The Case for Mission-Led Business

Here is Tom’s response to the Cabinet Office’s call for evidence for their Mission-Led Business Review:

  1. What do you know about the number and profile of MLBs operating in the UK?

I have no evidence about the number of Mission Led Businesses (MLB); such evidence would be almost impossible to compile accurately as the phrase has no defined meaning and because the degree to which ‘mission’ complements ‘making a profit’ as a business purpose probably varies between 0 and 100% in different companies. What priority does a company have to give its non-pecuniary mission for it to be ‘mission-led’? A company’s non-financial mission may (and probably does) change both in quality and priority as the company matures; and there will always be a financial element to the mission – even if it is simply to remain in business.

A few years ago I conducted research (funded by Joseph Rowntree Foundation) on the way in which SMEs engaged with the local community; about 60 per cent thought that it was legitimate to expect businesses to engage with their communities (i.e. to undertake some degree of social obligation or mission) and only 20 per cent said that business had no obligation to engage with the community (http://sector4focus.co.uk/the-social-sme/). It is interesting to note that when BITC asked these same questions a decade earlier, in 2004, they reached exactly the same conclusion: that most SMEs believed that they could or should be more engaged than they actually were. When I asked why they did not engage more they said it was lack of leadership and advocacy, good practice examples and resources. I would add to this the lack of popular advocacy of a business case and low expectations of charities seeking community partners.

This does not mean that 60% of SMEs are ‘mission-led’ – they are not. But there is a grey area between being led by a mission and acknowledging social responsibilities towards the community and the environment. The profile of MLBs in terms of publicising their social mission is not high enough.

2. What do you know about the impact of being a MLB on business performance and social impact?

There is considerable evidence that socially responsible companies can command brand loyalty and boost sales through an ‘ethical’ or ‘fair trade’ label or a link with a charity (see my book, Welcome to GoodCo). However, the practice of double standards (a ‘green-washed’ appearance masking less than ethical behaviour) can be very damaging. But there are also various pieces of evidence to suggest that responsible businesses are more commercially successful than others:

  • ethical investment funds produce higher long term returns than others
  • the number of investors complying with the UN Principles of Responsible Investment has been growing steadily since its inception in the early years of the millennium – growth which was unaffected by the ‘crash’
  • FTSE companies with active CSR policies consistently show a greater TSR (Total Shareholder Return) than others; those companies showed more resilience to and faster recovery from the post-crash recession
  • companies with a significant element (more than 3%) of employee shareholding (sometimes regarded as an indication of being ‘in touch’ with communities) show a TSR considerably higher than the FTSE index as a whole
  • many newer companies with a specific non-financial mission – those that were created to further the green economy stand out – exhibit greater resilience; new social enterprises have a lower failure rate than new mainstream SMEs.

It is difficult to assess social impact as businesses do not routinely measure it and (under the 2006 Companies Act) only a few companies have an obligation to report on it. It has been observed that there is a link between the level of community engagement (mission) and employee engagement and many companies do measure employee engagement routinely. However, there are other factors affecting employee engagement, so measuring it can only be a proxy for measuring social impact. It has been reported that employees who acknowledge a ‘purpose’ to coming to work over and above earning a wage or creating a service or product are more loyal, productive and reliable than others and act as better informal ambassadors for their companies. That ‘purpose’ need not be associated with the product or service directly but can equate to the company fulfilling an active and positive role in the community.

3. What are the ways that quantitative data on MLBs could be better captured over time?

Why do we need to capture quantitative data on MLBs? ‘MLB’ is very much a self-selecting label: even the title ‘social enterprise’ has a grey area around it… and any definition will need to define what ‘led’ means. Some companies objectively recognised as mission-led do not recognise the definition and some which may claim to be mission-led may not objectively be so…

A case in point would be Natura, the Brazilian cosmetic and toiletries company. It is a for-profit company owned 60% by its founder and 40% by general shareholders and its direct employees are in a profit-sharing scheme. But its mission is defined as ‘well being well’ (Bem estar bem) and as the world’s largest Benefit Corporation it has an employee engagement and environmental record, not east in sourcing products sustainably from the environmentally sensitive Amazon basin, that would match the best. But is it led by profit (which it probably was when it started in 1969), backed up by a fine USP, or is it now genuinely mission-led?

In Britain uptake of the Social Value Act could be regarded as quantitative data. According to Social Enterprise UK one third of local authorities now ‘routinely consider social value in their procurement or commissioning’ (http://www.socialenterprise.org.uk/uploads/files/2016/05/procuringforgood1.pdf) which clearly puts an obligation on some businesses – actual and potential suppliers to those councils – to develop or exhibit a degree of social mission over and above any required by contract. It is doubtful that many of these companies, with the exception of social enterprises, would regard themselves as led by their missions.

4. Why would a business set up as or become an MLB?

To deliver goals associated with a non-financial mission about which they are sufficiently passionate to make a public commitment.

Although there is evidence that MLBs can be more successful than mainstream, profit-motivated but otherwise comparable businesses, I’d hope that the possibility of making bigger profits did not become a motive for choosing a MLB path; the passion and conviction generated by the qualitative mission is the basis of what makes an MLB successful. However, a business that adopts a social mission in order to generate an appropriate marketing angle should be encouraged – but only if that campaign is meaningful, sincere and sustained.

5. How do you see MLBs developing over the next decade?

I will answer this in terms of social enterprises, B Corps, the Social Value Act and other ways.

There is ample evidence that the world of social enterprise will grow, especially where delivery of a social service (either in collaboration with a public service or parallel to it) or an environmental goal is concerned. Amongst social enterprises only a minority have assumed CIC status to date and I don’t expect this proportion to change, though the number of CICs will grow. The labelling of social enterprises as ‘not for profit’ is incorrect: they allow surplus revenue (‘profit’) to be fully utilised or recycled in support of their mission rather than being removed from the company as dividend.

B Corps status was recently relaunched in UK, having been established in USA some 10 years ago. There are still fewer than 100 B Corps in this country but this massively understates the number of ‘for-profit’ companies which have a degree of social mission. There is an element of ‘cult’ status to the B Corp movement but it has a valuable role to play and I suspect that over a decade this community will become a thriving ‘B2B’ operation, a sort of ‘business for good’ club. On the other hand, I don’t expect to see a massive increase in their numbers. (In the USA there exists a complementary legal status of Benefit Corporation but there is no need to develop this legal form in UK as there is no legal obligation here to prioritise the needs of shareholders).

In mainstream business I suspect that the operation of MLBs will grow (even without regulatory or legislative change) but there will be no rush to adopt the MLB label. It will grow because:

  • Examples of good practice in mission-led business practices will grow in number and status (such as the Unilever 10-year sustainability programme) leading to a desire to learn and copy
  • Opportunities to deliver either formerly public services or services complementary to public services will grow but commissioners will (should) be more discerning when awarding contracts, emphasising that providers of such services should exhibit values and missions compatible with the long term delivery of such services
  • The commercial benefits of being associated with a charity or a good cause will continue to attract companies (despite some recent examples of where this may not have worked to best effect, such as E.On/Age UK)
  • In a world of social media and ever closer public scrutiny, the damage to a company’s reputation caused by corporate behaviour that is not socially, environmentally or financially responsible will force changes in behaviour which may then be interpreted as being mission-led
  • SEUK reports that one third of local authorities now utilise the Social Value Act to some extent in moderating and promoting responsible behaviour and community engagement.

Currently the Social Value Act is being actively implemented only in a minority of councils and in different ways. Only in places like Manchester and Birmingham can it now be said that if a  business wishes to do business with the Council it will need to demonstrate a social mission over and above the detailed confines of the tender which they are seeking to win and implement. A recent SEUK report (op.cit.) made four sensible recommendations that would have the effect of encouraging more councils to opt in to using the legislation and make it easier for them to implement it and I support that call.

But why stop there? Some companies already make social value-type demands of businesses in their supply chains and whilst some of these are backed by legislation (action against modern slavery and corruption, for example) others are designed to support brand values – such as no testing of ingredients on animals – yet others are simply exercising a social conscience on behalf of the commissioning company. An example of this would be Boots’ support of the BITC ‘Ban the Box’ campaign, whereby a condition of being a supplier to the corporate is that a business does not arbitrarily discriminate against ex-offenders in its employment practices.

The Social Value Act, as it sits on the statute book, represents an option, in many respects, for local authorities and their private sector suppliers to follow. Social enterprises, which come ready-equipped with a social mission, are well placed to exploit opportunities provided by the Act but its purpose was never intended to exclude the mainstream private sector. Rather, it provides an example which any commissioner of services from a third party could follow and companies should be encouraged to adopt social value principles voluntarily in their own commissioning and supply chains. To complement this, there should be no legislative barrier to any company adopting these principles and practices.

6. What are the practical steps that a business can take to make a commitment to deliver on its intention to have a positive social impact?

Where to start?

  • Adopt a mission, purpose and values which can include and involve the company and its stakeholders and by which the company can be judged
  • Ensure that the above can be justified by a business case (or at least will not be deleterious to the interests of the company)
  • Explore how to engage the workforce better with the mission of the company: convince them that they are there not just to deliver excellent products and services but to be create a responsible corporate citizen, too, a company for which they are proud to work
  • The above may involve becoming a Living Wage Employer and giving greater opportunities for the workforce to influence the management of the company
  • Have a meticulous sourcing and procurement policy in the supply chain, especially when sourcing from countries and environments which are vulnerable or at risk
  • Adopt the principles of the Social Value Act voluntarily (even if the Act does not apply directly to a particular business)
  • Work with local community organisations within the immediate neighbourhood of the company’s base(s) to establish which of their needs the company could help them meet and how
  • Engage the workforce in creating an agenda of how the company could behave more positively towards the environment and community
  • Whilst acknowledging the need to ‘make the books balance’ in the short term, nevertheless adopt longer term perspectives and goals alongside this
  • Where necessary, persuade shareholders of the business case to justify the strategy.

Tomorrow’s Company (http://tomorrowscompany.com) has published a number of reports on aspects of mission, purpose and values in business.

7. Do you think these steps could be better communicated to entrepreneurs and businesses?

Yes!

Many small entrepreneurs arise spontaneously, which means that discussion of the social purposes of business in either school curricula or business schools may not reach them in their formative years. However, it should be included in both. Business support networks and organisations need to be aware (convinced?) of the business case for including social impact within business purposes.

8. The loss of focus on social and environmental aims has been identified as a potential problem for MLBs (‘mission drift’). When do you think this is most likely to happen? What could be done to prevent this?

Many charities have learned how to protect their missions against the crosswinds of pressures from donors, commissioners and governments – though some have not, and some have thereby suffered damage, not least to their reputations. Businesses, however, are under no such pressure; in fact, the ability to adapt to changing market conditions is seen as a positive virtue. In that sense, ‘mission drift’ is not such a problem for the private sector as it is for the third. It is important for businesses led by a social mission to preserve their mission’s values, to stay in control of their mission, rather than preserve every single activity in aspic. The way a start-up company demonstrates its mission will be different from that adopted by the same company ten years later as it achieves scale; though the arguments in favour of a social mission also dictate that as a company’s business ambitions rise its social impact should, too.

9. Have you identified barriers to new entrepreneurs or well established businesses who want to easily convert their intent to make social impact into a long-term or binding commitment? Please provide details in particular those that may be caused by regulation

There are no insurmountable barriers to developing mission-led SMEs. Although my research shows that time and cost – always major issues for the owner/manager – are perceived as barriers to community engagement by SMEs these are false barriers. Those that have passed through the barrier say that, in retrospect, it is the way one thinks about community engagement which is critical, rather than the time spent thinking about it. And, handled carefully, the costs of such initiatives can be seen as an investment which pays for itself in due course through the business gains from better engaged (and thus more productive) employees, enhanced brand reputation, access to innovation and collaborative working.

The true barriers to MLB in the SME community are attitudinal, caused by lack of information, advocacy and leadership on the issue.

10. What are the barriers to a large corporate becoming a MLB or owning a MLB within its group structure?

There are no insurmountable barriers to developing mission-led corporates, as Unilever has shown. For example, a few years ago Unilever replaced quarterly financial reporting to its shareholders with an annual return. The impact of this was to reduce the influence of short term investors (hedge funds) over the company resulting in a more stable share price. This, in turn, allowed investment and other business decisions to be made for the longer term, a position which is conducive to better environmental policy implementation and the downgrading of the pursuit of shareholder value as the be all and end all of business purpose.

Whilst Unilever was making this decision government ministers were actively considering changing the law to allow companies to abandon quarterly reporting. Yet Unilever had clearly demonstrated that no such change in the law was necessary to achieve this outcome. Again, the real barrier to the development of corporate MLBs is one of leadership both within the business community and within government.

Another attitudinal barrier is risk aversion, which is ironic – as some behaviours associated with being a MLB can actually reduce risk.

11. Do you think MLBs have or should have a different culture / values system to traditional business? Please provide examples.

By definition a MLB will have a different culture from its traditional counterpart. The tools it uses – investment, employment, technology, innovation, production, marketing and the rest – will be the same. Yet because it is led by its mission (rather than led by the need to maximise profits) its culture will balance collaboration with competition, promote inclusion and not subservience, recreate the culture of the family rather than that of the parade ground and take a longer term view of the business environment rather than maximise short term returns at all costs.

12. What challenges do MLBs face when engaging with potential customers, employers and investors about social impact?

I think it is a myth that concern in business is regarded as a sign of weakness, as popular depiction of corporate life might have one believe. People who care for their families, neighbours and communities need not switch those values off between nine and five; however, business people too often behave like Hans Anderson’s Emperor, with few daring to suggest that the new clothes of machismo don’t actually need to be there…

If becoming an MLB involves a complete culture change then issues of credibility will have to be tackled, partly because of the ‘oil tanker’ analogy (it takes a long time to turn round and to do so too fast may sink the ship) and partly because any Damascene conversion is only as good as its marketing!

13. What do you think of the role of certification systems or frameworks in helping MLBs engage with external stakeholders?

Business would prefer a framework to a certification system: frameworks allow ‘wriggle room’, acknowledge indefinite evolutionary change and discourages a pass/fail mentality. Certification also carries the risk of a ‘minimum compliance’ approach (to change so as to comply with regulations but no more).

Although fair trade is a widely recognised system of certification it took many years to become established. Once it took off it was clear that it had shortcomings including, ironically, failure to recognise behaviour that was more advanced than fair trade criteria required – whilst changing the criteria makes it difficult to make longitudinal comparisons. Certification systems like FSC (ethical timber) are now thought to be weaker than they should be. Successes like the Ethical Tea Partnership originated within a specific industry and may have little cross-over potential.

B Corps offer a comprehensive approach to certification but the length and complexity of the process, combined with the fact that certification needs to be reaffirmed every two years, is seen as a disincentive, especially for larger companies (http://bcorporation.uk/b-corps-in-the-uk). Responsible 100 is an alternative emerging system which is much simpler and perhaps better acknowledges business priorities (http://responsible100.com).

The foremost UK framework is Blueprint for Better Business which proposes five principles for business to adopt. It has some high profile mainstream supporters (Grant Thornton, Boots, BT, Unilever) and few detractors (http://www.blueprintforbusiness.org). Worldwide programmes like the Global Compact have suffered from constant revision and have lost some supporters as a result although recently they have commendably decided to align the programme with the Sustainable Development Goals (https://www.unglobalcompact.org). Programmes aimed at narrower audience bases, like the FTSE 4 Good family (http://www.ftse.com/products/indices/FTSE4Good), clearly don’t have universal application and whilst the Sustainable Development Goals (https://sustainabledevelopment.un.org/?menu=1300) aren’t associated with a specific framework or certification system they do lend themselves to approaches like Blueprint.

Trading for Good is neither a framework nor a certification system but is a tool that encourages small businesses to engage with communities and to talk about it (http://www.tradingforgood.co.uk). It is therefore not onerous and because it has no pass/fail criteria there is no downside if a business simply updates their profile regularly.

14. What are best practice examples of social impact measurement and how are they being applied by MLBs?

A number of tools are available to business for measuring their social impact. However, none are widely used or well established – which is not surprising, given that so few companies are obliged to report on their social impact, according to current legislation. Charities, which have had to focus more on social impact measuring and reporting in recent years than in the past, have not evolved any widespread common approach and this is not surprising, either! Small and large organisations have different priorities and no one has yet created a common measure because of the intellectual difficulty in comparing an hour’s volunteering with a gift in kind, an increase in capacity with a carbon saving. There is even a dispute as to whether an hour of employee volunteering should be costed at a commercial rate, at cost or at a standard rate such as the National Living Wage. The London Benchmarking Group has worked commendably to achieve common reporting standards amongst its 100+ commercial members (http://www.lbg-online.net) and these clearly have wider potential application.

Smaller companies could measure their social impact using free tools like Measuring the Good (http://volunteeringmatters.org.uk/employee-volunteering/measuring-the-good-project/).

15. Have you identified specific barriers to the growth of MLBs? Please provide details in particular those that may be caused by regulation

I do not believe that there are any barriers to growth to corporate MLBs which do not exist for other corporates.

16. What do existing MLBs need in terms of support and what do you think can be done to incentivise the creation of more MLBs over the next decade? Who is best placed to do this?

Other than perhaps extending the ambit of the 2006 Companies Act on reporting of social impact I do not see the need for legislative change to support MLBs. Indeed, poor legislation can encourage both an attitude of minimum compliance and resentment of ‘red tape’.

What has been lacking from Government over many years has been a positive adoption of the business case for ‘responsible’ or mission-led business. It has adopted a vaguely pro-CSR position, where CSR is seen as an ‘optional extra’ to business life, coupled with a general encouragement for business to engage more but without a clear idea of with whom and for what purpose. Indeed, a specific Coalition government campaign associated with the Big Society was ‘Every Business Commits’, though it was never clear what businesses were supposed to commit to! It has to be said that the business case for community engagement has never been at the forefront of 30 years of campaigning by Business in the Community, either; they appear to have assumed that it was just a good thing to do.

What MLBs need is encouragement, exhortation, facilitation and the right ‘mood music’. This is not consistent with a ‘predator’ view of big companies and it is not helped by international businesses behaving in ways which are, whilst legal, close to unethical in the public mind (taxation and executive pay levels are cases in point).

If and when the Government does introduce its promised right for employees of larger companies to ask for up to 3 days of annual volunteering leave it is important that this is not a wasted opportunity. If it is used on fundraising, low-skilled activity or team building exercises then it will have been wasted; if it can be focused on raising the capacity of charities, exchanging knowledge and skills between companies and community organisations and delivering a measurable social impact then it will be a step in the right direction and support the goals of mission-led businesses.