A regular briefing for the alternative asset management industry.
Demonstrating a lasting commitment to sustainability – and to respecting the interests of key stakeholders – is increasingly recognised as a driver of long-term commercial success. But persuading outsiders that such commitments are meaningful can be a challenge. Achieving accreditation as a "B Corporation" sends a powerful and very public message – one reason that many UK companies, including an increasing number of private equity firms, have taken that step. In doing so, they have joined a community of over 4,000 B Corps from 77 countries.
Although it is not a once-and-for-all decision, getting a positive impact assessment from B Lab, and making a promise to report annually on positive and negative impacts, should reassure stakeholders that the directors take social responsibility seriously. However, although there are important reputational issues at stake, there are unlikely to be any significant legal consequences for directors of companies that decide to opt in.
It is true that any UK company that wants to be a B Corp has to change its constitution so that directors must, while doing their best to maximise shareholder value, also seek to ensure that "through its business and operations, … [the company has] a material positive impact on society and the environment". External impact has equal priority with shareholder value.
That is certainly a strong statement of intent, and might well inform the directors' behaviour in practice. But the directors' duty remains subjective – meaning that striking the right balance between various interest groups (including investors) remains a good faith business judgement for each director, and one that will be very hard to challenge. In any case, other than in very exceptional circumstances, directors' duties can only be enforced by the company itself – and not by other stakeholders – something that remains true after the switch to B Corp status. In addition, the shareholders of a solvent UK company can ratify decisions of the directors with which they agree, protecting them from future legal action. The shareholders can also appoint and remove directors, and can change the constitution at any time to delete the B-Lab required mission statement.
...striking the right balance between various interest groups (including investors) remains a good faith business judgement for each director, and one that will be very hard to challenge...