Good corporate governance can improve a company’s bottom line
The TELEGRAPH, UK – As we digest the fallout of yet another big corporate scandal, there are plenty of people left wondering, once again, why there isn’t a better way of doing business. There is. It’s called the B Corporation movement and it arrived in the UK last month.
Unlike other companies, a certified B Corporation has to live up to much higher standards of corporate governance and transparency.
Importantly, it must also have enshrined in its corporate constitution a commitment to pursue broader social goals than simply profit for shareholders. If this sounds a bit too much like the sort of hippy idea you might find in a Jeremy Corbyn election manifesto, take note: my company, the upmarket frozen food retailer Cook, became one of the UK’s first certified B Corporations two years ago.Since then, we’ve grown to have record sales and profit. There’s no reason a better way of doing business shouldn’t also be better for the bottom line.
Five years ago, my brother and then-chairman of Cook, James, first mentioned B Corporations to me.
Having encountered the B Corp movement in the US, he confidently asserted it was “the future” and that Cook must become one. However, James confidently asserts about a lot of things. Besides, it was 2010 and Cook was still licking its wounds from the recession. My attention was focused on the muck and bullets of running the business day to day.
But James has an annoying habit of being right when it comes to matters of the distant future, as well as not taking “no” for an answer. So the management team at Cook began to investigate B Corporations, culminating in a trip to the US in 2013 to the annual B Corp conference, a visit that convinced us to certify. Last month, 62 other businesses – from law firms, to investment managers, a bottled water business and a pet food company – joined us to get the B Corp movement properly launched in the UK.
The website — whichdogfood.co.uk — discovered salt, sugar, oils and fats in a number of leading brands.62 businesses joined the B Corp movement last month, including a pet food company.
The movement’s mission is “to redefine success in business so one day all companies will compete to be not just the best in the world but the best for the world”. No shortage of ambition, then!
To certify as a B Corp is extremely tough. A company has to pass a very strict and exhaustive assessment which measures its impact on the communities where it operates; its relationship with employees; its impact on the environment, and the governance by which the company is run.
And then you have to go much further, changing the legal constitution (The Memorandum and Articles Of Association) of the business to state that the legal obligation of the directors is to run the business for all the stakeholders mentioned above, rather than just for maximising financial return for the shareholders. Make no mistake, this is not something that a company can sign up to lightly.
There are thousands of companies all over the world independently reaching the same conclusion: that business should be used as a force for social good. They range from companies worth billions, such as Latin American beauty firm Natura and online craft market Etsy, to small companies such as Elvis & Kresse, neighbours of Cook in Kent, who make luxury goods out of recycled materials. These companies can see that, when business is conducted in the right way, there is no more powerful agent of positive social change.
The ripples created by the B Corp movement are already reaching the mainstream. Two of the most notable participants at the B Corp UK launch last month were not, in fact, representing certified B Corporations but very traditional, global businesses.
Sacha Romanovitch, the new CEO of accounting firm Grant Thornton, got up on stage to applaud the launch of the movement and commit publicly to a better way of doing business.
In her brief tenure she has already overseen the scrapping of the traditional partnership structure at Grant Thornton in favour of a more equitable profit share for all staff. She has also capped her own salary at 20 times the average at the firm. Grant Thornton may not be a B Corp (yet), but Romanovitch can clearly see an opportunity to differentiate the firm from its rivals, not through what it does but the way in which it does it – a better way.
Paul Polman, chief executive of consumer goods multinational Unilever, appeared by video link from New York to welcome the launch of the UK movement. He also announced an initiative to explore how the B Corporation framework can be adapted to work for listed multinationals.
The idea that institutional shareholders might agree to a company changing its constitution so that it is no longer legally bound to pursue only the shareholders’ interests may seem bizarre. Yet Polman, for one, believes that day is coming. For us at Cook, being a B Corp has provided the framework and impetus to really start delivering a positive impact on society through our business. Some of the specific outputs of this have been adopting the living wage; introducing profit share; an employment programme for underserved communities; giving all the leftover ingredients from our kitchen in Kent to a local charity, Caring Hands, that feeds 150 people a day; and putting in place an environmental programme seeking to measure, understand and reduce our water and energy usage and the waste we generate.
Of course, behind all this we must continue to operate a robust and profitable business. But our business and our positive impact in society are intertwined. The traditional model for business owners says: make your money however you can and then, if you are so motivated, indulge in a bit of philanthropy.
There is certainly nothing wrong with philanthropy. But I would argue that the future of business is all about the owners of capital taking a broader view of their responsibilities to society. Indeed, to be truly successful in the future will require this sort of commitment. Old school capitalism is like the Brontosaurus chewing the cud, blissfully unaware the comet has just struck.
I am under no illusions that changing this reality will take significantly longer than my lifetime and probably my children’s. But change is coming. The launch of the B Corp movement in the UK marks another important milestone.