by Anne Pyburn Craig
Must private enterprise exist solely for the sake of profit? This is the long-held assumption, but a growing organization called B-Lab is striving to reset the entire conversation, and
they’re gaining ground as public awareness shifts toward social and environmental responsibility and the concept of a triple bottom line.
If most people are accustomed to thinking of corporations as greed-centered entities focused on a single bottom line, that can’t be blamed on most people. Focus on profit to the exclusion of all else is even written into corporate law, clearly stated in a 1919 court decision against Henry Ford. Ford told his shareholders that instead of increasing their dividends, he wanted to put profits back into the company, hire more people, and lower the price of cars. His stockholders sued him and won.
“A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end,” wrote the judges, invoking what has come to be called shareholder primacy.
It’s been that way since the dawn of the industrial age, although our founders reputedly intended corporations to remain tightly reined in and shareholder dividends to be a side effect of serving the public good. Powerful 19th century trusts and conglomerates managed to manipulate those early intentions into a pretzel so that profit reigned supreme. Arguably the most horrifying part of the notion of corporations being considered “people’ is that the vast majority of them seem to be such selfish ones. As in the case of Ford, this legal landscape can force corporate leadership into actions they themselves don’t like.
That was the case in 2006, when idealistic capitalists Jay Coen Gilbert and Bart Houlahan found that they were obligated to sell their $250 million basketball apparel company to the highest bidder despite the fact that they’d rather have sold it to someone else. It was the last straw. With longtime friend Andrew Kassoy, a private equity investor by trade, they founded B Lab, an organization that makes a bold bid to reframe the entire paradigm. The organization offers private enterprises third-party certification based on stringent standards of social and environmental performance, accountability, and transparency. In nine short years it has gained over 1,400 members in 42 countries and 130 different industries and gotten benefit corporation laws passed in 23 U.S. states. The goal is nothing less than to redefine success by legalizing, defining, and promoting social benefit as a corporate goal.
Your Friendly Neighborhood B Corps
“This is not a fad and it’s not going away,” says Ajax Greene of Gardiner, founder and CEO of On Belay Business Advisors and founder of the Hudson Valley nonprofit Re>Think Local. “The consumer is hungry for this; in fact, I think there is way more demand than is being met. Businesses are unwittingly leaving money on the table by not pursuing social and environmental goals.”
On Belay was one of the original certified B Corps, back when there were only 87, and Greene lives up to his commitment in a number of ways: ensuring that well over half of his office supplies and over 75 percent of his printed materials are made from recycled and/or sustainable materials, purchasing carbon credits to offset the company’s footprint, and banking with a local independent bank. On Belay also offers some pro bono business consulting to local small businesses and nonprofits.
“B Corp is poised to become the next Good Housekeeping seal of approval for companies,” says Greene. “A lot of greenwashing goes on; companies do one or two things right and then try to promote themselves as great. People are tired of that and can see through it. B Corp certification offers an objective, rigorous measure of a corporation’s social commitment.”
Greene can point to statistics that back up consumer interest in the issue. “Ninety-one percent of consumers will switch brands to support a cause they believe in, 84 percent expect companies to take care with what they are doing, and 79 percent prefer to deal with local business,” he says.
One hundred New York State businesses are B Corp certified, in industries as diverse as law, clothes laundering, eyewear, and home health care. Corn Cow Inc. in Accord was amongst the first B Corps in New York State. Topical Biomedics in Rhinebeck, consulting firm Adaptation Inc. in Hudson, and Zero to Go, a Beacon-based waste management company, are other Hudson Valley B Corps.
“I think the biggest reason I pursued certification was that I saw that a big heavy hitter like Patagonia was a B Corp,” says Zero to Go founder Sarah Wormer. “I’ve been certified since January of 2013. Once I started thinking about credibility and researching certifications, I found B-Lab and was all over their website. I think it’s incredible; I knew immediately I wanted to do it. We joined because B Corp understands—I can’t say it any better than that. And you get to network and work with other B Corps, get more affordable services and products.”
Wormer certainly doesn’t sound like a stereotypical CEO when she talks about competition. “We’re still the only one doing zero-waste services in the Hudson Valley, and I wouldn’t mind, in fact I’d love some competition! There are so many events. There are 20 or 30 a year in Beacon alone, and I can’t be everywhere.”
A Growing Movement
B Lab founder Andrew Kassoy is careful to distinguish B Corp certification from benefit corporation status. “Certified B Corp is a certification conferred by the nonprofit B Lab where I work—essentially it’s a judgment by a private party—B Lab—that a company has achieved high levels of social and environmental performance, accountability, and transparency. Benefit corporation is a legal status—like a C Corp or S Corp or LLC or partnership—conferred by a state.” It is the global B Corporation movement which has directly catalyzed the shift in policy that makes benefit corporation an available legal option in almost half the states. Kassoy explains, “A lot of B Corps are incorporated as corporations in states like CA, DE, and CO where existing corporate law didn’t allow them to expand their fiduciary duties to consider a broader set of interests than just maximizing shareholder value. So those companies starting talking to legislators about creating a new corporate form that was [purposefully] built for companies with a purpose…The benefit corp legislation, as it has marched through 20 states, culminating in Delaware, the home of corporate law in the U.S., is an incredible example of the power of the global B Corp movement. Collective action by a community of high impact businesses has changed corporate law in the U.S. and provided an opportunity for all of us to use business as a force for good.”
Ajax Greene reflects, “Being a benefit corporation, a status that requires an independent third-party audit that B Lab provides, offers important legal protections to publicly traded corporations when they seek to do the kinds of socially responsible and sustainable things consumers want them to be doing.”
B Corp certification and official benefit corporation status aren’t just for small fry. Besides Patagonia, B Corps include Kickstarter and Etsy. Some, such as Ben and Jerry’s ice cream and Plum Organics babyfood, have B Corp status despite being subsidiaries of larger corporations.
Some work in surprising areas: New York State certified benefit corporation American Prison Data Systems is striving to improve the correctional system through technology. Benefit corporation status requires that they walk their talk: “have a corporate purpose to create a material positive impact on society and the environment…consider the impact of their decisions not only on shareholders but also on workers, community, and the environment,” and “make available to the public an annual benefit report that assesses their overall social and environmental performance against a third party standard.” Besides high-tech security and communications solutions for prison administrators, APDS markets products designed to enhance the ability of prisoners to stay in contact with their families and pursue online study without endangering security.
“Skeptics pat B Corps on the head and say this movement is cute but small,” said co-founder Andrew Kassoy in an online Q&A session sponsored by Fast Company magazine in March 2014. “The evidence is quickly becoming to the contrary as B Corps and companies like them scale, disrupting and replacing traditional businesses.
“To borrow—or mangle—a great quote…There are lots of skeptics. As the B Corp movement has gotten traction, skepticism from some with a strong interest in maintaining the status quo will transition to opposition. Eventually, it will just seem totally obvious that there is a better way to do business in which all companies compete not only to be best in the world, but best for the world. And when that happens, business as usual will be creating a shared and durable prosperity for all.”
It’s an ambitious vision, but Kassoy has his eyes on the prize: “As the movement grows, there will be an increasing number of B Corps leading the way—2,500 to 5,000. More important, we will move from 15,000 to 100,000 businesses using the B Impact Assessment to measure what matters. There will be thousands of companies using the benefit corp legal form, including many in the public markets. And millions of consumers will be making their purchasing decisions, and billions of dollars of investment capital will be flowing, based how much positive impact companies are creating for their society.”
Eighteen months after the interview, in September 2015, B Corporation announced the formation of a Multinationals and Public Markets Advisory Council in response to what they characterize as a high level of curiosity being expressed by multinationals in overcoming the “systemic, institutional, and practical barriers” that prevent them from functioning as benefit corporations and achieving certification. Participating in the process will be Unilever, the Anglo-Dutch multinational that purchased Ben and Jerry’s Ice Cream in 2001.
“Traditionally, the thinking of big publicly traded corporations catering to Wall Street is very different from locally owned restaurants or retail stores,” says Ajax Greene. “There are around 100,000 independent businesses in the Hudson Valley, and 99.5 percent of them are potentially terrific…People want to get involved in something like this, but often aren’t sure how.
“There is a commitment involved, but it’s well worth it. I think those who got on board early will be rewarded for their leadership, and I think those who don’t align are losing that leadership advantage. The new economy is not about technology, it’s about consumers making conscious choices.”
For more information visit bcorporation.net and benefitcorp.net.