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People and Planet in the Accounts: Riverford brings its B game

30 November 2020: Riverford Organic Farmers became a certified B Corporation this year. Its finance director explains how its employee-owned structure keeps purpose at the forefront of its decision-making.

Having run Riverford Organic Farmers for 30 years, founder Guy Singh-Watson started thinking about succession planning. In recent years, businesses such as his had become exceedingly valuable; companies such as Mindful Chef were being bought by larger groups such as Nestlé. But what mattered most to Singh-Watson was that the company stayed true to its original ideals. 

The best option, in that case, was an employee ownership trust, with Singh-Watson maintaining a 26% stake in the business. Riverford’s employees lived and breathed its ethos and would actively make sure that the decisions the company made would be the right ones. The ‘owner’s wishes’ – how Singh-Watson wanted the business to operate – were embedded in the articles of the business. This created a somewhat unusual governance structure that tied the company to its ethical approach. 

I was used to making business decisions made primarily on a financial ROI-type exercise,” says Andrew Boteler, Riverford’s finance director. “At Riverford, if we're making a decision – any decision – there are things that are properly looked at.”

While there is certainly a commercial factor to the company’s decision-making process, it is just one factor; the impact on the employees (co-owners), the brand and the environment are also taken into account. “All of those things will be given equal consideration.”

Riverford became a B Corporation earlier this year. B Corporation is a certification, based on an assessment across a set of criteria, signposting to consumers, suppliers and stakeholders that the organisation is actively working to a positive purpose, considering its wider impacts as well as the bottom line.

All of which Riverford was already doing. There was some debate internally as to whether to get certified, but ultimately, the company decided it was the right thing to do. “It was a way of not marking our own homework, quite frankly. So, we've got that benchmark, and we can use that not only to see where we are now but also, where we should improve.”

Riverford approached the B Corporation process without trying to do anything special – the team wanted to see how the company’s ‘business as usual’ would score against the criteria. “We felt confident that we were doing the right things, and as it turns out, we were,” says Boteler. “We scored 124.6 as an entry-level rating, which puts us in the very top in our sector. We do have some areas where we’d like to improve. Our ambition is to be the best we possibly can.”

Areas in which the company has made improvements in recent months are around its supply chain. It had always taken measures to pay suppliers fairly and make buying decisions that reduced the amount of waste, but that had never been formally set in stone, so the company put a supplier charter in place. As part of that, the company sticks to very strict payment terms – suppliers are always paid on time.

Other than payment terms, Riverford’s ethical approach influences the finance function’s budgeting, cashflow planning and investment appraisal process. “It has to be much broader than purely financial analysis. Yes, we will make a profit. But the key then is: what do we do with that profit? That's where the finance department comes in. Our planning, budgeting and forecasting have to be couched in the terms of how we use our profits in a way that is appropriate for Riverford.”

Riverford’s approach is gaining traction across the retail sector. Not just the ethical decision-making process, but its business structure too. Employee ownership is an increasingly popular option for owner-managers looking at succession planning. Aside from the ethical benefits, there are tax advantages for the seller and the employees. No capital gains, income or inheritance tax liabilities should arise on the disposal of a controlling interest in a company to an employee ownership trust. Employees, in turn, receive a tax-free bonus at the end of each year. 

For Riverford, it’s about much more than the financial perks: “It's been an incredibly powerful tool,” says Boteler. “It engenders a sense of kind of ownership and responsibility, that's been so many things that we've had to do during this pandemic have been much easier.”

Consumer trends are moving the sector in this direction, says Boteler; most organisations have a long way to go to catch up to Riverford, but they will get there. “I think it's the right time to become a B Corp; we can use it as a vehicle to start to spread the message and we welcome the huge surge in interest in the ethical business model.”

Article series: People and Planet in the Accounts

Convergence of non-financial frameworks and standards is gaining momentum and we are beginning to see how nature and society might be included in the financial statements. But can these frameworks tolerate such change? In these articles we explore this from the perspectives of different actors in the debate.

See the series