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Could purpose-led firms lift the UK’s flagging economy?

It may seem counterintuitive, but getting companies to think beyond the bottom line could boost the economy, a report suggests

It may seem counterintuitive, but getting companies to think beyond the bottom line could boost the economy, a report suggests

Forget legislative bonfires and tax cuts. To really stimulate the UK’s flatlining economy, what about rewriting the rules of business so people and the planet are on a par with profit?     

It’s an idea put forward this week by the thinktank Demos. It called on politicians to rewrite the UK’s Companies Act to inject purpose, as well as a profit motive, into business. Doing so, it claimed, would provide a £149bn shot in the arm for the UK economy. 

It’s a direction that some companies have already moved in. B Lab UK, a network of purpose-led businesses, says there are more than 1,600 such firms in the UK, and counting. 

“These businesses are among the fastest growing, most resilient and most innovative in the country,” said Chris Turner, its campaign director. 

Obliging firms to think about anything other than profit is anathema to cheerleaders of the free market, who described Demos’ vision as an attack on the profit motive. One such group, the Institute of Economic Affairs, said the proposals were “extremely dangerous”.

Andrew O’Brien, director of policy and impact at Demos, refuted this. “The critics of this report are often quite big fans of Margaret Thatcher and her reforms in the 1980s,” he told Positive News. “But I think what the economic literature around that tells us, is that it wasn’t really the tax cuts, or the privatisations that were the big decisive factor. It was injecting competition into the economy that led to the biggest change. So it was actually about business and its operational structures that had the biggest impact on the economy.”

Reforming the governance of UK companies could unleash tens of billions of pounds of capital investment

In a rebuff to his free market critics, O’Brien points to the rise of purpose-led firms as proof that companies can generate profits while respecting the boundaries of society and the planet.   

“[Critics] seem to be quite scared that businesses will have to think about the environment and society, and that somehow they won’t be able to compute all of that, and they will collapse. That’s frankly very patronising towards people who work in business in the private sector, who are very smart people who can manage multiple things.”

Demos’ report has echoes of economist Kate Raworth’s doughnut economics concept – that firms must operate within social and planetary boundaries. It has become a blueprint for many purpose-led enterprises, and indeed the city of Amsterdam

firms boardroom

"Calling for reform to company law is not anti-business, but pro-business," said O’Brien. Image: Andrea Piacquadio

With an election looming in the UK, Demos wants politicians to usher in a bold new era for corporate boardrooms. 

“Reforming the governance of UK companies could unleash tens of billions of pounds of capital investment, turbocharge spending on research and development, and boost the wages of the lowest paid by thousands of pounds a year, all leading to higher levels of economic growth,” said O’Brien.  

“Calling for reform to company law is not anti-business, but pro-business. It recognises that the most powerful institutions in the economy are our businesses and the decisions they make are key to our future.”

Main image: scyther5/iStock

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