Speaking at PURPOSE 2016 last week in Sydney. I observed that the work of the Purpose of the Corporation Project has shown how the modern corporation is not serving society, the environment or the economy well and I suggested that some modest changes to company law could start to rectify that.
The power of these modest yet meaningful changes, which would only apply to those companies that voluntarily adopted them, has been noted by one of the most important figures in corporate governance in the Anglo-American world. Delaware is home to over one million companies and more than half of the Fortune 500. The Chief Justice of the Supreme Court of Delaware writing in the Harvard Business Law Review has noted that:
“In the liberal tradition of incremental, achievable reform rather than radical renovation, the benefit corporation is a modest evolution that builds on the … tradition of corporate law. But that evolution is potentially important, because if it gains broader market acceptance, the benefit corporation model puts some actual power behind the idea that corporations should be governed not simply for the best interests of the stockholders, but also for the best interests of the corporation’s employees, consumers, and communities and society generally.”
…corporations should be governed not simply for the best interests of the stockholders, but also for the best interests of the corporation’s employees, consumers, and communities and society generally.
To be clear we are not talking here about certified B Corps but rather a specific corporate entity recognised by company law.
This corporate entity has three key characteristics:
1) A binding corporate purpose in the company’s constitution requiring the company to create ‘a material positive impact on society and the environment’.
2) Expanded director’s duties to require directors to consider the interests of non-financial stake holders in addition to the financial interests of shareholders; and
3) Reporting publicly at regular intervals on overall social and environmental performance.
Chief Justice Strine noted that the benefit corporation movement is gaining momentum. His own state has enacted legislation to enable benefit corporations as have 31 other states in the US. Indeed the legislation has achieved significant bipartisan support there which is clear testament to the fact that this is a reform that appeals to both sides of politics.
Italy has benefit corporation legislation and it is under active consideration in Argentina and Colombia.
Australia does not yet have the necessary legislation but we easily could.
In early 2015 B Lab Australia & New Zealand formed a working group to develop draft proposed amendments to the Corporations Act to allow benefit corporations.The result is that we now have a road map for change.
All that is needed is the political will to take the next step.
This article was originally published by Christopher Halburd
Christopher Halburd is a member of the B Lab Australia & New Zealand Working Group, the B Lab Europe Advisory Board, the Purpose of the Corporation Advisory Group and is the author of “The Need for a New Paradigm for Corporate Governance”. Chapter in edited work. “Transforming Governance: New Values, New Systems in the New Business Environment”. Gower (2015). You can follow Christopher on twitter @halburd1