Can B Corps redeem (big) business and save the world?

A corporate executive’s responsibility is “to make as much money as possible”. 

Milton Friedman’s words, published in the New York Times on September 13, 1970, were certainly taken to heart by corporate executives. CEO pay has grown over 1,000% in the last 40 years. Shareholder capitalism has dominated the world of business. 

But by the 50th anniversary of the Friedman Doctrine, even its biggest winners were asking whether it was as universal and effective as it claimed. There were always heretics, such as Yvon Chouinard, Howard Schultz, and John Mackey, at Patagonia, Starbucks and Whole Foods respectively. But recently such bleeding-heart liberals as Larry Fink at Blackrock and Jamie Dimon at JP Morgan have also been openly promoting the idea that shareholder capitalism needs radical reform. Something is shifting. 

Purpose, impact and competitive advantage

B Corps are emblematic of this shift. In 2006, after selling his basketball apparel company to American Sporting Goods, Jay Coen Gilbert enlisted his friends Bart Houlahan, his CFO and Andrew Kassoy, a connection from the private equity world, to create B Lab, a nonprofit that created the B Corporation certification. The B Impact Assessment analyzes a company’s impact on its workers, customers, community and the environment. Companies must score a minimum of 80 points (out of 200) to be certified. Crucially, companies’ B Impact Reports are published. They must also integrate stakeholder consideration into their formal governance structures, requiring their directors to consider the impact of decisions in non-financial terms, too. In B Corps own words, “this combination of third-party validation, public transparency, and legal accountability help Certified B Corps build trust and value.”

In 2007, there were just 82 certified B Corps. By late 2020, there were over 3,500 from 70 countries. From iconic pioneers such as Ben & Jerry’s and Patagonia, to thousands of smaller brands from all sectors, the certification has become a shorthand for mission-driven, impact-focused businesses. And it is not just startups. Natura, the Brazilian beauty brand with $3 billion in revenues and nearly 2 million employees became a B Corp in 2014. Lemonade, the insurtech startup, went public in 2020 after being a B Corp since 2016. Similarly, Laureate Education and Vital Farms both listed as B Corps. In 2017 Danone’s CEO, Emmanuel Faber, announced plans for the $26 billion multinational to become a B Corp. By late 2020, 27 Danone subsidiaries, representing 45% of the company’s sales, were certified B Corps.  

A number of trends are driving the B Corps boom. Growing sense that a generation of shareholder capitalism has merely exacerbated rampant economic, racial and gender inequalities, not to mention done little to address the looming climate crisis. But also, it’s become clear that good business is good for business. In 2018, Patagonia saw 9,000 applications for 16 internship positions! Xavier Rees, the CEO of Havas London, an advertising agency that became certified in 2018, said 84% of its employees were proud to work for a B Corp. Winning the war for talent will be key for any business that wants to grow. Just Capital, a US non-profit that measures and ranks public corporations on measures of stakeholder capitalism found that its top 100 companies had a 7.2% higher return on equity than the wider market, while the UK’s Office for National Statistics reported that B Corp certified brands grew 28 times faster than the UK economy in 2018.  

What next for the B Corps? 

While certified B Corps are now generating billions of dollars in sales, this still leaves trillions of dollars being generated by more traditionally-minded businesses. The last 15 years have proven the model works, but there is still a huge opportunity to transform the rest of the economy. As more and more organizations promote themselves as B Corps, the virtuous circle of awareness and expectation expands, among both customers and workers. 

While startups gain a lot of press, the biggest opportunity for change lies with the mega-companies that dominate the global economy. In September 2020, B Lab announced that it was launching B Movement Builders, an initiative focused on large multinationals with over $1 billion in annual revenues. The founding Movement Builder members are vegetable processing company Bonduelle, steelmaker Gerdau, flavors and fragrance company Givaudan, and the retailer Magalu, with Danone and Natura serving as mentors. As well as pursuing a path to B Corp certification, CEO of B Movement Builder companies must publicly sign the B Corp Declaration of Interdependence, set targets around at least three of the UN’s Sustainable Development Goals, and commit to collaborating with other B Movement organizations. 

As we look to build back better after the devastation of the pandemic, the B Corps movement is at an inflection point. It would be hugely disappointing if it simply becomes a niche way for smaller startups to connect with affluent audiences. Far better would be if The Future Normal saw multi-billion dollar companies adopt B Corps principles. Transforming huge institutions won’t happen overnight, but the B Movement Builder program is a step in the right direction. Once pioneers start to show success, then arguments against making these welcome changes quickly ring hollow. With that in mind, here are a few questions to ask yourself as you prepare for this new era: 

What if…

?? You compete not just to be the biggest, or the most profitable company in your sector, but the best, as defined by having the highest B Corp score? How might that motivate your team? 

?? You asked a mentor company that has already shifted its focus to guide you through the process of moving from shareholder to stakeholder value? 

?? Regulators embrace B Corp thinking? What if stakeholder capitalism and mutual interdependence become enshrined in corporate law? 

?? The biggest multinationals signed up to the B Corps certification? How would the business landscape change if hundreds of millions of people worked in B Corps? 

?? There is a major B Corp scandal? Stock markets were invented to bring welcome transparency, but few still believe they illuminate everything.

Over to you! 

This newsletter is our attempt to explore how we might be able to rebuild a better world. 

We'd love your feedback, tips and insights. Are B Corps the future of business? Can the principles be adopted by large, incumbent organisations from the shareholder era? Is the B Corp movement, as some skeptics have claimed, a nice-to-have? How might we hold businesses accountable, and ensure that stakeholder considerations aren’t dropped at the first challenging moment? 

Let us know your thoughts in the comments below, or literally join the conversation with us on Clubhouse! 

We’ll be continuing our live Future Normal discussions on Thursday, 4 March at 1530 EST, 2030 UK & 2130 CET.

?? Add it to your calendar here

Thanks so much for reading, see you next week! 

Henry & Rohit