My beef with B Corps

logoThere’s lot to like about the fast-growing B Corps movement, and one thing to dislike, as I explain in my latest column for Guardian Sustainable Business US.

If you’re reading this blog, you are probably aware of B Corps. The idea takes a bit of explaining. B Corps are businesses that are certified by a nonprofit organization called B Lab to meet what its backers call “rigorous standards of social and environmental performance, accountability, and transparency.” These businesses win certification much in the way that buildings are certified to have meet LEED environmental standards by the nonprofit U.S. Green Building Council; they have to complete an assessment of their performance, provide documentation and be open a review from B Lab, as the group explains here.

But the term B Corps is also used to describe “benefit corporations,” a corporate legal structure that has been set up by legislation that has now been passed by 20 states, including, most recently, Delaware. Benefit corporations need not be certified by B Lab, although many are.

It’s unavoidably confusing, but my beef with B Corps is simple.

The voluntary certification system makes sense to me, for reasons that I explain in the story–it’s a way to signal employees, customers and investors that a B Corps aims to do better than conventional companies. Most B Corps are small and privately held. Among the best known are Patagonia and Ben & Jerry’s, which is a unit of a conventional C Corps, Unilever.

The legal “benefit corporation” purportedly gives companies more freedom to serve society as a whole than conventional corporations have. I’m skeptical about this claim, to say the least, and I worry that it could be counterproductive–because it implies that conventional companies, which make up the bulk of the global economy, need to pursue profits, at the expense of broader social and environmental goals. This seems wrong on the face of it. After all, if Ben & Jerry’s can be certified as a “good” B Corps, doesn’t that mean that its parent company, Unilever, can be “good” too?

My worry is that the implicit argument — that most of the world’s companies don’t have the freedom to do the right thing for society — undermines faith in capitalism (which is fragile, at best, for good reason) and that it discourage reformers inside and outside of big companies who are pushing corporate America to do business better. It’s a bit smug to suggest that traditional companies can’t do as much good for the world as B Corps can.

Here’s how my story begins:

To the supporters of B Corps – benefit corporations that say they aim to serve workers, communities and the environment, as well as their owners – 1 August 2013 was an historic day. In what B Corps described as “a seismic shift in corporate law,” the state of Delaware, where one million businesses are legally registered, enacted legislation that will “redefine success in business” by giving the owners and managers of legally recognised B Corps protection as they pursue “a higher purpose than profit.”

The B Corps movement has much to be proud of: it has built a brand that stands for good business, attracted hundreds of committed followers and sparked debate about the role of business in society. But claims – sometimes made explicitly, sometimes implicitly – that B Corps have more freedom to take an expansive view of their social and environmental responsibilities is not only mistaken, but potentially damaging to the cause of sustainable business.

After all, if conventional companies have no choice but to focus narrowly on maximising short-term profits, at the expense of workers, communities and the planet, then we’re in a heap of trouble and unlikely to get out, because 99% of US businesses today are conventional C Corps, and most are likely to remain so.

You can read the rest here.

Comments

  1. I disagree; without modifying shareholder language to include stakeholders you CAN NOT do as much good at a traditional company. With stakeholder language you can not be sued for not selling to the highest bidder, or sacrificing some profits in order to do work force development, training for a challenged population, etc. for example. It all comes out of the tragedy of the Ben and Jerry’s sale, which is where I started in this field. Stakeholder language inside a company’s operating agreement is a way to kill the ghost of Milton Friedman, who said the only corporate responsibility of business was to make the most profits.

  2. I have thought from the time I first met the BCorps people how unfortunate the branding is. Who would want to be a “B” company. You want to be an A+ company!
    Perhaps it will help pressure conventional companies, only accountable to their stockholders, to pursue better courses of action.

  3. Hi Marc, I’m a second-year MBA Student at the University of Georgia and I’m a big fan of your blog. This summer I was an Assurance Associate intern at B Lab and I had the opportunity to perform on-site reviews at 10 different Certified B Corps, including Ben & Jerry’s.

    I just wanted to offer my perspective based on my experience with B Lab. I agree with you that the B Corp Certification sets the gold standard on social and environmental performance. It is an inspiring movement of social entrepreneurs that want to distinguish themselves in the market as companies that are “best for the world”.

    However, the founders of B Lab are also responsible for the creation of the separate benefit corporation legislative form, and there is a dedicated policy team at B Lab that is working to get benefit corporation legislation passed across the country. I believe this work is also extremely valuable.

    B Corp Certification ensures a company is currently meeting high social and environmental performance standards. However, the certification alone does not ensure that these values and practices are “baked-in” to the company long-term.

    Corporate law needs to be changed to allow companies to ensure they will serve stakeholders long-term and that a corporation’s mission is protected regardless of ownership.

    Currently corporate law requires businesses to maximize shareholder value, not stakeholder value. Corporations can and do incorporate sustainable practices, which is extremely important and should be encouraged by the marketplace. However, these socially responsible practices can be defended by traditional corporations as long-term investments that increase brand equity.

    If business owners of traditional corporations decide to sell their socially responsible company, corporate law forces them to sell their company to the highest bidder or risk being sued by their stockholders. There is no “long-term” time frame during a sale. The law does not allow the current business owners to choose new owners that they believe will be best for their corporation’s mission if these prospective buyers are not offering the highest price.

    Therefore, the goal of the benefit corporation legal form is not to discourage traditional corporations from being “good companies”. Instead, the goal is to give companies that want to focus on stakeholder value better legal protection to do so.

    Also, while the benefit corporation legislative form is separate from the B Corp certification, companies that opt for this corporate form are being held to a higher standard. Benefit corporations are required to 1) create a material positive impact on society and the environment; 2) they have a fiduciary duty to consider non-financial interests when making decisions; and 3) report on overall social and environmental performance using recognized third party standards. The third party standard can include getting certified as a B Corp. In fact, all Certified B Corps are required to either adopt the benefit corporation legal form or alter their articles of incorporation to protect their mission long-term.

    The creation of this legislative form is helping change the rules of the marketplace.

    Ideally, I hope that it becomes a standard business practice to incorporate as a benefit corporation. I also hope that the B Corp Certification momentum will continue and that the marketplace will inspire companies to rise to the challenge.

  4. Marc Gunther says:

    Thanks for your comments, all of you. I think we all agree that the B Corps certification process is useful, and has the potential to identify companies that are more socially and environmentally responsible — although, even there, I would want to dig deep into the process to better understand how it works before offering an unqualified endorsement.

    But we don’t agree when it comes to corporate law. The idea that traditional C companies must slavishly serve the short-term interests of shareholders is a myth, as I argue in my Guardian Sustainable Business story, with the support of law professor Lynn Stout. Managers have tremendous latitude to sacrifice short term profits to build long-term value.

    As for the Ben & Jerry’s sale, if that was such a tragedy, how is it that Ben & Jerry’s was able to be certified as a B Corps?

    You can read more about this at Guardian Sustainable Business, where Jay Coen Gilbert of B Lab has kindly written his own response to my story. Here’s a link to the site: http://www.theguardian.com/sustainable-business

  5. Marc, given the avid anti-community lobbying by many “regular” corporations, and the fact that most corporation’s value systems are what is legal is what is required – not the same as what is ethical – it is a case of the fox building the henhouse. Corporations are meant to defuse legal responsibility, but have the added effect of diffusing moral responsibility as well, particularly the larger they get. In that environment, I think B corps are a necessity. The fact is that some corporations are ethical, but the vast majority are amoral at best, and at worst, destructive. I appreciate the work that some within these organizations are doing, but many rely on business models that are so destructive they should not even exist. For instance, Smithfield Foods’ business model is giant, environmentally destructive hog farms and low wage factories. The company and its business model should be illegal, yet it persists, and through its lobbying arms makes it harder for smaller, ethical competitors to do business.

    • Marc Gunther says:

      Mark, thanks, I’m more optimistic than you about the power of conventional companies to do good, and there’s a deeper question here worth asking: Who gets to decide what’s ethical, what’s good and what’s not?

      Take Smithfield. I don’t think Smithfield should be permitted to pollute the water or air. That’s why we need strong environmental laws. I’d also favor a modest increase in the minimum wage. (Modest because a significantly higher minimum wage would mean less employment and more of those automated checkout machines in drug stories and supermarkets. As well as more automation in factories.) But beyond that, what’s wrong with Smithfield? They’ve made major improvements in the ways they treat animals. People enjoy their products which are affordable. Why should they be illegal? Or for that matter what makes them unethical? (I say that as someone who eats meat only very occasionally, for environmental and animal-welfare reasons. But that’s my choice, and it should not be a matter of law. And I certainly don’t want to deny hot dogs to others.)

      Remember, no company can succeed for long unless it provides products and services that its customers decide to pay for. Markets, however imperfect, allow people to vote with their dollars to support the products and companies they like, and stay away from those they do not. In that regard, our companies are a pretty good reflection of who we are.

  6. Marc,

    I agree with most of the comments that B Corps offer a positive addition to the work environment in that they offer an alternative standard that will hopefully, with enough time, become closer to the unilateral standard (by choice, rather than by legal requirement).

    I think your comparison of B Corps to LEED is even more right than it may seem at first glance. Theoretically, there is no reason that a building has to be LEED Certified to be a sustainable building. To those of us that design buildings, just because we work on LEED projects doesn’t necessarily create the assumption that all buildings that are not LEED are not sustainable (though in the U.S., most of them aren’t).

    LEED creates a series of criteria that help display a commitment to a higher standard and reward that commitment with public recognition. It seems like B Corps do the same thing. For sustainable building, this has been a huge boon to the industry because without LEED, how many less people would know about the green building movement or how to even get involved?

    In my mind, the biggest goal of LEED is that one day it has helped the broader market evolve to the point that LEED is unnecessary due to rising standards of code compliance. New energy codes like New York State’s are a step in that direction. Maybe one day B Corps will provide the same impetus for a larger change in perspective for how we do business and how capitalism (which I am also a proponent of) can operate to better reflect more of our values.

  7. Marc,

    It might be ‘a bit smug to suggest that traditional companies can’t do as much good for the world as B Corps can’, but it seems a good idea to focus on what all companies actually do vs. what they can do.

    The transparency requirements of benefit corporation laws help markets function more effectively by giving all of us — as consumers, as investors, as workers, as policy makers — more information about actual corporate performance.

    Certified B Corps go one step further, by having their performance certified by an independent third party.

    It is the transparency provisions of the benefit corporation laws — and the verified performance requirements of the B Corp certification — that are arguably the ultimate game changers.

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