Published initially on Linked In, This is a contribution to the debate on The Future of the Corporation currently happening at the British Academy and prompted by an event there in September 2017. The theme is consistent with that of my new book, The Company Citizen: Good for Business, Planet, Nation and Community, now available to pre-order from Routledge.

Long read warning! 2,500 words!

Abstract:

In any debate about the future of corporations there’s a place for different business forms. Those such as B Corps, which focus on the social and environmental benefits that business can create, are most welcome. However, large scale change comes from taking a less prescriptive approach to business forms in which culture, purpose and social value are cultivated within all businesses: a movement rather than a certification process or legal form.

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This planet’s days are numbered – and with it, human society.

It’s precisely to avoid this nightmare scenario that intergovernmental bodies have spent three generations trying to pull together and put things right, joined latterly by a growing band of ‘responsible’ businesses. There’s a wry irony here as there’s a case to believe that corporations – with their historic lax attitude to pollution, climate change, exploitation and resource depletion – have contributed considerably to creating today’s ominous state of affairs. But a line must be drawn; and today’s responsible corporation (together with many other businesses) not only shares the goals of a sustainable planet and society but actively works towards achieving it.

The future corporation is one, therefore, that respects the triple bottom line of people and planet as well as profit, is aware of its own impact and measures its externalities, seeking to maximise those that are positive and minimise the negatives. Responsible companies in Britain today can come together to express their commitment to a fair, secure and sustainable world by:

  • Joining Business In The Community to share good practice on community engagement
  • Adopting the principles of the Blueprint for Better Business, based on Catholic social teaching
  • Accounting for how well their activity supports the UN’s Sustainable Development Goals, as Unilever, Diageo and others have done
  • Sharing a common system of public reporting such as the Global Reporting Index
  • Adopting a timetable for becoming net zero carbon, joining over 100 supporters of RE100, in support of the Paris agreement on climate change
  • Becoming a social enterprise or a B Corp, to publicly state that their quest for profit is of no higher priority than is their desire to contribute to a fair, safe, happy and secure world.

This is not an exhaustive list: the UN Global Compact, Future Fit, the Organisation for Responsible Business, the Institute for Business Ethics, the Business and Human Rights Resource Centre, Transparency International, the Ethical Trade Initiative and Forum for the Future are all promoting responsible action whilst Responsible 100 and BITC’s Trading for Good offer SMEs simple frameworks for development. The NewCo movement channels entrepreneurism with responsibility whilst many sectoral organisations (such as the Extractive Industries Transparency Initiative) also exist. The Social Value Portal gives advice. Meanwhile, dozens of think tanks offer evidence and opinion in the same direction; no one is seriously or overtly backing the alternative horse: a rampant rush to oblivion.

That so many companies now share similar, complementary and responsible goals is remarkable; together they constitute nothing less than a movement potentially so powerful that it really can move the dial towards sustainability and a secure future. It’s precisely because business is the user of raw materials, the liberator and destroyer of energy resources, the engine of the economy upon which wealth and public services depend that it has no choice but to take these matters seriously!

Responsible business has thus become nothing less than a (small ‘p’) political movement. It’s not a single organisation, silo or brand and any attempt to rationalise the movement as a whole would be like herding cats; but nor is this necessary, as the movement has momentum of its own. Whilst different companies’ goals or speeds of travel may not be identical within the movement they are complementary and mutually supportive. This is why it didn’t really matter when Trump announced that he was pulling US out of the Paris accord: American business, its investors and civil society were already committed to those climate goals and no contrary decision by the President was going to change that; such is the strength of a movement.

A political movement has to be inclusive, to seek to build support rather than divide its own numbers, to promulgate the tools – such as the Circular and the Inclusive Economies – that drive sustainable success and to encourage the reticent rather than to count them out.

Some have chosen to do this through the erroneously labelled ‘not for profit’ field of social enterprise, where profits are used to reduce prices, subsidise services or support charitable causes rather than taken out of the business as disproportionate dividends. There are perhaps 70,000 self-styled social enterprises in Britain, over half of the 120,000 companies that the Government has identified as ‘Mission-Led’, of which 13,000 have adopted a specific legal form called the Community Interest Company (CIC). In September 2017 the Cordant Group, with 120,000 employees, took the pioneering step of eschewing its former ‘profit maximisation’ status and re-inventing itself as a social enterprise.

That Mission-Led Business report, led by the imaginative and responsible Nigel Wilson, CEO of Legal & General, strongly supported the idea that businesses could be both responsible and profitable at the same time. In the long term, businesses that show the greatest commitment to the environment, their employees and the common good can show even greater returns than those led only by short term financial outcomes. The report even suggested that the mission-led business might be afforded the option of a special legal status in Britain, that of ‘Benefit Company’.

This recommendation is more than a nod to the B Corp movement, an American concept which has UK business followers and which evolved from a campaign in the States for legal status for ‘for purpose’ companies over a decade ago. American company law then assumed that every company was designed for profit maximisation on behalf of its shareholders. A campaign started to have the Benefit Corporation, whereby a social or environmental purpose could be listed as the prime goal of a business, fashioned into US law, state by state. When Delaware agreed to adopt the status the battle had been won: the vast majority of US businesses are registered in that low-tax state so the option had become, in effect, open to all.

Such a legal status was never necessary in the United Kingdom where the 2006 Companies Act confirms, as Fletcher and Perry acknowledge in their paper to the British Academy of December 2016, that companies are already permitted

‘…to adopt purposes other than the benefit of members and, where companies adopt such purposes in their Articles, the directors are obliged to promote the success of the company by seeking to achieve the relevant purposes’.

It’s always been open to British companies to prioritise goals other than profit although, it stands to reason, they would always need a degree of acquiescence from shareholders and investors (responsible business tends to attract responsible investors). There’s no doubt that in Britain a company’s ‘licence to operate’ today demands a more responsible stance than it did in the past. Businesses that strategise over the longer term have little doubt that their long term thinking generates higher profit for shareholders over time. In the case of private companies (with no shareholders) no such external constraint exists. Historically, family-owned companies tend to take that longer-term, generational perspective explaining, perhaps, why some of the most socially engaged private firms, such as Wates and Willmot Dixon, both in construction, and Cordant (see above), are family-owned.

An offshoot from the Benefit Corporation movement in America was the global phenomenon that is the B Corp. B Corp is not a legal status but a certification scheme based on achieving a score of 80 on a biennial assessment of 200 externally validated criteria. There are over 2,000 B Corps, mostly American but including 150 in Britain, where the status has been available for over a decade. This is the same length of time over which CIC status, as we’ve seen, has now topped 13,000 in UK alone. (For perspective, the world generates 3 million new companies every year).

In 2012 I visited a pioneer B Corp, the Greystone Bakery in New York, a successful business which generates social value by employing only ex-offenders and ex-addicts on its shop floor. On the same visit I drove across green Vermont to meet the management of Ben & Jerry’s ice cream, then the world’s largest B Corp despite being owned by a giant corporate, Unilever. Two years later I had the privilege of looking around Natura, South America’s biggest cosmetics business and an absolute saint in terms of minimising environmental impact and maximising stakeholder engagement. It subsequently became the world’s largest B Corp.

The B Corps movement has done a great job in raising its profile considering the fact that most of its members are small – and many have had the advantage of adopting B Corp values early in their lives, avoiding the disruption of having to retrofit good practice. It certainly punches above its weight in terms of mentions in reports and learned journals on the theme of corporate responsibility or the future of business.

But B Corps alone are not the answer.

As stated earlier, a successful movement must be inclusive and not divisive. It must welcome new members not because they have ticked the right boxes but because their culture is positive, their ethical compass is set in the right direction and their actions are worthy of the name ‘company citizen’.

The bureaucracy involved in demonstrating consistent and convincing evidence that the entirety of the activity of a corporate giant conforms to B Corp standards every two years is huge. It’s known to have deterred some global corporations from registering (and half of Britain’s private sector economy of 5 million businesses is represented by a few hundred giant corporates).

There’s a way around this which was proposed by another report on responsible business published in 2016 – in the same week as the Mission-Led Business Review, with its rosy view of B Corps. In ‘Everyone’s Business’ the Centre for Social Justice proposed that every company should be required by Companies House to list its purpose as a condition of registration.

That’s a great idea. Companies would be free to write ‘screwing the maximum amount of profit out of every transaction’ if that’s what they truly believed their purpose to be, but they would be judged on that purpose as well as on their performance. The important thing is that if we expect our businesses to be agents of environmental and social change then we must encourage them to do better where necessary, praise their achievements and reward them through our custom and otherwise. Laying down arbitrary criteria to decide who’s certified, who’s ‘in’ and who’s ‘out’ of the silo, holds back the development of a movement (in contrast to the evolution of an organisation, which has to know who its members are) in these ways:

  • Threshold standards encourage the ‘scourge’ of compliance, in which companies achieve a legal or acceptable level and make no effort to achieve more. Responsible business is a journey and not a winning post.
  • Those deemed to be outside the tent may feel disengaged from the movement, even rejected, losing motivation to conform.

Ultimately the market may prove the biggest incentive for companies to be responsible towards people and planet. Over a third of British retail consumers take ethical considerations into account when making purchases, a higher proportion than in any other country. That market has been maturing and may yet grow larger still. Another key factor is employee engagement which, many studies show, is enhanced by a purpose-driven business in a country where half of our working population don’t think that their current employment represents a force for good in the world. Purpose leads to employee pride, to loyalty, to lower recruitment costs, to that feeling of ‘I’m making a positive difference’ so conducive to productivity (and to good mental health).

We have recently acquired, in British law, the concept of ‘social value’. The law states that when procuring a service from an outside body (worth more then a defined threshold) a public sector entity may take into account the ‘social value’ of that contract and, where the net difference in social value between two tenders exceeds their difference in monetary value (up to 10 per cent of the value of the contract) then the higher tender may be accepted. A third of local authorities already employ this (optional) law to good effect, and some have gone beyond the law by including goods and ‘works’ in the equation, thus extending it to all purchases, or even abandoning the threshold. In Scotland, procurement law goes further. Even more exciting, the computer giant Fujitsu has told over 1,000 suppliers that it, too, will employ social value criteria when purchasing from them in future.

The concept of social value is an inclusive one: every company provides some social value simply by employing people (whether they all provide net social value is a moot point) though adopters of the Act are more concerned with things like carbon footprint, community engagement and apprenticeships.

Social value should not be the preserve of the public sector alone, though it should be better employed by central government and the health service than it currently is. Social value can be demonstrated, procured and built upon by every company if it puts its corporate mind to it.

Social value is a concept which every company can embrace; when linked to the purpose of a company it’s a powerful driving force beyond compliance and towards cultural change – without compromising commercial incentives. Culture is a spectrum and not a staircase, no one is excluded. A company imbued with purpose will change its future because the social and environmental values that define a ‘responsible’ purpose today do motivate staff towards greater engagement, productivity, customer service, reputation and, ultimately, sales.

This is not just theory: ask M&S how its Plan A has turned its massive procurement operation into a force for good; ask IKEA, committed to creating employment for 200,000 refugees in its supply chain whilst achieving a zero carbon footprint; or Unilever, whose ten year Sustainable Living Programme, aligned to the Sustainable Development Goals, is literally paying dividends. Ask Nike about the circular economy, Nestlé about human rights in the supply chain, Boots about large scale charity partnerships based on common values. Nor is ‘good’ confined to large companies: in September 2017 Barclays showcased 27 smaller businesses from around the world, all in rapid growth mode, who had each proved the business case for tackling a specific issue of human or environmental concern on a grand scale: they are, no doubt, the tip of the iceberg.

We should not have to choose what sort of business we are. Every business interested in its future – let alone in our collective future – has a vested interest in being socially and environmentally responsible. Ultimately such a movement, championing that common cause, is not helped by splitting us into who’s ‘in’ and who’s ‘out’.

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