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The case for better business: why it’s time to modernise company law

(Charlize Davids/peopleimages.com)

4 min read

A narrow, outdated legal framework has created a culture where short-term financial performance trumps long-term sustainability

During a recent visit to Riverford Organic’s veg box operation in Devon, I heard about how being a good business can also mean being a profitable business.  Riverford has moved to a model of 100 per cent employee ownership and is harvesting the benefits, as are their 1,000 employees.

By investing in regenerative farming practices to increase biodiversity and production, paying fair wages to keen and involved staff, and supporting the local community, Riverford shows how purpose and profit can truly go hand in hand, benefiting society and the environment.

Riverford is not alone. Along with some 2,500 other pioneering B Corp businesses across the UK, they place social and environmental performance, transparency and accountability at the heart of their business models.

This approach is currently the exception, not the norm. But businesses increasingly recognise that corporate governance reform can enable every business to act as a force for good.

This ambition has culminated in the Better Business Act (BBA) campaign, which pushes for legal changes requiring companies to align the interests of all stakeholders, not just shareholders. Over 3,000 organisations support the campaign, including household names such as Iceland, Tony's Chocolonely, Wild, ELEMIS, and Virgin Group.

Under current UK law, company directors have one overriding duty: to maximise shareholder interest. This narrow, outdated legal framework has created a culture where short-term financial performance trumps long-term sustainability, with shareholders prioritised above all else.

We see the disastrous consequences of this all too often, with workers mistreated under fire and rehire, environmental commitments abandoned, and supply chains built on exploitation as companies chase the lowest costs regardless of human or environmental impact.

Businesses focused on their stakeholders, not solely on shareholder returns, consistently outperform their counterparts

However, we now have an opportunity to make Britain a leader in doing business better. My Private Members' Bill, the Company Directors Bill, was on the Commons order paper last week and sets out bold plans to raise the floor for how every UK business behaves. The Government can choose to give time to support this bill, or regret not doing so.

Businesses focused on their stakeholders, not solely on shareholder returns, consistently outperform their counterparts. Last year, UK B Corps increased their turnover by 23 per cent, compared to the national average of 17 per cent, and saw a 9.6 per cent increase in employee headcount, compared to a national decrease of 0.5 per cent.

Moreover, research conducted by Demos on behalf of the BBA also highlights that a purpose-led economy would boost UK GDP by £149bn. Thus, it’s clear that embracing stakeholder governance does not sacrifice financial performance — it enhances it. Our laws should encourage, not obstruct, this.

The evidence supporting this approach is clear. This is why my bill would amend Section 172 of the Companies Act to change the duty of company directors, requiring them to align the needs of shareholders alongside those of employees and the environment in their decision-making.

My bill would give directors the legal clarity and freedom to make better, long-term decisions, moving away from the short term drive of this quarter’s profits. The Institute of Directors is backing this empowering of company Directors to do the right thing for their businesses. This will drive sustainable growth needed to turbocharge our economy and help to realise the current Government’s ambitions for our economy.

It is time to change the law to follow the example of the thousands of businesses and organisations who have seen that better business works well.  

Many of my Parliamentary colleagues have already pledged their support for the Better Business Act to create a fairer, greener and sustainable way of doing business that works for everyone.

Momentum is growing, and the destination is clear. While this bill is an important opportunity, we will not stop there, we know it forms part of a greater opportunity to redefine how business operates in a modern society.

The question is no longer if, but when, Britain will seize upon the opportunity presented by ensuring a better approach to business becomes the default.

So now is the time for my colleagues to support this bill, and for Britain to become a global leader in responsible business.

Martin Wrigley is the Liberal Democrat MP for Newton Abbot and sponsor of the Company Directors Bill

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