Corporate purpose has taken on a greater emphasis during the pandemic, particularly seeing how many businesses grappled with the challenges posed by Covid-19.
The way that customers, employees, suppliers, and other important stakeholders are treated matters, and their views and interests must be considered alongside that of shareholders. In fact, businesses are increasingly taking a broader view of their purpose so that they serve the interests of all their stakeholders, rather than a sole focus on maximising shareholder value. This has led to a number of major UK employers committing to defining a social purpose, a trend that has been confirmed in our latest research.
In a recent survey of more than 700 directors, 62% stated that they believed that businesses should not exist solely to make money and generate shareholder profits, and almost half felt that companies should have a stated social purpose to help solve problems in society. More than 9 out of 10 businesses have a purpose, mission, or vision that guides themselves and their companies.
Importantly, the IoD is supporting the Better Business Act campaign which seeks to place stakeholders at the heart of companies. With 51% of directors believing that the Companies Act focuses too much on shareholders and not enough on stakeholders, the campaign would amend Section 172 of the Companies Act 2006 so that companies are legally obligated to operate in a manner that benefits their stakeholders, including workers, customers, communities and the environment, while seeking to deliver profits for shareholders.
Over 550 companies have signed up so far. All have pledged their commitment to creating a cleaner, greener, fairer future for all. They share an objective to see four principles reflected in an amended Section 172 of the Companies Act. These are:
- Aligned Interests
The interests of shareholders are now advanced alongside those of wider society and the environment. This establishes a new principle of fiduciary duty within Section 172 of the Companies Act.
- Empowering DirectorsÂ
This change must empower directors to exercise their judgement in weighing up and advancing the interests of all stakeholders.
- Default Change
This change must apply to all businesses by default. It must no longer be optional to benefit wider stakeholders beyond shareholders.
- Reflected in reportingÂ
Following this change, businesses must report on how they balance people, planet and profit in a strategic report or impact report, where one is currently required.
For many directors, this change in law will not materially affect their behaviours or the actions of their companies, but by becoming law it will no longer be a choice to align the long-term interests of people, planet and profit.
In this new business world, we encourage directors to reconsider the purpose of their companies and the societal problems that they seek to solve because, together we can create a better future for all.
