Bates Wells has published a draft Company Purpose (Amendment) Bill which sets out to displace the doctrine of ‘shareholder primacy’ as the guiding principle of boardroom decision-making.
In short, the Bill is based on the premise that the ‘triple bottom line’ approach to business is the only solid foundation for a sustainable economy. A triple bottom line would require the business to be operated not just for the benefit of its members, but also wider society and the environment.
The Bill replaces s172 of the Companies Act 2006, which sets out that the default purpose of companies is to benefit their shareholders, with a mandatory triple bottom line purpose for all companies. If passed, it would be a world first. The triple bottom line 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.
The Bill is supported by a range of businesses, business leaders and academics. The Bill has been shared in recent weeks with the major political parties, a number of which have responded positively to the Bill and its principles.
We are calling upon others to join ‘Operation Upgrade’ and to show their support.
To see the full press release and to see who is backing the Bill, click here.
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, especially those companies above the audit threshold. Clara Barby, the CEO of the Impact Management Project, which is facilitating leading standard-setters to coordinate their impact measurement efforts, clarifies that “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”.
Luke Fletcher, a partner at the law firm Bates Wells who drafted the Bill in collaboration with Bill Clark, the US lawyer who is the original architect of the benefit corporation legal form in the US, explains that “The Bill shows how a simple and short piece of legislation could change how business works. The key to reforming our capitalist system is to reform company purpose, so that at the heart of every company is a fundamental – legal – understanding of its place in a world of limited resources. This would shift the paradigm for every business, every business strategy and every boardroom discussion”.
Paul Polman, former CEO of Unilever and one of the architects of the Sustainable Development Goals, explained that “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.”
Dr Mary Johnstone-Louise, Director of the Ownership Project at Said Business School, a programme which is analysing the impact of different forms of ownership on business and business purpose, adds that “There is a widespread sense that there is a need to look again at s172 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 s172 in this way might look like”.
This is only the first step in our #OperationUpgrade campaign, which urges businesses to reflect on the wide-ranging problems generated by an economy which focuses excessively on shareholder returns and to call for an economy in which all businesses need to operate triple bottom line.
We very much welcome your feedback on the Bill and the #OperationUpgrade campaign. If you’d like to get in touch with your thoughts on this subject, or would like to lend your support to the Bill, please get in touch directly with Sam Hunter at [email protected] . You can follow the latest updates on this campaign using #OperationUpgrade on @BatesWellsTweet and our LinkedIn page.