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How Do Companies Act? – Accounting to Save The Planet and People

What We Need to Change

The time for change is now.

Are the basic accounting principles that have developed over hundreds of years still fit for purpose? The principles upon which accounting and reporting are based have a massive influence on the world we live in, on relative prices and on investment flows. The relationships are becoming ever more critical between business and society, and between financial markets and inequality. We believe that we should be having a wider discussion on the nature of accounting principles. They are a public good and have been socially constructed but they are not generally considered when we think about solutions to global challenges.

The Companies Act 2006 provides the structure around the environment in which businesses operate, and we believe by changing the wording in various sections, we can create a more rigorous environment in which businesses operate, and will allow us as investors, even in our own pensions, to have more power over what our money is invested in, and increase our buying power.

Why are we doing this now?

We’re running out of time. This campaign is aiming high because we have no other option. Time is running out, we’re in an environmental and social crisis, and action is needed now. We don’t have the time to slowly push for change, we must demand it, and demand it happens now.

What’s our goal?

With our How Do Companies Act campaign, we aim to update the Companies Act 2006 to ensure that environmental and societal impact is properly accounted for in financial accounting and so that the principles of accounting match up to the modern customer and investor.

The end goal of this campaign is to change the wording in the Companies Act 2006, s.396 which states that it requires a company’s accounts to ‘give a true and fair view of the state of affairs…[and] of the profit and loss of the company’. This campaign proposes that the true and fair view is defined within the Act to include information on the social and environmental impact of the enterprise. This would then be consistent with corporate governance review and the requirement of s.172 for directors to show how they have complied. This, too, needs updating with regard to the Corporate Governance Code.

However, currently under s.172, directors must only ‘have regard’ to the impact of the company’s operations on the community and environment [s.172(1)(e)]. This wording is not strong enough, as it is ambiguous to what consists having ‘regard’. It is entirely possible that this constitutes an informal, unbinding conversation. Social Value UK support initiatives to strengthen requirements here.

Furthermore, directors only owe responsibilities to a company under s.178(2), meaning that only the company can take legal action against a director for failing to meet their duties. This is a classic single-agent issue- ‘without the change to the Companies Act to ensure that the company as an agent of investors also takes account of the issues in s.172, investors will not be able to hold companies and therefore directors to account.

Read more in our Policy Position here.

Who’s involved?

So far, we’re working with Social Enterprise Mark CIC and Social Enterprise UK, as well as consulting with other bodies, members and figures.

How do I get involved?

  1. Pledge your support to our open letter and petition

Read our letter to UK Political Leaders here.

Sign here to support.

This letter has been drafted by Social Value UK in collaboration with Social Enterprise UK and Social Enterprise Mark CIC, with support from a range of partners and members representing business, social enterprise and charity sector.

2. Download our social media pack and share the word! Download Version 1.0 here.

3. Be a Campaign Partner! Contact us at david.thomas@socialvalueuk.org to discuss further.

4. Donate to our crowdfunding (coming soon)

Resources and Publications

2019 – Social Media Pack

The How Do Companies Act? Open Letter media pack is available for download here.

2019 – Open Letter to UK Political Leaders

Social Value UK, Social Enterprise Mark CIC and Social Enterprise UK have penned an open letter and petition calling for a review of the Companies Act 2006. 

Read more.

2019 – Policy Position

Social Value UK has published a three-page document outlining the legislative goals of this campaign, and how this will be achieved.

Download the document here.

2019 – Social Value UK Publishes Three Part Research Document

In 2019 we published a three part document which contains a short write up of the findings of our 2018 survey with YouGov, a longer think-piece focusing on the current state of accounting, as well as the complete list of survey questions.

Download the document here.

2018 – Social Value UK + YouGov Survey

In late 2018 we completed a survey across the UK to gauge changing reactions to the current state of accounting. Our survey showed that 85 per cent of the public do not want their investments to maximise financial returns if there is no interest in social or environmental impact. Find out more here.

This research was featured in:

U.K. Public Wants More Company Environmental, Social Disclosures – Bloomberg Tax

Survey: Consumers want corporates to include sustainability in profit calculations – edie

Call for wider reporting requirements on profitability – Accountancy Daily

2015 – Manifesto

We released our manifesto for change just before the 2015 UK General Election. It focuses on how we can make organisations more accountable. Read more here.

2014 – How do Companies Act?

In December 2014, we launched our policy report How do Companies Act. In it, we argue the case for more assurance of social and environmental impact information in corporate reporting. Find out more here.

2014 – Moral Investor Report

Read the Moral Investors report by Jeremy Nicholls on the role of accountants in investing here.

2012 – Are we accounting for value? A discussion document

In 2012 we published ‘Are we accounting for value? A discussion document’.  Are the basic accounting principles that have developed over hundreds of years still fit for purpose? Jeremy Nicholls, founder of both Social Value International and Social Value UK argues that they could be reshaped to be more relevant to the global economy. Accounting for value is a discussion piece. Read more here.

Related documents from the Social Value UK blog:

FAQ

Is it possible to change the law around this?

Yes, we’re not alone in aiming for this goal. It’s a lofty goal, but in the times we live in, we have to aim high and push for change now.

Is anyone else campaigning for this?

Not yet, but these are initiatives pushing for close change:

What needs to change?

We’re aiming to change section 396 of the Companies Act 2006, as well as section 172 and section 178.

Who is in support of this change?

Our research has shown that the public are ready for change, and as stated above, we are working with organisations such as Social Enterprise UK and Social Enterprise Mark CIC

What other relevant campaigns and research are there?

Purpose of a Corporation- Business Roundtable USA

Future of the Corporation – British Academy

My Money Matters

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