Directors should be held to account for their companies’ purposes, concludes long-running British Academy programme
22 Sep 2021
Directors of boards of companies should be held accountable for determining and implementing the purposes of their companies according to a report published today by the British Academy, the UK’s national academy for the humanities and social sciences, which concludes one of the longest-running programmes of research into the role of business in society.
The report builds on the British Academy’s Future of the Corporation programme’s 2019 report, "Principles for Purposeful Business", which highlighted how putting purpose at the heart of business transforms its potential to enhance our lives as customers, employees, communities and nations, and benefits the natural world and avoids detrimental activities. The 2019 report described eight principles to promote purposeful businesses that can "profit from solving problems faced by people and the planet, rather than causing them."
Today’s final report in the programme, "Policy & Practice for Purposeful Business", sets out the practices and policies that are required to promote implementation of companies’ purposes and hold directors accountable for their delivery:
- The primary duty of directors should be to determine, implement and deliver their company purposes.
- Owners of companies should use their rights of approval and removal of directors to ensure that the appropriate leadership and oversight is in place.
- Directors should be accountable to their shareholders and stakeholders for fulfilment of their purposes.
- They should measure and report to their shareholders and stakeholders on their companies’ performance against their purposes.
- They should promote the values and cultures that empower everyone in their organisations to take responsibility for their part of the company purpose and align incentives throughout the organisation accordingly.
- Regulators, standard setters, and auditors should ensure that companies do not profit from creating detriments.
- Financial institutions should provide funding at the scale, location, duration, and form required for companies to resource their purposes.
- Government should partner with and procure from companies to promote their common purposes.
The Future of the Corporation programme has brought together over 100 academic and business leaders through a series of events, roundtables, policy labs and Purpose Summits in the past year alone. Business leaders from Microsoft CEO, Satya Nadella to Belu Water CEO, Natalie Campbell have spoken about the British Academy’s proposals at events as part of the four-year programme.
Speakers at today’s event to launch the report include ShareAction CEO, Catherine Howarth, CEO of London Stock Exchange plc, Julia Hoggett, FT US Business Editor, Andrew Edgecliffe-Johnson, CBI President Lord Bilimoria, FRC Executive Director, Mark Babington and CalPERS Managing Investment Director, Anne Simpson.
A new survey carried out this month by YouGov for the Academy also reveals support among businesses for new approaches to policy and practice. The survey of business leaders found that 43% agreed with the Future of the Corporation’s programme definition that the purpose of business is to “find profitable solutions to the problems of people and planet, not profiting from creating problems for either”. By contrast, 42% agreed with the statement that the purpose of business is “to maximise returns for shareholders / owners within the confines of the law”.
Professor Colin Mayer FBA, academic lead of the Future of the Corporation programme at the Academy said:
“Twenty-first century business should be about solving problems of people and the planet through innovation, imagination, and creativity. Profits should flow from doing that. But too often companies also profit from producing problems. This report offers a clear route to making purposeful business effective by making directors responsible for the delivery of purpose, a strategy that ensures clear accountability.”
Professor Julia Black, President of the British Academy, said:
“This report is the result of four years of research in the humanities and social sciences and close engagement with representatives from every part of the business sector. It revolves around one core proposal, that the purpose of business should be defined as solving the problems of people and planet profitably, and not profiting from causing problems.
“There is widespread support for this proposal, such is the interest in restoring trust between business and society. By providing practical ways for companies to become more purpose-driven, the Future of the Corporation programme has shown how we can start to mend this trust.”
Jonathan Geldart, Director General of the Institute of Directors, said:
“Businesses are increasingly taking a broader view of their purpose so that they serve the interests of all their stakeholders, rather than a sole focus on maximising shareholder value. Our own research of our members has shown that almost half of directors feel that companies should have a stated social purpose to help solve problems in society. This report sets out the practical steps and policies that need to be implemented in order to deliver this.”
Policy & Practice for Purposeful Business
The conclusion of the Future of the Corporation programme sets out how to embed purpose in the heart of business through a set of proposals brought together for the first time.
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 511 adults. Fieldwork was undertaken between 7-15 September 2021. The survey was carried out online. The figures have been weighted and are representative of British business size.
Q1. Which ONE, if either, of the following statements do you think BEST reflects the role businesses have in society?
The purpose of business is to maximise
returns for shareholders/owners within the confines of the law
|The purpose of business is to find profitable solutions to the problems of people and planet and not to profit from creating problems for either*||43%|
|Neither of these||13%|
Q2. Which changes, if any, to the legal and regulatory environment for business in the UK would your business support? (please select all that apply)
Corporate purpose being placed at the
heart of company law and the fiduciary responsibility of directors who
determine and implement company purposes
Government publishes guidance on how
companies can incorporate purpose in their legal form, for example in their
articles of association
Regulators are given new powers to
hold directors and controlling owners to account for their corporate purposes
A new duty being placed into the
mandate of all regulators to enforce the principle that companies do not
profit from failing to meet the minimum standards that the regulator sets.
|None of these||20%|
For the following questions, we asked those surveyed to think generally about purposeful businesses. By this, we mean businesses which are committed to a purpose, typically in terms related to finding solutions to problems of people and planet.
Q3. Which, if any, of the following do you think would be important in helping to develop 'purposeful businesses' in the UK? (Please select all that apply)
|Businesses: through creating new ways of operating (e.g. new board structures, purpose statements, culture change, measurement and reporting etc.)||50%|
|The UK government: by legislating to put purpose at the heart of company law and placing responsibility for delivery of purpose into directors' duties.||43%|
|Regulators: by holding directors and controlling owners to account for their corporate purposes and ensuring that businesses do not profit from failing to meet minimum standards.||47%|
|Investors: through long-term engagement with companies about the nature and implementation of their purposes, and through evaluating their performance against their purposes.||43%|
|None of these||11%|
Q4. Which, if any, of the following steps has your business taken or is considering taking to make itself more 'purposeful'? (Please select all that apply.)
The Board of Directors developing
and/ or revising an official company purpose statement
Revising the Memorandum and Articles
of Association to reflect the purpose
|Discussing the purpose of the business with shareholders / investors||18%|
Improving non-financial reporting
throughout the business to account for both positive and negative impacts of
the business on people and planet
Reviewing culture and values in
light of the business's purpose
|Introducing mechanisms to involve stakeholders (e.g. customers, suppliers etc.) in decision-making around purpose||14%|
|Changing board or accountability arrangements to reflect the purpose||17%|
Not applicable - my business is not
taking nor considering making any changes to make itself more 'purposeful'