New report says change to company law could add £149bn to the UK economy

A new report by the think tank Demos and backed by a coalition of businesses has called for changes to the Companies Act that would drive growth and add £149bn to the UK economy. 

The report – titled “The Purpose Dividend” and delivered in partnership with B Lab UK – shows that reforming corporate governance to put social, economic, and environmental considerations at the heart of decision-making could boost GDP by 7%.

The research compared the performance of stakeholder-governed businesses – such as B Corps, social enterprises, and co-operatives – with a traditional shareholder-first approach. 

It found that stakeholder-governed businesses outperformed their peers with higher levels of investment and capital, higher levels of innovation and product development, greater levels of staff engagement and faster rates of turnover growth. 

If policymakers were to legislate to make business like this the norm, the researchers found the UK economy would grow faster, invest more, and provide the equivalent of a £2,288 annual salary rise for the UK’s lowest paid workers. 

Highlights from the research include:

• The UK economy (as measured by Gross Value Added) would be £149bn larger than it is today — increasing the size of the UK economy by 7%. This is equivalent to adding a sector the size of the construction industry to the UK economy. 
• The lowest paid workers in the UK would get a £2,288 a year pay rise on average compared to the present day. 
• The UK economy would see capital investment boosted by £86bn per year — increasing our investment to GDP rate by four percentage points taking us from bottom of the G7 league table for investment.
• R&D investment would rise seven-fold with £116bn increase in expenditure across the economy with the UK catching up with leading countries such as Korea and Japan.

The report calls for policymakers to look at reforming the governance of UK businesses by changing the Companies Act and putting a duty on directors to consider social, economic, and environmental impact of their business alongside the profitability. 

The Better Business Act — a coalition of over 2,000 businesses including Iceland, Tony’s Chocolonely, and Olio — is a route to achieving this. The campaign now has cross party support and is backed by business groups such as the Institute of Directors.

Commenting on the research, Demos’ Director of Policy and Impact and report author, Andrew O’Brien said:

“We tend to think about growth as a matter of cutting taxes or raising public spending. Our research shows that the biggest game-changer for the UK economy would be to improve the governance and structure of businesses. If we get this right we can add hundreds of billions to the UK economy through boosting investment, productivity and pay for working people. A far bigger impact than most other measures that dominate the debate in Westminster.

Tens of thousands of businesses are using social and environmental purpose as a way to improve their performance and make our country a better place to live. By giving themselves a legal responsibility to think about how they can go beyond profit, they are actually making themselves better businesses over the long term.

Our research shows that any politician that wants to have a serious plan for reviving the UK economy must have reforming corporate governance at the centre of that plan.”

Campaign director of the Better Business Act and executive director of B Lab UK, Chris Turner said:

“This new research shows that the UK could enjoy huge economic benefits by bringing social and environmental interests into the heart of business decision-making. A simple change to the Companies Act could unlock investment, growth and productivity, while creating the right conditions to tackle our 21st century challenges.

The growing movement of stakeholder governed businesses, including over 1,600 UK B Corps, have proven the value that having a purpose beyond profit can bring. This research builds on their experiences and shows that this is truly a model for better business — better for the economy, better for society, and better for the environment.”

Tessa Clarke, co-founder and CEO of Olio, said:

“As a certified B Corp and member of the Better Business Act coalition, Olio understands the power of aligning the interests of people and the planet with profit. We’re a local sharing app connecting neighbours with each other and volunteers with local businesses to ensure surplus food and household items are reused rather than thrown away. This focus on purpose has not only positively impacted wider society and the environment — with our community saving over 140 million portions of food and ten million household items — but has also led to opportunities for business growth and investment. We now have seven million users spread across 60 countries, we’ve raised over £35 million in funding, and our team has grown from two to over 70 employees in just seven years.

However Olio is just one business. This research demonstrates the collective impact that businesses could have on the UK economy if they all adopted stakeholder governance. It’s time for the policymakers to listen and put corporate governance reform at the top of the agenda.”

NOTES TO EDITORS 

• A copy of the report and executive summary has been attached with this Press Release.
• Methodology: This report is based on a literature review and analysis of existing data and research on purpose-led businesses in the UK and around the world. Based on this data, 32 data points were identified of differences between the performance of purpose-led businesses and traditional profit-led businesses. An independent economist, commissioned by Demos, then compared these characteristics with data on the performance of existing businesses to identify the economic benefits from spreading the use of purpose-led businesses across the UK. These findings are outlined in the main report and data points are identified in Annex A. 

Media Contact 

For more information about the research and the methodology behind it, please contact Demos.
Name: Andrew O’Brien
Role: Director of Policy and Impact

Email: andrew.obrien@demos.co.uk
Phone number: 07889129971

To find out more about the Better Business Act coalition or be put in touch with one of its spokespeople, please contact: media@bcorporation.uk 

About Demos

Demos is Britain’s leading cross-party think-tank: an independent, educational charity, which produces original and innovative research.

About B Lab UK:

B Lab UK’s purpose is to redefine success in business through building a community of engaged businesses, raising awareness of the B Corp movement and influencing change in the UK economy. The Better Business Act is a business-led campaign by B Lab UK, driven by leaders who recognise that the law has fallen behind business culture and who have proven that this approach to business works for everyone.

The Better Business Act is urging all of Britain’s business leaders to call on the Government to amend Section 172 of the Companies Act to ensure businesses are legally responsible for benefiting workers, customers, communities and the environment while delivering profit. 

To achieve this, we are bringing together a broad and growing coalition of leaders from across all sectors and all regions of the UK to help deliver this new contract between business and society.

https://betterbusinessact.org