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The kind of company that wants to do capitalism better.
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Like a company, but woker
You know what’s getting a bad rap these days? Capitalism. And no wonder. The shiny, meritocratic, use-markets-to-solve-problems system promised wealth for all—if only we could get it right. Two huge problems, inequality and climate change, have proved themselves immune to capitalism’s charm.
Enter the B Corp. Maybe you’re a business owner trying to find a way to make sure your company does more good than harm. Maybe you’re an employee keen to push for change from within. B Corps are companies that volunteer for a regular audit of their ethics and practices, and make a legal change that commits them to subverting a classical capitalist tenet: No longer will they be accountable to shareholders alone, but to a broader group that includes their employees, customers, and the world at large.
Is this the way forward?
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By the digits
>4,600: Companies certified as B Corps globally
9,000-10,000: Global public benefit corporations, a legal designation that commits companies to take multiple stakeholder needs into account
1790: Year in which King Arthur Flour, one of the oldest companies to become a B Corp, was founded
100,000: Number of employees at the biggest company currently going through B Corp certification
5.6: Years Etsy, the online marketplace, was a B Corp before giving up its status
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So what does B Corp status really mean?
Companies that want to certify have to score a minimum of 80 points out of 200 on the B Impact Assessment, a tool created by B Lab, the nonprofit organization that oversees certification. They pay a revenue-dependent fee, and have to re-certify every three years. In addition, B Corps have to make a legal change to their company structure, which eschews the traditional wording of responsibility to shareholders, in favor of a more explicit commitment to governance, employees, customers, communities, and the planet.
To an extent, this is virtue-signaling. B Corps don’t have to promise to treat workers well or commit to cutting their carbon footprint. They don’t have to reject growth, or cease to make money. But the assessment opens them up to both internal and external scrutiny, and telegraphing their aspirations makes them targets as well as garnering praise.
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“As one of our Mexican colleagues recently told me: B Corp is a way for us to be a company closer to what we, each of us, truly aspire to be as a person. This is my guiding compass in the journey, and this is why Danone will be a B Corp.”
“What I found about being a B Corp is that I get a better quality of employee applying for jobs.”
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Good for the bottom line?
In 2018, research conducted by Ella’s Kitchen—which is itself a B Corp, so take it with a grain of organic sea salt—found that UK B Corps grew much faster than the national average for businesses. The 150 UK B Corps it surveyed saw an average year-on-year growth of 14%, compared to 0.5% across UK firms.
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Andrew Kassoy, Jay Coen Gilbert, and Bart Houlahan met at Stanford, and went on to become successful businessmen: Coen Gilbert co-founded AND1, a basketball shoes and clothing brand, with Houlahan later serving as CFO, COO, and president. Kassoy went to work in private equity. They kept seeing social entrepreneurs coming up with great ideas, then failing to get funding because investors couldn’t understand that their main aim was not to maximize profits.
They founded B Lab in 2006 as a new way of incentivizing business to compete, not on profits, but on purpose. Are B Corps making inroads to real change? In answer, B Lab points to a swelling in the interest from bigger firms and new markets: Danone is the first huge multinational to certify, and in 2019, the first global private equity firms certified.
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1602: Stock traded in the Dutch East India company marks the invention of the “share.”
1970: Milton Friedman publishes an essay in the New York Times popularizing the idea that the social responsibility of a company is to return value to shareholders.
1976: Michael Jensen and William Meckling establish the “agent theory” of the firm, which states that CEOs and board members are agents of the shareholders.
1993: The US caps the tax deductibility of executive salaries, leading to an explosion of compensation in the form of stock options.
2006: B Lab is founded by three college friends.
2007: The first B Corps are certified.
2018: Danone takes over as the biggest B Corp in the world when its entire US subsidiary certifies.
2019: The influential US Business Roundtable says for the first time that companies should serve stakeholders, not just shareholders
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There is just one B Corp in Afghanistan, but it’s huge. Roshan is the country’s biggest telecom company, and its biggest employer. The company’s story is extraordinary.
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Capitalism, but make it conscientious
When it comes to doing capitalism better, companies (and among them B Corps) are only one part of the picture. Governments and international bodies have a major role to play, but there has also been a massive upsurge in the past few years of investors interested in ESG, or environmental, social, and governance, investing, sometimes called impact investing.
The organizations in this space are numerous, including FTSE4Good, launched in 2001. There’s more pressure on business leaders and investors to be vocal about their sectors’ responsibilities (Paul Polman, former CEO of Unilever, and Larry Fink, head of BlackRock, have both been prominent), and on rich people like Jeff Bezos, former CEO of Amazon, to use their money better, including giving much of it away.