You may be surprised to learn that businesses in the US which make charitable donations are technically breaking company law. Standard memorandum and articles of association state that a company’s sole purpose is to maximise shareholder value. I’ve never heard of shareholders suing a business for giving money to charities instead of offering them more cash – but crazier things happen all the time.
Bill Gates has inspired many by redefining wealth and his charitable reputation has triggered many more people to do the same with their own money. But US companies that do so face class actions from shareholders. I suspect most investors take the view that they should seek to realise as much cash as they can. Very few, especially institutional investors, would worry about people who have lost jobs or homes – let alone those in developing countries.
Nearly 1,000 companies in the US have sought B corporation status – the B standing for benefit. These businesses can now drive their social profile to the forefront rather than hide their good work in company accounts under the heading of ‘marketing’, or likewise. Their slogan is “let’s not just be the best in the world, but best for the world”.
Companies that have made the switch report greater economic success (businesses with similar values seek each other out) and also, understandably, generate greater employee morale and motivation.
Moves are under way to widen the profile of B corps in Britain. If government places more lenient tax demands on such companies – in the form of reduced corporation tax or different VAT levels – businesses might be inclined to make the switch. Investors, too, could be persuaded to step up. The Enterprise Investment Scheme – launched to help smaller, higher-risk companies raise finance by offering tax reliefs to investors – has helped many businesses get involved. But there are growing rumours that this programme will soon be dropped.
Any government which shelves the scheme might make the decision more palatable by offering B corp businesses an investor-friendly model instead. This could be a major breakthrough; you may be interested in saving tax but your investments will have far-reaching social impacts, whether you care or not.
In the past, I was moaned at by investors for spending time and money on what my financial director called “fluffy stuff”. So I just told the investors that the marketing budget wasn’t as high as they claimed but simply the industry norm.
Fifteen years ago, chief executives who wanted to do fluffy stuff would often be equally clever. Now the B corporation principle is showing that this can be a solid commercial proposition. You work harder not just to benefit yourselves and your shareholders, but also to help others.
British businesses have come a long way since those days. Large corporations openly compete on their social engagement activity. Steve Varley, UK chairman of EY, says that the change in his company slogan from “Quality in everything we do” to “Building a better working world” is not simply sugar-coating; it embodies the way his company views its role – and wins him business.
Britain is doing great work with social enterprise. The way social enterprise investment works though leaves huge potential for individuals. Projects such as Big Issue Invest receive resources from mainstream banks and Big Society Capital – rarely from individual investors. And this is why more B corporations would be welcome in Britain; they involve individuals. Not only will you want to make purchases from such businesses but with the right structures in place, it could benefit you to invest in them, too.
New and rising talent will want to work in these companies. Top talent in universities is no longer just driven to investment banking and law. Professor Craig Calhoun, director of the LSE, spends time getting his students to volunteer in charities and social enterprises to expand their minds. He wants my alma mater to become more than a finishing school for Goldman Sachs and finds students eagerly taking up such opportunities.
One of Tom Cruise’s most memorable performances is as a sports agent in Jerry Maguire in the brilliant “Show me the money” scene. How far-fetched is it to think that the investor of the future will say, “Show me the benefit”?