‘Above all, if the legitimacy of our democratic political systems is to be maintained, economic policy must be orientated towards promoting the interests of the many not the few; in the first place would be the citizenry, to whom the politicians are accountable. If we fail to do this, the basis of our political order seems likely to founder.’
Until lately, the marriage between Liberal Democracy and Capitalism has been harmonious. As Martin Wolf explains in this exceptional FT piece, ‘Democracy and capitalism share the assumption that people are entitled to exercise agency. Humans must be viewed as agents, not just as objects of other people’s power.’ As long as the story is one of progress, the marriage is a happy one. But lately, Capitalism has betrayed Liberal Democracy with its shocking inequality and diminishing promise.
If the stage of global politics has been its divorce court, Bad Business has been its spoiled only child: nurtured, coddled and allowed to focus singularly on the job of profit with little care for social graces. Accordingly, Business has developed bad manners: failing to do enough to contribute, outside of the basic employment contract, to the communities in which it operates. Entrenched short-termism and shareholder focus endures. Globally, capital markets are still focused exclusively on delivering solely for shareholders at almost any cost, barring a rare and lacklustre interest in ‘ESG’ factors.
So how can we fix Capitalism? For the world’s governments, societies and economies, no question can be more pressing. Enlightened businesses, investors and consumers know that there is only one solution: a Stakeholder Economy, which returns to the principles of citizenry; the serving of the many, not just the few, and of extending social accountability from the limiting sphere of the State to the wider realm of Business – producing stronger communities, higher returns and sustainable growth.
At the vanguard of this movement is the Benefit Corporation, which champions a stakeholder alternative to shareholder primacy through its rigorous benchmarking-led system. Promoted by B Lab – the home of the certified B Corporation movement, a community of businesses who marry these legal purposes with a stakeholder performance requirement – Benefit Company laws have now been passed in 32 US jurisdictions and Italy, with many other states and countries set to follow.
B Lab UK was recently launched by myself, James Perry, and Charmian Love to engage the 3.2 million mainstream, traditional, non-asset locked UK companies in the urgent mission of generating positive, long-term social and environmental impact. Now, B Lab UK is recommending that the government pass Benefit Company legislation. This corporate law reform gives companies the option to replace shareholder primacy with a stakeholder purpose – with companies explicitly operated for employees, communities and the environment, as well as shareholders.
The coming consultation should include legislation to create these companies, so that those companies who want to incorporate in this way can do so – pursuing sustainable, community-focused growth and innovation along the way. This could be achieved through an amendment to Section 172 of the 2006 Companies Act.
With the social mobility mandate of the new government, now is the time to build the platform of Good Business into a shining tower that draws hearts, minds, and investment. The Government’s corporate governance reform must have embedding Good Businesses at its heart – and we, as business people and as citizens, must make our voices heard.
Learn more about B Lab UK and the mission-led organisations it supports here.