Out-Law News 3 min. read

Businesses urged to set and report on purpose

Above view of large group of people communicating - diversity

Businesses have been urged to set a defined business purpose aimed at addressing social and environmental problems, and to measure their progress towards achieving it.

The recommendation was made by the Business Purpose Commission (BPC) for Scotland, a 25-member-strong group of business leaders and representatives from academia, civic society and trade unions. Its vision is for all businesses in Scotland to “have become purposeful businesses which profit from finding solutions for people and planet” by 2030.

“The business case for business purpose is strong and the ethical case for change is clear,” the BPC said. “A diverse mix of profitable businesses and a prosperous and sustainable society go hand-in-hand.”

“Leaders who embed a clear purpose in their business will help to steer it through economic challenges to seize the business opportunities from solving problems for people and our planet. This will benefit your owners, employees, communities and the environment,” it said.

Tom Leman, who is driving Pinsent Masons’ transition to being a purpose-led professional services business with law at the core, said the BPC report is consistent with the message that Pinsent Masons is hearing “loud and clear from our employees, our clients and the communities within which we operate”.

Leman said: “We started looking at this seriously over five years ago. We listened to our broader stakeholders and realised we couldn’t continue with the same old business model. As a result, we have spent time understanding our own purpose, articulating it, and considering what it means to us. Whilst important, the awareness phase is just that – knowledge. What perhaps is more important is the implementation – the root and branch changes in our business to make sure that it is aligned with our purpose. That has been our focus for the past couple of years and, whilst we are pleased we are already making good progress, practical change will be a continuing priority.”

The BPC was set up by the Scottish government and tasked with making recommendations on how Scotland could become known for nurturing purposeful businesses that make a positive impact on economic prosperity, social wellbeing and environmental sustainability. In a new report, it set out 12 overarching recommendations to that effect.

Included in the report was a recommendation that the UK government update company law to require businesses to “state their purpose in their article[s] of associations and operate in a manner that benefits their stakeholders, including workers, customers, communities and the environment, while seeking to deliver profits for shareholders”.

The law should be further revised to place company directors under a new duty to “advance the purpose of the company”, the BPC said.

Leman said: “What is interesting is to see that the Scottish government is looking at how it can speed the broader transition to a more purpose-led economy. We always felt that the market might not push the agenda as quickly as the populous demands and that regulatory intervention is an inevitability. So, we welcome but are not surprised by the recommendations and we would be delighted to continue to lead by example – helping our clients, potential clients and our own industry work out what it means and how we can all change for the collective good.”

The BPC also set out a series of further recommendations aimed at incentivising the shift to purposeful business and ensuring that businesses that invest in becoming purpose-led do not lose out on contracts to others that do not, who may be able to undercut them on price. The BPC urged private, public and voluntary organisations which buy from suppliers to “embed and encourage business purpose in their value chains and reward purposeful businesses”, and it further proposed that the tax framework be calibrated to incentivise purposeful business models and practices.

“All incentives should be simple, efficient, effective and transparent, delivering additional social and environmental benefits, in order to mitigate any reduced revenues for public services,” the BPC said. “Businesses and investors should use tax incentives to drive business purpose and positive impact, and all businesses should be open and transparent about paying the right levels of tax.”

“The UK government should also review tax options to ensure that businesses with socially and environmentally responsible practices and products are competing on a level-playing field with other businesses, and to disincentivise behaviours by businesses which have negative results,” it said.

In urging businesses to voluntarily define their purpose, the BPC encouraged businesses to focus on a purpose that aligns with the broad aims “to find profitable solutions to the problems of people and planet, and not to profit from creating problems for either of them”. It said the purpose businesses set should be appropriate for their size and the market they operate in, and it encouraged businesses to “embed their purpose in their strategy and use it to drive better performance”.

To underpin the shift to being purpose-led, businesses should also voluntarily report their “non-financial and financial impacts”, the BPC said.

The Business Purpose Commission for Scotland

August 2022

Specific ESG commitments should flow from this business purpose and help investors and other stakeholders understand why the business is pursuing them

The BPC said employees should be involved in developing and delivering a business’ purpose. As well as providing forums for employees to input, and designating ‘purposeful business champions’, the BPC recommended businesses embed business purpose into “all stages of the employee journey” – from recruitment and onboarding, to feedback and performance management, rewards and promotion.

It also recommended businesses take action “to increase diversity, equality and inclusion in all parts of their business”, citing evidence that this will lead to improved business performance and broader awareness of changing customer and societal expectations.

The BPC said it is wrong for businesses to view business purpose and the environmental, social and governance (ESG) agenda as the same.

“Business purpose is the reason why a business exists and what it offers in the marketplace that will profitably solve problems for people and the planet,” it said. “Specific ESG commitments should flow from this business purpose and help investors and other stakeholders understand why the business is pursuing them.”

Information on Pinsent Masons’ transition to becoming purpose-led is available on our website. For more details, please contact head of impact and strategic delivery, Liam Wardley, at [email protected].

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