Former Unilever boss Polman backs legislation on company purpose to ‘upgrade capitalist system’
A group of influential business leaders and academics is backing new legislation that would displace shareholder primacy as the orthodoxy in British board rooms.
The draft Company Purpose (Amendment) Bill was published today by UK law firm Bates Wells. Prominent supporters include Paul Polman (pictured), former CEO of Unilever and one of the architects of the Sustainable Development Goals.
Bates Wells has launched a campaign entitled #OperationUpgrade – as “a collective effort to ‘upgrade’ the capitalist ‘operating system’ so that the system is responsive to a world of increasingly limited resources and in turn supports the development of a future fit economy”.
The Bill has been also shared over past week with the major political parties, as the UK gears up for a general election in just over a week’s time. Bates Wells said principles of the legislation could be seen in several of the parties’ manifestos.
The Lib Dem manifesto states that “Business can be a force for good in our economy”, while Labour says it will “rewrite the rules of the economy, so that it works for everyone”. The Conservative manifesto does not commit to a wholesale change of company law. However, the Conservative government commissioned the Mission Led Business Review, which recommended that Government should promote the flexibility offered under the law for companies to act with a purpose and align shareholder and stakeholder interests.
The Green Party will “transform our economy to make it work for the wellbeing of people and environment – and we want business to play a leading role”. The Green Party has also promised to bring forth a Sustainable Economy Bill, said BWB, “the backbone of which could be The Company Purpose (Amendment) Bill, combined with additional binding targets on companies to reduce their negative impacts”.
It is now clear that the current operating system, which drives relentless profit maximisation, is harming us all in its single minded conversion of social and natural capital into financial capital
The Scottish National Party manifesto states that “the SNP will further support the growing trend in the private sector towards greater corporate responsibility”.
The key asks of #OperationUpgrade are:
- A change to the default model of company purpose set out in section 172 of the Companies Act to require all companies to seek to ensure, at a minimum, that their business activities have a positive impact on society and the environment, alongside benefit to shareholders. This would in turn have the effect of changing the nature and shape of directors’ duties to companies; and
- A requirement for all companies to produce an annual impact report which discloses the positive and negative impacts each company has on society and the environment. In the case of companies which are subject to audit, the new impact report would also be subject to audit.
The coalition behind #OperationUpgrade believes that “only a fundamental and clinical change of this kind to the purpose of business, which we would like to see in the UK and replicated in other jurisdictions, will enable humanity to close the emissions gap, bridge the SDG finance deficit and look forward to the future with confidence and a sense of opportunity”. It aims to build momentum behind the Bill over coming weeks and months, as a new Government settles into power in Westminster and in the lead-up to the UK’s hosting of COP 26, the UK Presidency of the G7 in 2021 and other key moments.
We should set minimum expectations of business
Ex-Unilever CEO Polman, one of the architects of the Sustainable Development Goals, said: “If we want business and society to thrive, we need to set minimum expectations about how businesses will contribute to society and ensure it has a positive environmental and social impact. Otherwise why would we give a business the permission to exist?
"Climate change, whilst the biggest challenge humanity faces, is also its biggest market opportunity and worth at least $12 trillion. That’s why I back this Bill – the UK has the chance to lead the way and at COP26 to call upon other countries to do the same.”
James Perry, co-founder of the upmarket, high-street frozen foods chain Cook and a key figure in the B Corp movement, said: “This legislation would upgrade the operating system for capitalism, which currently runs on an outdated system that focuses business narrowly on shareholder returns. This upgrade requires all businesses to benefit wider stakeholders.”
He added: “It is now clear that the current operating system, which drives relentless profit maximisation, is harming us all in its single minded conversion of social and natural capital into financial capital. It is a failed and broken system in urgent need of an upgrade.”
The influence of the B Corp movement
The Bill is informed by the legal and political experience of the B Corp movement in passing business legislation on a cross-party basis in 40 legal jurisdictions. Bates Wells said it was the first time legislation mandating a move to the ‘triple bottom line’ for all companies had come out of the B Corp movement or as far it was aware, had been formally proposed in any part of the world.
Bill Clark, the original architect of the “benefit corporation” legislation which has now been successfully introduced in 37 US states, as well as Italy, Colombia, and Canada, commented: “We are at an inflexion point within the movement. The benefit corporation legislation we developed nearly ten years ago is slowly spreading all around the world but we need to move faster. We can’t allow for good business simply to be an option. We need to turn the law on its head and require all companies to minimise their harms and seek to do some wider good for society, and not just for shareholders.”
Up until this point, benefit corporation legislation has been optional – it has been up to individual businesses and their shareholders to decide whether or not to become a benefit corporation, a legislative form available in certain jurisdictions. There are over now over 8,000 benefit corporations.
In recent weeks, big brands such as The Body Shop and the Guardian Media Group have certified as B Corps. Other prominent B Corps include Patagonia, Ben & Jerry’s, Divine Chocolate, Toast Ale, Ella’s Kitchen and Pukka Tea. The movement attracted attention in August when B Corp CEOs took out a full page advertisement in the New York Times calling upon Business Roundtable signatories to “get to work”, join the B Corp movement and adopt a true legal stakeholder governance model, instead of talking a good game.
The mechanics of the Bill
The Bill replaces Section 172 of the Companies Act 2006, which sets out the default purpose of companies to benefit their shareholders, with a mandatory triple bottom line purpose for all companies. This is essentially the same model of purpose that companies choosing to certify as B Corps already adopt on a voluntary basis, but the proposed legislation would work by setting a new floor for all businesses.
Luke Fletcher, a partner at Bates Wells who drafted the Bill in collaboration with Bill Clark, said: “The Bill shows how a simple and short piece of legislation could change how business works. The key to reforming our whole capitalist system is to reform company purpose, so that at the heart of every company is a fundamental – legal – understanding of its place in the world. This would shift the paradigm for every business, every business strategy and every boardroom discussion.”
Dr Mary Johnstone-Louise, director of the Ownership Project at Oxford University’s Said Business School, a programme which is analysing the impact of different forms of ownership on business and business purpose, said: “There is a widespread sense that there is a need to look again at Section 172 of the Companies Act 2006 to see whether it is possible to ask companies to be managed not only for the benefit of shareholders but also for the benefit of wider society and the environment, in a manner commensurate with the nature and size of each company. This Bill is an example of what legislation upgrading Section 172 in this way might look like.”
Under the Bill, the Government would bring forward secondary legislation setting out more detailed rules about how companies would be expected to account for their wider “impacts” on society and the environment.
This would shift the paradigm for every business, every business strategy and every boardroom discussion
Clara Barby, the CEO of the Impact Management Project, which is facilitating leading standard-setters to coordinate their impact measurement efforts, said: “The opportunity to reach global consensus is in front of us. If impact reporting was to become a legal requirement, it would create the final push to get to a set of ‘generally accepted’ global impact reporting standards – and we could finally understand the full range of value for people and the planet that is destroyed or created by enterprise.”
The publication of the Bill follows hot on the heels of the launch of the British Academy’s Principles for Purposeful Business report, which reflects a profound shift taking place in the intellectual climate on the question of our common understanding of business and its purpose.
Luke Fletcher said the consortium would “wait to see if there will be a cross-party majority in Parliament for a critical change like this to the most fundamental of economic rules”. He added: “The pressure can only grow. Surely it is a matter of time before we see this kind of legislation pass, given growing acknowledgement of the climate crisis. With an upgrade like this, we at least give ourselves a shot at closing the emissions gap, financing the Sustainable Development Goals and rising to meet some of our greatest challenges.”
Charmian Love, co-founder of the B Corp movement in the UK, said: “If we can upgrade the capitalist operating system in this way, maybe we can feel hopeful and optimistic about our children’s futures. If you feel the system needs an upgrade, join us #OperationUpgrade.”