Governing for purpose and stakeholders in Aotearoa New Zealand
By Jo Kelly, Strategic Advisor, B Lab Australia and New Zealand
B Lab has long advocated globally for models that drive alignment with business stakeholders, advancing a stakeholder governance ethos to replace the doctrine of shareholder primacy. Given the ongoing changes in corporate governance practices in New Zealand, B Lab now advocates for New Zealand businesses to codify and lock mission or purpose into governance and management decisions, utilising the company constitution to include public benefit purpose and stakeholder governance provisions.
What is the purpose of a company in 2021?
Although prioritising shareholders is not an express legal requirement of the NZ Companies Act 1993, the idea of shareholder primacy is widespread in the culture and practice of mainstream New Zealand business.
However, expectations of business from consumers and regulators are changing, with focus shifting towards governance for communities, workers and the environment. The Impact Initiative – a social enterprise sector development partnership between the Ākina Foundation and the Department of Internal Affairs – explored evolving legal structures for business. Initially, this work made the case for minor amendments to the Companies Act 1993.
However, in recent years the New Zealand corporate governance environment has evolved sufficiently that the Impact Initiative, in alignment with B Lab’s stance, now advocates for New Zealand businesses to codify and lock mission or purpose into governance and management decisions, for example by amending their constitution to include purpose and require stakeholder governance.
This is but one example of an ethos powering the global movement known as Certified B Corporations.
B Corps are a global movement of people using business as a force for good
Originally conceived in the United States, where a share price can benefit at the cost of everything else, the B stands for ‘benefit’. Benefit Corporations represent the idea that a business should be legally able to exist for the purpose of creating benefits to stakeholders other than shareholders.
Certified B Corporations (B Corps) are businesses that balance purpose and profit and hold themselves publicly accountable for considering the impact of their decisions on their workers, customers, suppliers, community and the environment. A business can ‘certify’ when it demonstrates it meets a rigorous set of governance and management requirements, which are administered by the not-for-profit B Lab.
Today, there are close to 4000 B Corps in more than 70 countries including in North America, the United Kingdom, Europe, China, Australia, Latin America and New Zealand.
B Lab connects New Zealand businesses with the learnings and tools of the global B Corp movement.
In partnership with business-led initiatives, governments and philanthropists, B Lab supports collective action to create the systemic conditions that enable better business across the board, for example through public policy, advocacy and listing rules that are regulated by stock exchanges.
Gaining ground in New Zealand
The New Zealand legislative system supports B Lab’s model for governing for purpose and stakeholders. By adopting the language within their company’s founding documents, B Corps demonstrate that they hold themselves to a higher standard of accountability for their decisions. From mid-2021 this new requirement will be key part of B Lab’s certification requirements.
However, it’s not just a B Corp solution: All New Zealand companies can make a legal commitment to pursue profit and purpose.
"All New Zealand companies can make a legal commitment to pursue profit and purpose."
Jo Kelly, B Lab Australia and New Zealand
As is the case in other regions, it’s not unusual to hear directors in New Zealand say they are considering the impact of the company’s decisions on stakeholders, but many boards don’t yet know how to build in processes to do that effectively.
Amending the constitution voluntarily holds a company accountable to creating profit and positive impact. It is a clear commitment to shareholders about how the business will be run, and how directors intend to meet their responsibilities. It also opens the conversation at the Board level on how to embed the consideration of purpose and stakeholder interests in the company’s governance.
This approach is also designed to help companies protect mission through capital raises and leadership changes, and aligns investors (and potential investors), directors, founders and management. Certified B Corp, Eagle Protect is one example of a New Zealand company with its mission ‘locked’ into its constitution. Many countries across the world, including almost 40 states in the USA, have similar models legislated to support stakeholder governance practices.
Where to start with stakeholder governance?
Amending the constitution is one important aspect of committing to meaningful stakeholder governance. Companies can manage risks by implementing proper governance procedures to promote a higher standard of decision-making among directors. For example:
- The board actively positions itself to hold management accountable to pursuing its purpose to have an impact, in addition to profit
- The board institutes a policy that requires matters brought to the board describe the consequences on the company’s purpose to have an impact and how stakeholders were considered in decision-making
- The board ensures that discussions of the board and its subcommittees canvass issues relevant to its purpose and stakeholders, and that these discussions are minuted
- The board has adequate induction materials and training for new directors as to its constitutional purpose and commitment to consider stakeholders
- The board’s charter makes clear the purposes and stakeholder considerations that directors must consider when making decisions.
As part of MinterEllisonRuddWatts’ sustainability journey, one of the endeavours we are proud of is becoming a project partner with B Lab Australia and New Zealand, having provided pro bono advice on director duties and liabilities for purpose-led companies. We’re looking forward to supporting B Lab as it continues to enlist and certify more B Corporations in New Zealand and Australia.