All content on this page is correct as of July 6, 2020
Globalisation, technology and market liberalisation have delivered significant benefits for many. However, our current economic model, of capitalism based on the primacy of shareholder value, doesn’t seem to provide the urgent solutions we need; therefore, many are rethinking our model for doing business.
Bates Wells has been supporting the British Academy’s Future of the Corporation research programme. It defines the purpose of corporations as producing profitable solutions for the problems of people and planet, whilst avoiding causing harm; through this, corporations create profit, but profit is not the defining objective.
Purpose driven businesses put society and the environment into the core of commercial strategy, and through their operations work to create material positive impacts for stakeholders, including shareholders. There are different ways to embed purpose-beyond-profit into business. Bates Wells works with clients to tailor an approach that suits each business model and the type of investment sought. This usually involves amending the business’ constitutional document to set out its purpose, and advising on how that purpose shapes governance.
This shift in purpose fundamentally changes the lens through which directors make their decisions and elevates the interests of stakeholders who would otherwise be subordinate to shareholders. It profoundly changes a business’s approach and becomes a central component of its corporate strategy. It should guide boardroom discussions and shape culture and behaviours across the business. Where purpose is constitutionally embedded, this can also help to ensure that this commitment withstands events such as the founders’ exit or subsequent sale.
A new landscape
COVID-19 has demonstrated how interconnected we are globally. An appreciation of this interdependence is crucial for thinking about how businesses should operate going forward. Focusing director decision-making solely on financial results is short-sighted. This approach can lead to negative externalities and disengaged stakeholders (such as employees, supply chains or local communities). Public scrutiny of business is high and reputational risks and damage to brand equity can have immediate detrimental ramifications. We can all think of recent corporate scandals that ultimately have prioritised shareholders at the expense of other stakeholders.
In addition, research has suggested that for millennials purpose is high up on the agenda in terms of purchasing decisions, investment decisions and deciding where to work. CEOs are recognising that the workforce of the future has different priorities and that businesses can’t afford to ignore these. It also seems that one of the positive consequences of COVID-19 is an increased interest in sustainability generally. According to Google Trends, over a recent period of 90 days, search interest in “How to live a sustainable lifestyle” increased by more than 4,550%. This is astonishing and only likely to increase responsible consumerism, and therefore make purpose in business more important going forward.
Finally, research shows that profit-with-purpose businesses, such as certified B Corporations, should better weather recessions than their counterparts of a similar size. Indeed, in the last financial crisis, research showed that B Corps were 63% more likely to survive than other businesses of similar size. Commenting on this finding, Andrew Kassoy, co-founder of B Lab, said: “We think that’s because those companies were more resilient…they had stronger relationships with their workers, or their customers, or through their supply chains, that allowed them to make it through.”
Despite the pandemic, many businesses are working together to build a purposeful economy. B Lab’s global movement towards a ‘B Economy’ now boasts 3,393 certified businesses in 71 countries, but there are also new initiatives forming. For example, UK21 is an independent group of organisations with a strong UK influence that believe in activating positive change to our economic system though working together, inspired by the US-based coalition Imperative21. UK21 aims to amplify shared principles and develop UK-focussed partnerships and projects, to help make these principles come alive and build an economy fit for the 21st Century. There are businesses across the globe taking the lead on purpose, which can serve as inspiration. For example, Danone has just become the first listed company to adopt the “Entreprise à Mission” model under French law.
A new purpose: responding to the pandemic
It’s a balance, of course, and companies are trying to stay afloat. There will be many businesses, including some B Corps, facing serious cash flow issues at the moment and trying to grapple with ways to adapt their business models to the current market. There will be difficult and uncomfortable decisions to make, but it is the approach taken to these decisions, the priorities for cost savings and how stakeholders are considered, which is important. This crisis will be a test. In many cases, it will identify those that authentically commit to a positive purpose, as against those that just market themselves as being purposeful.
There are great examples of businesses stepping up to support those affected by the pandemic. Unilever partnered with DfID on a COVID-19 handwashing campaign targeting a billion people worldwide, providing £50 million of funding and millions of hygiene products in the developing world. Unilever also joined a consortium with businesses from the aerospace, automotive and medical industries to take orders from government for the manufacture of ventilators for UK hospitals. Among other global initiatives, InterContinental Hotels Group has provided accommodation at a substantially discounted rate for rough sleepers in London to self-isolate, as part of an initiative involving the Mayor of London. The Body Shop, a certified B Corporation, has donated over a million units of product to healthcare workers and community organisations. And there are examples of collaboration overcoming longstanding rivalry, such as Apple and Google working together on COVID-19 contact tracing technology.
These examples are naturally high profile due to the global scale of these businesses, but there are a multitude of examples of such purposeful behaviour at all scales of business. By pivoting to respond to the pandemic, these businesses are putting solving one of society’s most urgent problems at the centre of their activity. But what happens when the pandemic is over? And what if the new normal were for companies to take a stakeholder approach?
Bates Wells has published a draft Company Purpose (Amendment) Bill, which aims to displace the doctrine of ‘shareholder primacy’ as the guiding principle of boardroom decision-making. The Bill would replace section 172 of the Companies Act 2006, which currently sets out that the default purpose of companies is to benefit their shareholders, with a mandatory ‘triple bottom line’ purpose and approach for all companies. The Bill would also introduce a requirement for all companies to produce an annual impact report, disclosing meaningful impacts on society and the environment. Where a company is subject to audit, so too would be its impact report.
This approach reflects the model of purpose adopted by businesses that certify as B Corporations (as Bates Wells has done), but the proposed legislation would set a new baseline for all companies and could help provide a foundation for a more sustainable economy. In addition, mandated impact reporting may provide greater transparency for investors, to understand the true costs of a company’s operations and associated risks. The Bill is supported by a range of businesses, business leaders and academics, and Bates Wells is calling upon others to join the campaign and show their support.
In conclusion, the pandemic has shown us the speed with which businesses can pivot to put solving society’s problems at the centre of their efforts. We know that society’s expectations for the role of business have changed significantly in recent years, amplified by the pandemic and the shifting priorities of generations. And, notwithstanding the possibility of company law reform to shape corporate purpose, there already exists a number of well-tested blueprints for purposeful business. At Bates Wells, we have helped many businesses to adopt and live out their purpose-beyond-profit. We hope that many more will now be inspired to embed purpose, in order to build a post-pandemic economy that delivers real value for people and planet.
 Accessed from bcorporation.net on 2 July 2020.
 For more, What does purpose look like in a crisis?, The Blueprint Blog, 26 March 2020; and It’s Time To Support Truly Purpose-Driven Brands Who Exemplify True Leadership Amidst This Coronavirus Pandemic: Here’s A Starter List, Forbes, 18 April 2020.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of July 6, 2020.