Coalition calls for urgent rewrite of UK Companies Act as solution to post-Covid recovery

Business leaders, academics, legal experts, social enterprise support bodies and regional authorities are backing a new campaign to shake up UK company law so that businesses can “take the lead in building a stronger, more resilient and fairer economy”.

The How Do Companies Act campaign this week published an open letter that calls on political leaders to rethink the legislation and regulation underpinning the business environment. Current health, environmental, and social crises make these changes urgent, campaigners say: “We are aiming high because we have no other option… We don’t have the time to slowly push for change, we must demand it, and demand it happens now.”

Some 50 individuals and organisations have signed the letter to date, including Mears Group, Willmott Dixon, Social Value UK, Social Enterprise UK, Social Enterprise Mark CIC, UnLtd, Liverpool City Region Combined Authority and the Capitals Coalition. 

We don’t have the time to slowly push for change, we must demand it, and demand it happens now

Signatories argue that greater enforcement of existing legislation will help “reward the right type of businesses” to lead the post-Covid recovery. They also make four recommendations for a stronger legal framework:

• Include purpose in business articles. The Companies Act should be made clearer, asking all businesses to state a mission or purpose that is not just prioritising financial returns with no regard for social and environmental performance. 
• Increase director responsibilities to all stakeholders. Section 172 of the Companies Act should be reworded so that all directors of companies (over £36m turnover) are accountable to the company for their effects on all stakeholders. Companies would therefore report to shareholders (short and long term) their social and environmental value. Further transparency of director interests also needs to be enforced.
• Enforce accounting for social and environmental value. Section 396 of the Companies Act should redefine ‘true and fair accounts’ to include social and environmental performance alongside financial return with the same level of scrutiny.
• Enforce a duty to prevent harm. This would encourage businesses to go beyond retrospective reporting, there should be a new law on mandatory environmental and human rights due diligence. Experience from the Modern Slavery Act has shown us that transparency requirements are not enough to protect people and the environment from irresponsible business.

The How Do Companies Act group was first created in 2019 by Social Value UK, Social Enterprise Mark CIC, Social Enterprise UK and others to change the basis of financial accounting to include social and environmental impacts. Its scope was then widened to include regulating the business environment more broadly.  

The current campaign echoes – but is not directly linked to – other initiatives, including the Future of the Corporation project from the British Academy, which in 2018 saw leading figures in business and academia back a call for a radical rethink of corporate purpose; and  #OperationUpgrade, an initiative of law firm Bates Wells to ‘upgrade’ the capitalist ‘operating system’, which has won the backing of ex-Unilever boss Paul Polman.

Research by Social Value UK and YouGov in 2018 found that just 15% of respondents would want their investments to maximise financial returns with no interest in social or environmental impact. Ben Carpenter (pictured), CEO of Social Value UK, said: “Our research and work has proved the basis of financial accounting is outdated and it’s time for real change in the UK, that will increase equality, wellbeing and tackle environmental degradation.”

Gary Jackson, marketing and communications director at housing and care firm Mears Group – which employs more than 6,500 people – said: “It's time to change the focus of the UK business environment from a financial-oriented space to one which protects the planet and people just as much as it pushes profitability. We are calling on our political leaders for a new business environment.” 

It's time to change the focus from a financial-oriented space, to one which protects the planet and people just as much as it pushes profitability

UnLtd policy lead Kevin Armstrong said social entrepreneurs “prove it’s possible to achieve much more than profit maximisation, and revising the Companies Act will encourage more businesses to become as transformational as they can be.”

Lucy Findlay, managing director of Social Enterprise Mark, said the campaign had taken on greater significance since Covid-19 hit. “As we look ahead to the economic recovery, it is vital that we ensure we ‘build back better’ by creating a fairer, more people-focused economic system. The public increasingly wants businesses to be held to account for their social and environmental impact – for this to happen, we need a stronger legal framework which requires companies to report on this.” 

Julian Blake, a partner at law firm Stone King, said purpose, community and employee engagement and environmental responsibility were “the modern markers of both progressive and successful business”, adding: “The HDCA campaign is an imperative for all.”

Read and sign the open letter here.

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