4 June 2015

The rise of the B-Corps


Milton Friedman famously wrote in 1970 that “there is one and only one social responsibility of business… to increase its profits.” But like much in the intervening 45 years, times have changed. This narrow definition of business success is partly why capitalism is under attack. It’s no longer enough to simply create jobs and make money at the expense of all else. The economic argument for a market based economy may have been won but if it doesn’t have a directly positive impact on society people will look for alternatives. One might think them ungrateful, but the fact remains that the bar has now been raised.

Rather than defending capitalism on the old arguments and hoping economic growth will bring about a better society, a new breed of entrepreneurs are going on the offensive. They are actually using capitalism itself to bring about a better, more just and equitable society. Their companies are known as B-Corporations, the B standing for ‘benefit’ and they have adopted the triple bottom line; people, planet and profit. They are using the power of enterprise to make the lives of people and the condition of the planet better while still making money. In the battle to defend capitalism B-Corps are on the front line. But in the world of greenwashing where big claims are banded around easily how does one identify a good company from just good marketing?

B-Corp accreditation attempts to solve this. It is to companies what Fairtrade is to coffee. Firms are scored on a number of characteristics including impact on workers, suppliers, the community and the environment. And crucially B-Corps adopt governing documents which state that the success of the business exists for the benefit of its shareholders but also to have a positive material impact on society and the environment. By enshrining in law that the company needs to take into account the interests of stakeholders (shareholders, staff, suppliers, society and the environment) it is not legally bound to make profit its only purpose.

Taking a more holistic approach to company impact also helps to avoid market failures. If profit is the ultimate bottom line then always pushing for the lowest cost creates externalities. This might be shoddy environmental standards leading to polluting emissions and effluent dumping or poor safety conditions putting employees in danger. The Rana Plaza garment factory collapse in Bangladesh in 2013, where more than a thousand workers died making cheap clothes for Primark and others, cost the workers their lives. Primark ended up paying out afterwards what they avoided at the beginning when they finally agreed to compensate the families of the deceased.

Identifying the total impact of a company and factoring in externalities also improves the effectiveness of the market rather than outsourcing such costs onto third parties.

There are now 1,297 B-Corps, in 121 industries, in 41 countries. Included among their number are Brazil’s top cosmetics and toiletries manufacturer Natura (which totalled sales of $2.65bn in 2013), the crowd funding company Kickstarter (which has raised more than $1bn), clothing company Patagonia, and ice cream makers Ben & Jerry’s. In January Unilever said it was considering seeking B-Corp accreditation.

And there is a strong business case for B-Corps. The post-war, and post-rationing, baby boomers, reacting to their childhood years of scarcity, fuelled the rise of consumerism. When this was ignited by the economic lighter fluid of the 1980s people increasingly identified themselves by the products and services they consumed. This is still the case today with social media providing ever more engagement with customers as well as more transparency about business practices. Marketers develop ever more sophisticated selling strategies.

A 2013 study showed there are 2.5 billion ‘aspirationals’ in the world, defined by their love of shopping, desire for responsible purchasing and trust in their brands to be beneficial for society. Forty per cent of these are Millennials (people born between the early 80s and early 00s). Millennials are the largest generation in history and on the cusp of overtaking the spending power of baby boomers. In the US alone they are estimated to be spending $200 billion annually by 2017 and $10 trillion in their lifetimes.

Micah Solomon, writing for Forbes, described their values driven consumerism: “More than 50% of Millennials make an effort to buy products from companies that support the causes they care about, according to research from Barkley, an independent advertising agency.”

The values led capitalism of B-Corporations not only attract customers, but they also attract talented staff. Research by Brookings revealed that Millennials will make up 75% of the US workforce by 2025, 64% of them would take a pay cut for a job they value and 63% want their employer to contribute to social or ethical causes. B-Corporation homecare service company Nurse Next Door has a voluntary staff turnover among caregivers of 7% compared to the industry average of 70%. At their corporate headquarters it is 1%.

Capitalists have proven their ability to create multi-billion pound companies: surely they can turn their attention to address some of the most pressing social and environmental issues of our time? Mike Rowlands of enterprise consultants Junxtion Strategy said: “The companies that are going to be really successful in the next ten years aren’t thinking in an institutional mindset, they are thinking in a community mindset, in a planetary mindset and they are reaping the results.”

Professor R Edward Freeman of the Darden School of Business put it like this: “I actually think if Milton Friedman was alive today he would be a stakeholder theorist. He would understand that the only way to create value for shareholders in today’s world is to pay attention to customers, suppliers, employees, communities and shareholders at the same time.”

Joe Ware is Church & Campaigns Journalist at Christian Aid.