The British Academy proposes principles for the age of purposeful business

The British Academy, the national body for the humanities and social sciences, today publishes Principles for Purposeful Business, outlining the changes needed to put people and planet at the heart of corporate capitalism.

The report is the second major study published by the British Academy’s Future of the Corporation programme, an independent initiative combining research, policy and business insights to reformulate the relationship between business and society.

The principles published in today’s report propose a new formula for corporate purpose: “the purpose of business is to profitably solve problems of people and planet, and not profit from causing problems.”

The report explains how this can be done, presenting eight principles for use in guiding lawmakers and business leaders and including reform of company law.

The principles aim to re-organise the corporate sector around purpose and around corporations’ contributions to solving social, political and environmental challenges:

1. Corporate law should place purpose at the heart of the corporation and require directors to state their purposes and demonstrate commitment to them.

2. Regulation should expect particularly high duties of engagement, loyalty and care on the part of directors of companies to public interests where they perform important public functions.

3. Ownership should recognise obligations of shareholders and engage them in supporting corporate purposes as well as in their rights to derive financial benefit.

4. Corporate governance should align managerial interests with companies’ purposes and establish accountability to a range of stakeholders through appropriate board structures. They should determine a set of values necessary to deliver purpose, embedded in their company culture.

5. Measurement should recognise impacts and investment by companies in their workers, societies and natural assets both within and outside the firm.

6. Performance should be measured against fulfilment of corporate purposes and profits measured net of the costs of achieving them.

7. Corporate financing should be of a form and duration that allows companies to fund more engaged and long-term investment in their purposes.

8. Corporate investment should be made in partnership with private, public and not-for-profit organisations that contribute towards the fulfilment of corporate purposes.

Professor Colin Mayer FBA, Academic Lead, Future of the Corporation Programme and Peter Moores Professor of Management Studies, Saïd Business School, University of Oxford, said:

“There is evidence all around us – from the climate crisis to inequality – that the corporation, as it is, has failed to deliver benefit beyond shareholders, to its stakeholders and its wider community.

“While many businesses have woken up to this, others have not. Restoring trust between businesses, stakeholders and society demands us to act differently. The eight principles intend to enable corporations to act deliberately, boldly and profitably, to meet global goals and tackle problems of society, people and planet.

“Our message today is both practical and positive: a rethink of capitalism is possible, and here’s how it can be done.”

Professor Sir David Cannadine, historian and President of the British Academy, said:

“Imagining the future of the corporation as one with problems of society, people and planet at its heart is a complex exercise that requires fresh and varied perspectives. This has been a global effort, uniting big thinkers in academia, in business and in wider society.

“As the UK's national academy for the humanities and social sciences, subjects concerned with who we are and how we live, we have been delighted to use our convening power to bring such people together.

"Insights drawn from academic research in economics, philosophy, law and sociology and from leaders within global corporations underpin these principles and show how academia and business can work hand in hand for the wider public good. History shows that corporations have been and can be founded to fulfil a social purpose and we hope that this will become the norm in the 2020s and beyond.”

Case study

This year, Anglian Water changed its Articles of Association to define its purpose as the benefit of shareholders, long-term value for customers, region and communities and positive outcomes for the environment and society.

Peter Simpson, CEO of Anglian Water, said:

“This change to our Articles of Association signals our cast-iron commitment to the wellbeing of communities in the East of England, going far beyond the provision of clean drinking water and effective treatment of used water. It marks a new era that codifies that approach and makes it permanent, ensuring all future owners and investors will be obligated to work in the same way, and giving regulators, stakeholders and customers the confidence that this is simply how we work.

“We know the bar is set appropriately high for us as providers of an essential public service. This change should signal that we are very comfortable with those high expectations, and we will always seek to exceed them. Along with the rest of the water industry we will continue to explore how the principles outlined in the British Academy’s report can help us to meet these challenges in new ways.”

Principles for Purposeful Business draws from evidence and research papers, and insights of business leaders, experts, civil society and academics from across the humanities and social sciences globally, who have gathered frequently over the course of two years.

As well as presenting the eight principles, the report highlights the need for leadership from business, investors and government to bring about the necessary changes via a number of pathways. It also reinforces the case for change based on evidence of the widespread external impact of business activities and the global climate crisis presented previously by the British Academy in its 2018 Future of the Corporation report, Reforming Business for the 21^st Century.