Should Business Act Better?

The Better Business Act (BBA) movement is growing.

What is the BBA?

The BBA is a B Lab UK initiative which as part of the rising ESG (Environmental, Social and Governance) agenda seeks to change the statutory duty of company directors to promote the success of their company as required under s172 of the Companies Act 2006  to advancing the ‘purpose’ of their company

B Lab UK is a not for profit organisation which creates standards, policies, and tools to help and then certify those businesses who it calls B Corps, which it believes are leading the way in transforming the global economy to benefit all people, communities, and the planet.

How will it achieve this?

The BBA seeks to introduce four main principles into Section 172. These include:

  1. Align Interests – putting the interests of wider society and the environment on par alongside the interests of the company’s shareholders. This would equate to a new fiduciary duty being placed on directors within Section 172. Directors would have to factor in a wider range of interests when making decisions including what is best for the environment as well as its customers, as opposed to what was simply in the best interests of the company and its shareholders.
  2. Empower – directors would be empowered to consider the interests of all stakeholders in their decisions. This would result in ensuring that companies are not entirely driven by profit and instead by their effect on wider society as a whole.
  3. Default Change – Amending this legislation would ensure that all companies would be held to a higher ESG standard as a default. It would no longer be optional to promote the interests of stakeholders as a whole, rather than just shareholders.
  4. Reflect in reporting – If BBA legislation is enacted, businesses would be obliged to report on their impact on their workers, customers, communities and the environment as well as their financial performance.

Who is backing BBA?

Over 550 business including major brands such as John Lewis, Iceland and Innocent have already signed up to the Better Business Act coalition and pledged to support the four basic principles of the Better Business Act. Influential business representative body, The Institute of Directors, has also publicly stated support.

How would BBA impact on Business generally?

If the BBA is successfully implemented, each company will have to :

  • Establish and define its purpose;
  • generate an inclusive and diverse working environment;
  • commit to environmental responsibilities; and
  • revaluate the company’s supply chain.

Companies will need help to establish and define ‘purpose’ which for many boards used to simply focusing on shareholder returns will be an alien concept. They will need to understand new reporting duties around these and directors must also acknowledge what is expected of them and how they can best achieve the companies ESG goals and targets.

Why back the BBA?

Companies are having to respond to growing consumer demands for companies to act responsibly and purposefully concerning the environment, their corporate governance and within wider society. Events with societal impact such as Covid-19 are only likely to accelerate such demands and it appears these demands are being heard.

With bank lending terms now reported to include ESG targets and that big 4 accountancy corporate finance advisers report that clients seeking funding now routinely check funders’ ESG credentials and vice versa, it is clear that ESG is here to stay.

Major brands and consumer facing businesses are already leading the charge to demonstrate their ESG credentials and seeking B Corp certification is a clear way of doing so.

But is BBA relevant to NI businesses?

Whilst the majority of businesses in Northern Ireland are owner managed SME who may view BBA as something that currently only larger companies need to think about, as always change generally comes or gets pushed down from the top’. It is not difficult to imagine supply chain tenders only being open to BBA adopters and this driving change in those smaller companies who wish to still do business with those adopters.

Similarly, nearly every client we speak to is struggling to recruit staff with the rights skills. A BBA adopting business can help put itself at the front of the queue for talent as they strive to make their organisation a positive work environment and compatible with the aspirations of the next generation.

Independent analysis also highlights evidence of faster increase in turnover, greater recruitment appeal, and drive in performance in companies who have aligned with ESG principles and ever-growing numbers of investors want to diversify their portfolios. Thus, there is an increasing investor community focused on businesses with ESG values and therefore, incorporating these principles into a business’s purpose will likely improve a company’s appeal to investors.

At Millar McCall Wylie our Corporate & Employment teams are keen to engage with business on how they can best reflect purpose via their governance framework and advise on the consequence of proposed changes to company law.