Time for a U-turn on “B Corps”?

It’s the business of companies to make money first and think about society later


This article is taken from the November 2022 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

Society changes by increments and it is relatively easy in a free society to ratchet change by framing progression as benign, necessary and inevitable. Sometimes it is, although often low-grade thinking accepts regulatory change as mainstream without considering whether it is desirable. 

Corporate governance has spent recent years worrying about its own versions of the woke tsunami drenching our culture. Environmental, Social and Governance (ESG) came first, more than 30 years ago, as regulations on what you can and cannot do on an operational level, especially regarding pollution, chemicals, the control of health and safety and a certain degree of community stakeholder engagement. This has been mainly for the good. 

However, corporate governance is stuffed with lawyers and the sort of middle management executives who do not have responsibility for a profit unit. Their influence attempts to expand under a guise of vague and warm language: “Society increasingly expects companies and their directors to respond to its complexities”; “The climate emergency demands a safe harbour to strike a different balance between shareholder and stakeholder interests fit for our times.”

It should not surprise you that, being a G7 economy in a democratic society with an independent judiciary, we already have sufficient, strong, balanced regulation. The Companies Act 2006 sets out how directors should promote the success of a company and, public or private company, there is a hugely successful legal, regulatory, governance and reporting framework constraining the animal energies of wild capitalism. Directors must already have regard to stakeholders, without forgetting it is their shareholders who own the company. 

The Better Business Act (BBA) campaign is agitating to alter this and seemingly in a benign way. It seeks to change the duty of a director from acting in good faith to promote the success of the company to acting in a way most likely to “advance the purpose of the company”. This is not the same thing; the implication being that all companies should have a purpose which contributes to wider society.

This would open the way to much activist litigation

You can see how this would open the way to much activist litigation. No wonder many lawyers, as well as Labour politicians, are quietly talking up the BBA’s prospects. The result, after years through the courts and the noise of the self-righteous dominating a complicit media, is likely to be lower economic growth. And silent thanks from businesses based elsewhere in the world. 

This is far from becoming better business. It is business with different purposes, whereby profit is merely an incidental part of what would be an overly complicated mix. There are other vehicles for these sorts of ambition. Charities are not prohibited from trading or from raising funds to try to expand their empires. 

It would be foolish for us to inhibit the best vehicles we have for wealth creation and raising living standards — companies — by burdening them with extraneous responsibilities inappropriate to their original purposes. 

A more strident innovation is the Certified B Corporation. “B Corps” are assessed on social and environmental performance and their impact on workers, customers and the community. They must alter their constitution by adopting intent to have a “positive impact on society and the environment”. 

The “B” is supposed to stand for “Benefit”. I think it should be annotated as “B Grade”. Perhaps companies which remain more purely capitalist can become known as “A Grade” because of the undoubted benefits they give, of more energetically seeking increasing untarnished profits that are taxable by government for society’s wider stakeholder purposes. 

Law firms, again, are agitating

Law firms, again, are agitating. Three have B Corps certification. Bates Wells — a London firm; Brabners — a northern outfit; Radiant Law — sounds trendy. I won’t be instructing any of them soon. 

Service providers have to think about who their key clients are and how they and their clients align their values. As the gender-confused generation grows up and gains influence, more outfits will pander to them. I prefer my advisors to be out-and-out capitalists, like me. 

There is one public company that has become B Corps thus far, Kin + Carta plc (me neither, it is a global digital transformation consultancy, apparently). I imagine a digital consultancy would find it a lot easier to invoke the platitudes and operational changes required to achieve this corrosive certification than a manufacturer; a manufacturer which no doubt has to adhere to much regulation, guidance, reporting and supply chain monitoring anyway. 

There are those who have reservations about this trend. Dame Sharon White has not had as successful a stint running John Lewis as her predecessor Andy Street. (My children used to say their mother had two boyfriends: Peter Jones and John Lewis, because both were always ringing her up). However, Dame Sharon has withdrawn the retailer from the B Corps initiative. I applaud her for justifying this by saying, “Companies are set up to make money and only when they have done this can those profits be invested for doing good.”

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