From Patagonia to Ben & Jerry’s, some of the world’s most high-profile ethical brands have been converting their businesses into B Corporations.
With thousands of other companies now choosing the same route, Rob Harrison asks what is so good about this new type of company.
[Note: this article was written in June 2017. Rob has written a new review of the B Corp certification scheme.]
At Ethical Consumer, we have been tracking the negative impacts of for-profit businesses for more than twenty years. And from slave labour on Asian fishing fleets to lobbying against climate-protecting regulations, these impacts are not pretty.
We have also been tracking the civil society responses to these impacts – from boycotts to social labels to rankings of ‘Corporate Social Responsibility’ reporting.
One theme that runs through this work is disagreement over the value of piecemeal civil society responses. For many people, it is the nature of business itself, or of capitalism or markets, which lies at the heart of the problem. We have a whole-system problem that requires a whole-system solution.
The idea of the B Corporation, or Benefit Corporation, or B Corp, first emerged in the USA to deal with what, to some, is a particularly American problem. Although there is some disagreement, most lawyers agree that American businesses have a legal duty to put the financial interests of their shareholders first.
This means that if you wanted your business to preserve a piece of ancient forest it owned, or not to outsource work to low-wage factories overseas, or not to sell itself to a hostile bid from an asset-stripping corporate raider, your shareholders could take you to court in order to force you to take the most financially advantageous route.
For a few businesses with a strong sense of social mission this was a problem and, short of buying out all the shareholders or moving to a different ownership model, a simple solution did not come easily to hand.
Out of this problem the idea of the Benefit Corporation was born. If a company could go into its governing documents and amend them specifically to say that it did not want to put shareholder interests first but wanted to balance them with the interests of others (or with some sort of ‘community benefit’), then this problem might be solved. Shareholders couldn’t sue and, to some degree, you could build social mission into the business in a way which made it difficult to change later.
Although it was first discussed during the Clinton Administration, the Benefit Corporation movement began to gather real momentum when particular States began changing their laws specifically to permit or encourage this new model. The first was Maryland in 2010; by 2017, 32 states had Benefit Corporation laws.
Common elements include:
These are still for-profit companies selling shares and paying dividends. But they are not just for profit, since they may have other goals too. The Benefit Corporation model has proved popular, with more than 4,500 US companies now incorporated using these rules. In addition, the idea of a B Corporation movement has now taken hold.
For those who are cynical about voluntary corporate initiatives, which at Ethical Consumer we tend to be, the question arises whether Benefit Corporations will just behave like all the others in the end, regardless of promises to take others into account.
To some extent the transparency requirements for annual social reporting built into the State-level legal amendments help answer this question. But the gold standard to reassure cynical consumers has always been an independent third party audit (as Fairtrade and Organic labels have). To fill this gap, campaigners for B Corporations set up the non-profit group B Lab in Pennsylvania in 2006.
Opposite is a standard B Lab Impact Report which shows how a particular company scores across five areas: Environment, Workers, Customers, Community and Governance.
Like Ethical Consumer’s own rankings, these standards are holistic (although they don’t include an ‘Animals’ element), are based around already established third party benchmarks where possible, and operate at a company, rather than a product, level. In addition, B Lab licences on-product logos for corporations meeting the standards, and recognises the importance of bringing consumers along as part of the movement.
We might quibble over the detail, but the main weakness of the approach is that the full B Impact Assessment for each certified company is not necessarily in the public domain.
Although company law in the UK is slightly different in that it permits companies to consider the interests of other stakeholders, it is pretty clear that, on a day-to-day basis, most companies are operating to the American model of ‘shareholder primacy’. This means that, when B Lab launched its UK branch in October 2016, it resonated with businesses here, and now it names more than 100 UK businesses on its certified list.
These include the following companies likely to be familiar to EC readers:
The B Corporation movement has also won over adherents across the world, from Mongolia to Lebanon, and over 4,000 certified companies from 70 countries are listed on the B Lab website.
When we analysed certified B Corps they appeared to be primarily companies, like Patagonia, with an already strong reputation for ethical behaviour. Seven of the eight UK brands listed above have also been Ethical Consumer Best Buys. Quite a few of the others were firms of sustainability consultants and many more were microbusinesses employing a few people and serving a local market. One writer has suggested that companies seeking B corporation certification are mission-led businesses looking to stand out “in the midst of a ‘greenwash’ revolution.”
If this were all that the B Corporation movement were doing it would be good, but of marginal significance. The story gets interesting, and more complex, when the larger companies get involved. In 2012, Ben & Jerry’s received B Corporation certification. Ben & Jerry’s is a wholly owned subsidiary of Unilever NV, and Unilever itself is on record as considering B Corporation certification for its whole operation.
In 2011, one Danone subsidiary, Happy Family Brands, an organic food company for babies and toddlers, was certified as a B Corporation. Danone is apparently now using the B Corps Assessment method to track the social performance of ten of its other subsidiaries.
In 2016, B Lab set up an ‘Advisory Council’ to consider new rules and processes for certifying multinational corporations. On the council, as well as Unilever and Danone, were representatives from companies including Campbell’s Soup, Prudential, Morgan Stanley, Bancolombia, C&A, Deloitte, and Ernst and Young.
The lessons from the rise of the Fairtrade and organic movements are:
The B Corporation movement has come at a time of a great lack of trust in business generally. It offers a solution that is both systemic (it addresses the core problems of profit-seeking behaviours), and holistic (it is looking at all ‘stakeholders’ from workers to the environment). It has also moved beyond an idea to become established as a movement, with a series of practical tools for businesses to employ.
Having said that, it is clear that some fundamental challenges still lie ahead. Could an oil company or a tobacco company achieve B Corp certification, for example? Or could a subsidiary of an oil company be certified? And what might this do for the reputation of the movement?
Kate Sandle from B Lab says “our assessment and disclosure questionnaire processes are rigorous and would highlight any potential conflicts with our intention to protect the planet and people. If necessary these are then reviewed by our independent standards advisory council”.
B Lab has predictably received some criticism for certification (or not) of some other types of companies, for example, private education providers, cannabis sellers, bottled water companies and tax avoiders. It has a section on its website explaining its rationale and framework for evaluating such companies. It is encouraging that B Lab is taking a mature and transparent approach to these issues, but like any political movement it will succeed or fail by the decisions it takes in such critical future situations.
The UK, like many other countries, already has its own social enterprise or solidarity economy movements with different legal models on offer for social entrepreneurs like charities, community interest companies, co-operatives and others. On one level, B Corps are a welcome addition to the new ecosystem of alternative business models that humanity clearly needs at this moment in history. And ecosystems, as we now know, need diversity to thrive.
It is possible that the subtlety of the B Corp approach is not a radical enough change, but then again it may contain the single key innovation required to turn all businesses around. It is instructive to note that, in 2016, a government advisory panel in the UK recommended that the Government “should explore the introduction of ‘benefit company’ status in English law”.
B Lab certification also appears to raise the bar to a new level for practical measurement and assessment tools in the social enterprise space. It is possible that B Corp’s certification across a wide range of areas could also represent a new stage of consolidation in social labelling, which might then lead to a welcome simplification for consumers.
For those of us who argue that all for-profit corporations need to be phased out if humanity is to have a future, the suggestion that major businesses can convert, without too much disruption, into Benefit Corporations helps provide at least one practical answer as to how all this might be achieved.
The focus on conversion is perhaps missing from other social enterprise or not-for-profit business models. The B Corp movement is also very good at articulating the pressing need for business-model innovation given the global problems that face us all.
In the words of B Lab’s founders:
“We are in the early stages of a global culture shift that is transforming our vision of the purpose of business from a late 20th century view that it is to maximize value for shareholders to a 21st century view that the purpose of business is to maximize value for society.
"Significantly, this transition is being driven by market-based activism, not by government intervention. Rather than simply debating the role of government in the economy, people are taking action to harness the power of business to solve society’s greatest challenges. Business – what we create, where we work, where we shop, what we buy, who we invest in – has become a source of identity and purpose.”