Global Waves of Change: The Importance of Legal Innovation in Corporate Governance

The realities of a global climate crisis and pandemic that are exacerbating social inequities have more people calling for action from business leaders and others who shape economic policy and practices. With financial and human capital behind them, as well as calls for change from a growing chorus of supporters, business leaders around the world are increasingly looking to raise the bar on corporate governance requirements.

They say it’s no longer enough for businesses to voluntarily take responsibility for their social and environmental impact. Instead, they must factor their impacts on people and planet into their business policies and practices — adopting a long-term view that goes beyond shareholder returns and embedding stakeholder value in the company’s structure.?

In the UK:?The latest example is in the UK, where business leaders are joining forces to push for legislation known as the Better Business Act (BBA). Among the organizers and proponents of the BBA is B Lab UK Executive Director Chris Turner, who oversees the nearly 600 companies in the UK Certified B Corporation community as well as collaborations with other organizations advocating for purpose-driven business. The Better Business Act is a needed step in reshaping economic systems to help address global challenges, he says, and B Corps are among the companies demonstrating the positive impact of operating to create value for stakeholders.

“When it comes to governance, all B Corps have to make a legal change depending what jurisdiction they’re in. They are the living, breathing kind of proof of concept that stakeholder governance, which we call aligned interests,?is not just working — but it's a better way of growing a business, quicker and more sustainably, as well as caring for people and planet,” he says. “The campaign is therefore designed around essentially saying there is proof that this works as?a model of governance.?It is good for business growth as well as positive impact.”

In Italy:?Turner and others in the UK are pulling inspiration from other advocates for benefit corporation governance around the globe, including business leaders in Italy, where the?società benefit?movement has grown to include more than 1,000 companies since the benefit corporation was legally approved in late 2015.?

In Italy, proponents of benefit corporation legislation — an elective choice for companies — included?Paolo Di Cesare and Eric Ezechieli of Nativa , which in 2013 became the first Certified B Corporation in Europe and continues to be a regional leader in the purpose-driven business movement.

Through their roles at Nativa, Di Cesare and Ezechieli have witnessed interest in purpose-minded business grow — even more rapidly in recent years — and continue to emphasize that certification is just one step in the journey of impact improvement.

“It’s not just about B Corps. It’s really about system change and accelerating the evolution of business,” Ezechieli says. “We’re developing leaders who can bring on board other leaders and really develop a movement. B Corp is a tool and is part of the story, but it’s not the whole story.”

That story involves the imperative that businesses take a broader and longer-term view of success — going beyond the bottom line and pursuing constant impact improvement in their operations. In advocating for the benefit corporation legislation and bridging the gap between business priorities and political impacts, the Nativa team met new business leaders looking to advance regeneration and sustainability.

“Our message is that this concept makes concrete the concept of sustainability,” Di Cesare says. “We try to underline the fact that B Corp or benefit corporation gives them the tools to become better companies for the future.”

In the United States:?The theory that businesses exist to maximize shareholder value remains dominant across the United States, and business leaders can and have been held liable for failing to uphold that responsibility. Operating under this theory, however, is no longer the only option in many states.

More than 40 states, Washington, D.C. and Puerto Rico have passed benefit corporation legislation. These states include Delaware, which is recognized as the home of U.S. corporate law.?Former Delaware Chief Justice Leo Strine said ?policymakers there opted to approve the legislation “to give people freedom of choice.”

The Delaware legislation also includes crucial wording that enhances its effectiveness, Strine told me, saying company directors “shall” consider their obligations to all stakeholders, not that they “may” do so. This provides the ability for shareholders, mutual fund directors, and others to take action if stakeholders are not represented in a business’s decisions.

“The benefit model really allows people in a forthright way as a director to say, ‘We’re going to make some trade-offs,’ and it may be frankly that this isn’t the most optimal just from the standpoint of stockholders, but it’s the decent thing to do,” Strine said. “Businesses obviously have to get a good price for their shareholders, but they can take $1.50 per share less and make sure that the workers that have helped build the company and secured the value they’re going to get still have their jobs.”?

In the countries I mention above and other regions around the world, benefit corporation legislation continues to advance, incrementally and intentionally, as more business leaders and others realize its potential to help address our current social and environmental challenges. It’s another example of the power of purpose-driven business to influence waves of change that start small and amplify over time.?