Last reviewed 27 April 2022

A coalition of more than 1000 business leaders are calling on the Government to amend s.172 of the Companies Act 2006 to make businesses legally responsible for benefiting workers, customers, communities and the environment while delivering profit.

The introduction of a new Better Business Act would mean employers have to give equal weight to the environment, social impact and the climate, as well as profitability. It is hoped this will help avoid issues like the P&O mass redundancies and better protect workers’ rights, whilst improving sustainability.

The current position

Mary Portas, who is chair of the campaign, has said “… the Companies Act still allows some companies to pursue profits at the expense of workers, communities and nature”.

“We saw this most clearly recently with the horrendous behaviour of P&O Ferries executives. We need to update our laws so that a decision like that can never be made in a British boardroom ever again.”

The CEO of Innocent Drinks, Douglas Lamont, who is co-chair of the campaign, said “as the Companies Act currently stands company directors have the option to profit maximise for shareholders whatever the cost to others, we think it is time that legal hiding place is removed.”

Section 172 of the Companies Act sets out the default purpose of companies — the benefit of the shareholders. Whilst it is the case that the same section allows for other stakeholders to be considered in the course of decision making, this is only possible in the course of the pursuit of the success of the company for the benefit of the shareholders. As such, the doctrine of “shareholder primacy” is generally the guiding principle when decisions are being made at board level.

The “triple bottom line”

Those behind the Better Business Act argue that a “triple bottom line” provides a solid, perhaps only, foundation for a sustainable economy that balances the needs of the business, of course, but also those of wider society and the environment. Under the proposals, the triple bottom line would become mandatory, a world first.

The triple bottom line is not a new concept. Effectively, it is the same model of purpose that is used in B Corp certification (which is currently adopted on a voluntary basis). The changes proposed by the Better Business Bill would shift all UK companies to taking ownership of their social and environmental impact. According to research conducted by the Better Business Act campaign, three quarters of the UK public hold the opinion that businesses hold responsibility to protect the environment, and a strong preference is shown for brands that are known to “do good for the world”.

The alternative

The group’s objective is to see four principles reflected in an amended s.172 of the Companies Act.

  • Aligned interests — where the interests of shareholders are advanced alongside those of wider society and the environment.

  • Empowering directors to exercise their judgment in weighing up and advancing the interests of all stakeholders.

  • Making the change the default for businesses so it would no longer be optional to benefit wider stakeholders beyond shareholders.

  • Businesses would report on how they balance people, planet and profit in a strategic report or impact report, where one is currently required.

Implications for directors

The ultimate goal of these proposals is to require decisions at board level to take a more “holistic” approach to tackling their business. It is felt that by the campaign that this will “…support the current intentions of many businesses…”.

They will not, however, introduce any new rights in terms of enforcement action against individual directors. The current situation, that only allows the company, or a shareholder acting on behalf of the company, to take action under s.172 will remain in place.

Government lobbying

Last week the coalition met with MPs at Westminster to lobby for support for the proposals. Chris Turner, who is the campaign director, said “we were so pleased that our coalition was able to be the first post-pandemic mass lobby of parliament. We met with MPs from across the House of Commons. We’ve engaged constructively with MPs from the Conservative Party, Labour, the Liberal Democrats, the SNP and the Greens.”

The campaign has gained support from a number of the Government’s own backbench MPs, with the aim for a new Better Business Bill to be included in the Queen’s Speech in May. Chris Turner said that “on the basis of encouraging conversations with the small business minister, Paul Scully MP, we think this is a very real possibility.”

Final thought

Whilst the Better Business Campaign is lobbying for interests beyond profits, and commercial success, they maintain that company directors must still maintain their “commercial rigour”. Without this, the business would likely fail.

Businesses therefore looking to incorporate the objectives of the Better Business Act voluntarily must find a way to balance their commercial interests against the duty they owe to society and the environment. A more holistic consideration of stakeholder issues will help them to achieve this.