Ben and Jerry's, Danone and Gousto are just some of the big name brands you may have heard of who are going the extra mile to do business in a socially responsible way.
More companies are looking at how they do business through the lens of "ESG" (environmental, social and governance), a set of standards measuring a business's impact on society, the environment and how transparent and accountable it is. There have been claims however that some companies have been "greenwashing" to make false or misleading statements about their credentials, and those that treat ESG simply as a tick box exercise.
Not just a tick box exercise
Companies such as Ben and Jerry's put ESG at the heart of everything they do, recognising that as the company prospers, so to do the stakeholders to their business. Certification as a B Corp provides independent verification that a company is truly encompassing social change in their day to day processes. So, what exactly is a B Corp?
B Corp certification is offered via a private non-profit network "B Lab UK", with companies required to pay a one-off submission fee and then an annual certification fee based on the company's total annual revenue. The verification process measures a company's entire social and environmental performance, from supply chains through to employee benefits and everything in between.
The process of certification is rigorous, and it is a requisite for any company looking to become certified to incorporate the ethos of B Corp into their legal structure by updating their articles of association to include specific mission aligned language referred to as the "legal requirement".
The legal requirement has been developed with reference to the statutory framework for directors' duties under s.172 of the Companies Act which provides that directors have a duty to promote the success of the company for the benefit of its shareholders. The legal requirement wording must be adopted into the company's constitution verbatim and is designed to offer a layer of legal protection for directors to consider the interests not only of the shareholders but all stakeholders. The legal requirement also sets out practical actions to be taken by the company, namely the preparation of an "impact report" to be prepared and circulated to its members each financial year.
Interaction with Companies Act 2006
Under company legislation whilst a company may have "regard" to other matters such as interests of the company's employees and impact of the company's operations on the community and environment, the interests of shareholders are paramount. The legal requirement wording has therefore been drafted in a way to define more specifically what success is for the company and provides a mandate for the directors to consider stakeholder interests when taking decisions. As a B Corp, the object of a company will be to promote the success of the company for its members as a whole but also to have a material positive impact on society and the environment through its business operations. Ben and Jerry's for example acknowledge that they are part of the problem in respect of climate change and are taking measures to reduce the emissions created from the production of milk and cream used in their products.
Understandably companies may be concerned that this requirement to consider the interests of stakeholders could open them up to claims/actions from those who feel that a company has not fulfilled its responsibilities to that stakeholder. The legal requirement makes it clear that directors are not required to consider the benefit of any particular stakeholder interest as more important than any other, and it expressly provides that nothing in the articles shall create a right or course of action for anyone other than the company.
Setting an objective to promote the success of a company for the benefit of shareholders but in a way that is holistic, supporting wider stakeholders is admirable. However, whilst a company's articles set the mandate for how business will be carried out, it cannot be forgotten that the Companies Act is the overarching basis of company law. The Companies Act is clear that directors have a duty to promote the success of the company for the benefit of its shareholders, albeit with regard to other factors. As the number of companies becoming B Corp certified increases it will be interesting to see if there is any friction between the B Corp "legal requirement" and the Companies Act.
Brodies has experience with supporting businesses to become B Corp certified and can provide guidance on the implications of embedding the B Corp ethos in balance with the existing duties under company law. Should you need any advice in respect of your business, please get in contact with your usual Brodies contact or one of the contacts listed below who will be happy to assist.