“Every single social and global issue of our day is a business opportunity in disguise.” —Peter Drucker
“In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community … The solution lies in the principle of shared value which involves creating economic value in a way that also creates value for society by addressing its needs and challenges” —Michael Porter & Mark Kramer
A growing movement of companies exist to create financial profit in addition to social and environmental good. Often referred to as profit and purpose, the success of these companies is influenced by the legal system in which they operate. Around the world, a number of jurisdictions (particularly in the US and UK) have enacted policy changes, including the introduction of new corporate forms, to enable this social innovation.
In Australia, the current legal system creates uncertainty for companies that seek to use the power of business to solve social and environmental problems. There is no case law or legal framework for directors to consider the interests of wider stakeholders including employees, customers, contractors and the community when making company decisions. Although directors can choose to take non-shareholder interests into account, directors face considerable legal uncertainty about their statutory and fiduciary duties should they favour non-shareholder interests.
B Lab Australia and New Zealand is advocating for changes to the Corporations Act 2001 to include a new voluntary corporate structure, to be known as a “benefit company”. Companies that opt in to this structure will have to enshrine the triple bottom line principles of "profit, people and planet" into their constitutions, expand director's duties to require them to consider the interests of non-financial and financial shareholders and report publicly on social and environmental performance as well as financial indicators.
Key benefits of introducing these amendments are:
- Director Protection: Providing legal protection for directors who wish to make decisions consistent with the company's expanded purpose of creating value for all stakeholders. This aims to encourage directors to make decisions in-line with shared value and responsible profit generation.
- Mission Alignment: Enabling a company’s mission to be embedded into its constitution, thereby providing certainty for shareholders, directors, officers and the market as to the company's corporate governance obligations. The legislation will create a framework that enables directors to stay mission-driven through corporate succession, capital raising, and changes in ownership.
- Attracting Investment: Encouraging impact investment by providing a legal framework that provides certainty the company will remain accountable to its mission in the future. In Australia, the market for impact investing is expected to reach $32 billion over the next decade.
- Socially-enabling legislation: Helping grow a movement of influential business people and thinkers striving to solve social and environmental issues.
- Minimal red tape: No tax implications or impact on existing companies or other corporate forms as adopting benefit company status is completely voluntary.
- Building an engaged workforce for the future: Millennials will grow to 75% of the workforce by 2025. According to the Deloitte Millennial Survey, 77% say their “company’s purpose was part of the reason they chose to work there.” Benefit company status gives prospective employees confidence that a company is legally committed to their mission.
By introducing the legislative changes, Australia will become a world leader in advancing business alongside social impact objectives. Similar legal reform has been agreed to across 32 US states (where there are now over 4000 benefit corporations) and also in Italy. Reforms have recently been introduced to the legislature in Argentina and Colombia.
B Lab Australia and New Zealand have formed a working group comprising academics, lawyers, business leaders and governance experts who have drafted proposed amendments to the Corporations Act.
We are now actively lobbying government to embrace these changes and ensure benefit companies become synonymous with success in business creating a fairer and more inclusive economy for all. If you would like to assist our advocacy efforts by signing a letter of support or would like to access a copy of our proposed amendments please register your interest.
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