These days, many companies are interested in doing good in the world. Whether it’s by building a green product or sponsoring a development initiative in Africa, there are now numerous examples of businesses dropping the all-for-profit ethos in favor of something more blended and enlightened.
But at some point the question arises: Can they do good within the prevailing corporate structure of the publicly traded corporation, where shareholders demand short-term returns and maximal profit?
Jay Coen Gilbert, who cofounded the B Lab nonprofit with Bart Houlahan and Andrew Kassoy, doesn’t think so. He says companies can only truly begin to look out for their workers, suppliers, customers, and community by changing their legal status to become Benefit Corporations, not by muddling through under the old structure.
“The overwhelming majority of [legal experts] is quite clear that corporations need to maximize value for shareholders. If people want to do something else, we need to create a new way to do that,” Gilbert says. “The B Corp model is just creating more choice, so people can decide either to do business in the current fashion, or in a way that creates value for society as well as for shareholders.”
There’s a dry but very consequential debate among corporate governance experts as to a corporation’s responsibilities. In one corner, Lynn Stout, a professor at Cornell, argues that shareholder primacy is a “myth.” She says the idea became established through the teachings of economists like Milton Friedman in the 1970s. In fact, there’s not a single corporation charter suggesting companies must only look out for shareholders, she says.
But, in another corner, Leo Strine, chief justice of the Delaware Supreme Court, argues that this is wishful thinking. We might like to think that corporations have latitude to behave differently, but, in fact, managers are hamstrung. “Lecturing others to do the right thing without acknowledging the actual rules that apply to their behavior, and the actual power dynamics to which they are subject, is not a responsible path to social progress,” he wrote last year in what amounts to a stinging rebuke to the corporate responsibility movement. (Given that Strine decides what goes in Delaware, where more than half of all U.S public corporations are established, his views probably carry more weight.)
Gilbert says there’s nothing for it but to create a whole new structure, which is exactly what his B Lab is trying to do. By pushing for states to create Benefit Corporation statutes (30 states now allow it) and certifying companies to become B Corps (B Lab’s own certification of companies that are good for workers and the environment), he believes we can usher in real change, not the messy compromises inherent to corporate responsibility programs. More than 4,000 companies are now registered as Benefit Corporations, and 1,800 companies have successfully achieved B Corp status, including major brands like Warby Parker and Kickstarter.
But how close are major multinational companies to joining the movement? Several are interested. “We’ve been getting more inbound traffic from Fortune 500 companies over the last six to nine months. I’m not sure what’s triggered it, but there’s been a palpable increase in energy from these folks,” Gilbert says.
Fifteen companies, including Unilever and Danone, have joined B Lab’s Multinationals and Public Markets Advisory Council, which is looking at ways to “remove impediments to adopting mission-aligned corporate structures” and could eventually see some companies become full B Corps.
Gilbert says there are at least three ways corporations are engaging with the B Corp movement already. One, they’re allowing subsidiaries to go through the B Corp certification process. Ben and Jerry’s, which is owned by Unilever, is one of those. Danone, a major French food company, says it wants 10 of its subsidiaries to follow, committing those businesses to value workers, suppliers, customers, and the community alongside shareholders.
Second, they can put certain operations through the certification process, whether it’s the supply chain or a loan portfolio, even if it doesn’t lead to actual certification. For example, Bancolombia, a major Latin American bank, has pledged to “measure and manage” the societal impact of its loan portfolios. “Some companies may not have entities that can be certified, but that’s not really the point. The question is how companies behave like B Corps, not whether they become B Corps,” Gilbert says.
And third, companies can put themselves through an Impact Assessment process looking at how they affect workers, community, customers, and the environment, and benchmarking their performance against similar businesses. “The question is how do you manage the business day-to-day so you’re measuring your impact with as much rigor as your profits,” Gilbert says.
Gilbert concedes there’s a “high danger” that corporate engagement will dilute the B Corp brand. But he says B Lab is not about to hand out certification to a multinational until they’ve met a high bar, including changing their legal DNA, raising transparency standards, and committing to high environmental and social performance. There’s not going to be some kind of “B Corp Lite” so as to include more companies, even if the engagement process is important, as it normalizes the idea that companies can become something different over time.
“Our measure is not whether a business gets certification in the next 12 months. We’re much more concerned with playing the long game, so the next generation of Fortune 500 companies rises into that status with stronger impact governance. Remember, two-thirds of [that list] is different from 20 years ago, so things can change,” he says.
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