Steve Reed’s approach to water companies shows the only way to change business behaviour is to change the rules of the game
22nd July 2024
Chris Turner, Campaign Director, Better Business Act
With Thames Water on the brink of collapse and sewage scandals breaking across all parts of the UK, serious intervention was needed from the new government. And that’s exactly what we’ve seen from Steve Reed, the new Secretary of State for Environment, Food and Rural Affairs. Within his first week in the role, he has sent a clear signal to the water sector: clean up your act. And the most effective way to do it, he says, is by enshrining the interests of customers and the environment in companies’ Articles of Association.
For too long, we have been watching companies pay huge dividends to shareholders whilst behaving questionably at best, and criminally at worst. This behaviour is driven by company law, which steers directors to put shareholders first – often at the expense of the planet and their workers or customers. Examples such as P&O Ferries firing 800 staff over a Zoom call, Shell backtracking on climate commitments, and Boohoo’s appalling treatment of workers at a factory in Leicester show just how damaging it is when businesses put shareholder interests above all else.
Mountains of regulation and reporting exist which many hope will improve corporate behaviour. Yet it’s clear that the problem will not be solved until businesses move away from short-term shareholder-first thinking. And from Steve Reed’s decision this week, it seems that the government agrees. The only way to harness the collective power of the business community to tackle our shared challenges is to update corporate governance rules.
Business has enormous potential to become a force for good. We know this from our work with over 2,000 UK B Corps, and from the example of thousands of social enterprises and progressive businesses like Timpsons, whose CEO has just been invited to join the cabinet. At a time when the new government has so many huge problems to solve, we need to go further than just water: we must update the rule-book for all businesses.
The Better Business Act would update Section 172 of the Companies Act to ensure that all businesses, not just those in the water sector, prioritise people and planet alongside profit. Almost 3,000 businesses including Iceland, Anglian Water, Tony’s Chocolonely and Virgin, alongside influential organisations like the RSPB, the Institute of Directors and ShareAction are backing the act. A healthy, growing economy needs a bedrock of strong corporate governance. The time for a change to the rules has arrived.