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If you’re like me and spend your days wondering why so much of the responsibility for the care of our planet is vested in the consumer rather than the producer then look no further than the campaigners behind the Better Business Act (BBA).
Better Business Act
BBA’s studies have found that 76% of people in the UK want businesses to be legally responsible for their impact. The BBA is seeking to harness the potential of business leaders to create a significant positive movement towards bettering environmental, social and governance (ESG) for the economy and the planet. Part of the solution, they have found, is amending the Section 172 of the Companies Act (2006).
Read this Commercial Question: ‘ESG policies and the lawyer/client relationship’.
But what’s wrong with it in the first place? Let’s have a look…
Section 172 concerns the duty of directors to promote the success of the company. This is an umbrella responsibility overlooking every decision that includes, but is not limited to:
This all sounds pretty good right? There’s little here to suggest that companies that abide by these legal obligations should be causing this level of damage. Not quite. The company’s success ultimately resides in what is in the best interests of the members and shareholders themselves.
A good example of this recently is Twitter’s board accepting Elon Musk’s offer to buy the company for $44 billion, which they had previously rejected before. It was made known that each shareholder would receive approximately $54.20 per share.
We need to ask ourselves: if there were stricter legal restrictions on social impact (Musk intends to make Twitter adhere more closely ‘to the principles of free speech’) that this would have been an appropriate trade-off for share profits?
Essentially, solely operating in the best interests of the shareholders really isn’t working anymore.
What are BBA’s suggested amendments? The largest change to the Act concerns Section 172.2. where it’s suggested that yes, the purpose of a company is to operate in a way that benefits its members but it is also the purpose of a company to benefit a wider society and the environment and reduce harms the company creates with the ultimate goal of removing these completely.
The BBA ensures its versality and flexibility in stating that the benefits should be ‘commensurate’ (in proportion to) with the size of the company, meaning that small businesses can be expected to do ‘their bit’ in a way that doesn’t inherently harm their profit capacity. It does mean, however, that larger corporations will need to make some fundamental changes to the way in which they operate.
Section 172.2.B also ensures that there is a fluid progression forward where every decision a director makes continues to further the goal of eradicating harm entirely rather than letting it stagnate at the minimum level of sustainability.
Following these amendments to section 172, BBA also puts forward the need for companies to produce an annual strategic report that describes the impact of the decisions directors made in line with these new requirements.
The changes put forward by BBA would put legal measures in motion to ensure that every company in the UK takes ownership of their ESG impact. They have the potential to reharmonise the effort of minimising both consumer and producer damage to society and the planet, ensuring more accountability in the corporate space.
Read this Commercial Question to find out the current ESG developments in finance: ‘ESG and the finance market’.
The campaign as it stands now has over 1,000 UK-based businesses as signatories including the likes of The Body Shop and Innocent Drinks. The rate at which it is growing shows some real signs of the necessary steps being taken to reform businesses, making them work better for both people and planet.