Beyond B Corps: improving corporate accountability through employee ownership and stakeholder representation
In this article, we look at some of the limitations of the B Corp model in improving corporate responsibility.
We suggest that companies wanting to improve their accountability to their stakeholders could consider other ways, in addition to the B Corp model, such as becoming partly or wholly owned by their employees.
B Corp certification is a useful way for a company to broadcast the message that its objectives are about more than simply maximising shareholder value. Our earlier article 'The 'new normal': how B Corps offer an improved model of capitalism' explains how the model demonstrates that making profit for private purposes is not incompatible with being a force for good in the world. It offers an opportunity to reconcile the tension between needing to generate a profit whilst having a clear identity as an organisation which generates a positive social and environmental impact.
However, there is a potential accountability gap. Although the directors of a B Corp must consider a range of stakeholder interests when making decisions, who has the power to enforce this right, if they fail to do so?
Shareholders would be able to exercise their statutory power to remove the directors from office, but in most circumstances, other stakeholders would have no ability to enforce their right to be heard by the directors. Stakeholder theory requires a rebalancing of the power between shareholders and other stakeholders, and this is not guaranteed by B Corp status.
A company could go further than B Corp certification in order to improve its accountability to all stakeholders. This could be achieved in a number of ways.
Employee ownership would give employees a direct, genuine role in the strategy and management of the company. They could enforce their rights through direct share ownership or via an employee ownership trust, strengthening a company's accountability to this group of stakeholders. For more information about the options for employee ownership, see our website here.
A company could include stakeholder representatives on its board, to ensure multiple voices are taken into account. This could include directors appointed from the local community, suppliers, employees or customers.
Not all companies will be willing to give us board places for its stakeholders. Where it is inappropriate to appoint stakeholder directors, stakeholders could instead be given a consultative role, say through employee councils or customer panels.
Adopting a multi stakeholder co-operative structure would be another way of engaging stakeholders as members, giving them rights under the organisation's constitution to appoint directors and oversee the strategy of an organisation. It would require a company to cede control to a broader group of stakeholders than just financial investors, but would be an effective way of ensuring proper accountability to an organisation's stakeholders.
Whatever strategy is adopted, the aim would be to develop the capacity of a company's stakeholders, to enable them to enforce the rights which the company owes to them.
The growth of B Corps is an encouraging sign that businesses are taking corporate responsibility seriously. They represent a shift in attitudes, from motivations driven purely by profit generation towards a more inclusive approach towards the definition of corporate success. If companies could be encouraged to adopt mechanisms to guarantee stakeholder accountability, as part of B Corp certification, it would help to ensure the robustness and lasting appeal of the model.
If you would like to discuss any aspect of this article further, please contact Laura Moss or any of the Charities and Social Economy team on 0113 243 6100.
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The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.