Reforms to company law that would push purpose-led business practices into the mainstream could boost the UK’s GDP by seven per cent, a new report has found.
Published last night by think tank Demos and B Lab UK, the study calculates that changing the Companies Act to place a duty on directors to consider firms’ environmental and social impacts could add £149bn to the UK’s economy annually.
It found that if policymakers were to legislate to make stakeholder-led businesses the norm, the UK economy would grow faster, invest more, and significantly increase the annual salaries of the UK’s lowest paid workers, leading to a signficant uptick in economic growth while also curbing environmental impacts.
Specifically, the report calculates that reform of the Companies Act could see UK capital investment grow by £86bn annually, R&D investment increase seven-fold by £116bn, and the lowest paid workers secure the equivalent of a £2,288 annual pay rise.
“This new research shows that the UK could enjoy huge economic benefits by bringing social and environmental interests into the heart of business decision-making,” said executive director of B Lab UK Chris Turner. “A simple change to the Companies Act could unlock investment, growth and productivity, while creating the right conditions to tackle our 21st century challenges.”
To reach their conclusions, the researchers compared the performance of stakeholder-governed businesses – such as B Corps, social enterprises, and co-operatives – with firms engaged in a more conventional, shareholder-first approach.
Stakeholder-governed businesses were found to outperform their peers with higher levels of investment and capital, higher levels of innovation and product development, greater levels of staff engagement, and faster rates of revenue growth.
B Lab UK is leading the Better Business Act campaign, which is calling on government to change the Companies Act to place a formal duty on directors to consider the social, economic, and environmental impact of their business alongside their pursuit of higher profits.
More than 2,000 individual businesses, MPs from across the political spectrum, and a number of business groups have backed the Better Business Act campaign, including the Institute of Directors, supermarket Iceland, confectionary brand Tony’s Chocolonely, and food waste app Olio.
In response to the findings, the government said there was no need to change the law, noting the existing rules allowed companies to set their own purpose. “The Business and Trade Secretary wants to remove unnecessary burdens on business, which is why she started a programme of deregulation to strip away red tape and ensure the UK remains one of the best places in the world to do business,” the spokesperson from the Department of Business and Trade said. “Rather than government telling businesses how to behave, as this report seems to suggest, we have listened to what companies say they need to grow, create more jobs and higher wages, and that is what we are delivering.”
But Andrew O’Brien, director of policy and impact at Demos, said the research highlighted how the biggest game-changer for reviving growth across the UK economy was not cutting taxes or raising public spending but improving the “structure and governance of business”.
“If we get this right we can add hundreds of billions to the UK economy through boosting investment, productivity and pay for working people,” he said. “A far bigger impact than most other measures that dominate the debate in Westminster.”
“Our research shows that any politician that wants to have a serious plan for reviving the UK economy must have reforming corporate governance at the centre of that plan,” he added.
Want to understand what is going on at the cutting edge of sustainability? Check out BusinessGreen Intelligence – the premier information for professionals focused on the UK’s green economy.