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A Higher Kind of Capitalism

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A bakery on the outskirts of Manhattan, a health and beauty products manufacturer in Brazil and a telecommunications provider in Afghanistan may not, on the surface, appear to have much in common. But they share at least one important trait: they’re part of a growing group of companies that are building a new business model called the B Corporation that’s based on the idea that business is uniquely equipped to help solve society’s problems rather than cause them.  

B Corporations – the “B” stands for Benefit — are not not-for-profit organizations, nor are they variant forms of a corporate social responsibility program. They are full-fledged, for-profit businesses that have committed to create and be accountable for specific social benefits. On the surface, this may not seem terribly revolutionary. But unlike other public companies, whose principal responsibility is usually defined in terms of financial results, “executives at B-corps are also required to consider nonfinancial interests when they make decisions,” explains Financial Journalist Felix Salmon. “The company has to create a material positive impact on society and the environment.”

That means that if a firm like Greyston Bakery, in Yonkers, NY, wants to invest to provide housing, child care and job training programs for its community, it can do so without fear of violating any of its fiduciary responsibilities as a corporation or, if it were a public company, of attracting lawsuits from investors who want financial growth no matter what. As it happens, while contributing to its community, Greyston also sold more than $11 million worth of baked goods in 2013 (the most recent year for which audited sales figures are available). Some of that dough comes from the sale of brownies that go into ice cream made by Ben & Jerry’s — a Greyston customer for nearly 25 years. Ben & Jerry’s is a B Corp (and also, as it happens, a part of consumer products giant Unilever).

Warby Parker, the eyeglass brand founded in 2010 and named by Fast Company magazine as the most innovative company of 2015, is a B Corp. For every pair of glasses they sell, Warby Parker makes a donation to a not for profit partner that in turn makes eyecare (and other benefits) available around the world to people with impaired vision. Children and adults who have trouble seeing will also have trouble learning and finding work, to name just two challenges. Outdoor gear maker Patagonia, practically the archetype of the socially and environmentally responsible corporation, is a B Corp. Seventh Generation, which makes toxin-free household cleaning, paper, and personal care products, is a B Corp. And so is Etsy, the Brooklyn-based online marketplace that generated $196 million in revenues last year. Soon, along with handcrafted items from around the world, consumers will be able to buy Etsy stock: the company filed for an initial public offering on the NASDAQ earlier this month.

In fact, the B list includes every imaginable kind of businesss, from dairies to law firms and from energy companies to investment managers. Every one of them has a compelling concept for marrying profit and purpose. But the B Corp vision of business as a force for good goes well beyond feel-good marketing. Indeed, gaining the designation requires not only a sincere commitment but also a strenuous effort. A nonprofit organization called B Lab (www.bcorporation.net) certifies companies that measure up to the demanding standards of its B Impact Assessment tool. It’s not uncommon for registrants to try a few times before achieving a passing score of 80 out of 200 – based on detailed evaluations of governance, relationship with workers, community impact and environmental performance.

Becoming a Certified B Corp typically also means making specific legal changes which, among other things, give directors and officers the latitude to consider the interests of all stakeholders and not just shareholders. Pass or fail, the assessment process helps companies identify ways to improve their practices (instructive case studies — including efforts that fall short — are available on the B Lab website). To maintain their certification, B Corps must report publicly on their performance and recertify every two years. 

The process should be tough, argues Jay Coen Gilbert, who co-founded the B Lab with partners Bart Houlahan and Andrew Kassoy. The “Certified B Corp” endorsement does for corporations what the organic label does for produce or the LEED certification does for buildings. “When everybody claims to be a conscious company, it is hard to know who is for real,” he recently told Conscious Company magazine. “B Corp certification helps you identify those companies that are not just conscious in their words, but conscious in their deeds.” 

B Lab officially opened its doors in July of 2006. The following June it announced the first 19 companies to gain certification. Today, there are more than 1,200 certified B Corps in 38 countries and 121 industries. In the U.S., home to about 70% of them, 26 states and the District of Columbia have also passed legislation that permits companies to register as “Benefit Corporations” – similar to a B Corp but minus the certification. Legislation is expected in the near future in another 14 states.

If becoming a B Corp is good for society, it also appears to be good for business. In his book “Profit & Purpose, How social innovation is transforming business for good,” Attorney and Social Entrepreneur Kyle Westaway summarizes a number of studies that show that companies that have integrated social benefits into their business models

  • tend to outperform market indices like the S&P 500
  • weather financial downturns more successfully
  • build stronger brands
  • generate higher customer and employee loyalty.
     

Indeed, it seems beyond question that “a new type of company that uses the power of business to solve social and environmental problems,” as B Lab puts it, is an idea whose time has come. Certifications have grown steadily, from 34 in 2008 to 372 in 2014. What’s more, in addition to the certified B Corps themselves, more than 16,000 companies are using the B Impact Assessment free of charge as a management tool.

Let’s hope this is just the beginning. The traditional approach of depending on government, NGOs and philanthropy to solve social problems just doesn’t work, concludes Harvard Business School Professor Michael Porter in his 2013 TED talk, because they can’t achieve the necessary scale. Only business can. Addressing social problems with a business model – with what he calls “a higher kind of capitalism” — is actually a huge business opportunity, he believes. The question is, how to get corporations to recognize it.

In the second part of this article, we’ll examine some possible answers.

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