whether the government is prepared to carry through with the measures needed to make a real difference.”

Header image: A Cook store in Muswell Hill, London.