The B Corp Movement Drives Better Business

Dr. Christopher Marquis discusses stakeholder-driven business, employee ownership, and the future of capitalism

by Karen Kahn

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In his new book, Better Business: How the B Corp Movement is Remaking Capitalism, Christopher Marquis tells the story of the non-profit B Lab and how it has spurred a movement for accountable capitalism worldwide. B Lab created a process for evaluating and certifying a range of company practices, holding mission-driven businesses accountable for their environmental and social impacts. Firms that engage in this process and are certified by B Lab are called certified B Corporations.

Among the areas where B Corps tend to do better than their traditional counterparts is in how they value and treat their employees. B Corps see their workers as assets and invest in their performance rather than seeing the workforce as an expense to be contained. Though employee ownership is not required, B Corps earn extra points in their B Impact Assessment for employee ownership. Moreover, many employee-owned companies have chosen to become certified B Corps to strengthen their commitment to, and protect, their social mission. Companies that come to mind include EILEEN FISHER, King Arthur Flour, and EA Engineering.

Marquis includes references to research from Fifty by Fifty that demonstrated that employee-owned B Corps outperformed their non-employee-owned peers on the B Impact Assessment, standing out for both their employee-centered practices and their commitment to reduce environmental harm.

In a recent conversation, I spoke with Professor Marquis, Samuel C. Johnson Professor in Sustainable Global Enterprise at Cornell University, about the B Corps movement and why he is such a passionate advocate for this model of better business.

Karen Kahn: When I read Better Business, I could feel your passion for the B Corp movement. Why do you think triple-bottom-line businesses represent the future of capitalism?
Chris Marquis: Before the disasters of the COVID pandemic, already we saw a lot of indications that the world was not working optimally for the vast majority. The most obvious signs were growing income equality and environmental degradation. We are seeing the results of 50 years of a capitalism overly focused on shareholders. If you focus exclusively on share price, then you will skimp on wages and externalize things like pollution, leaving it to the public to clean up the air and water. As a B Lab founder said to me, “shareholder primacy is a source code error in capitalism.” I agree. The system is fundamentally out of whack.

My premise is that we need to re-orient our vision of business around stakeholder-driven processes. That is hard to do. For large, complex businesses, even ones that are very committed to this idea, it is hard to figure out how to do this. The firm might add some employee benefits, or reduce carbon emissions, or give more money away. But systematically focusing on broader stakeholder benefits, measuring impact, and staying the course, that is hard to do.

B Lab and the B Corp movement have come up with tools and processes that give companies the ability to re-orient themselves. In many ways the argument of the book is not that there needs to be more B Corporations, but more companies can be like B Corps, they can be more stakeholder driven by using these tools and processes. And companies are doing that: there are about 3500 certified B Corporations but there are more than 100,000 companies that are using the B Impact Assessment to measure their social and environmental impact.

Those B Corps are all over the world, right? Where is this movement gaining strength?
You find B Corps in over 70 countries across 150 industries. The movement started in the U.S., but now over half of B Corps are in other countries, including large numbers in Europe, South America, and Australia. As large companies begin adopting stakeholder capitalism, the more fertile ground, I believe, is outside the U.S. Europe has a tradition of social democracy with more regulation on the free market. South America has long tradition of family-owned businesses, with more long-term orientation and a giving-back ethos. Increasingly, I think we’ll see larger firms becoming B Corps — or at least moving toward a framework that respects and considers all stakeholders — outside the U.S.

Two good examples are Danone, the French conglomerate best known for yogurt, and Unilever, a British consumer brands conglomerate. Currently both companies own many subsidiaries that are B Corps — for example, Unilever owns Ben & Jerry’s Ice Cream and Seventh Generation, among other B Corps. About one third of Danone’s revenues are from its 20 B Corp subsidiaries, and it has committed to making its $30 billion global operation a B Corp by 2025. Another large B Corp is Natura & Co, a $10 billion cosmetic company from Brazil. It has had a long-standing focus on natural ingredients and empowering its women entrepreneur sales force. A few years ago, Natura bought Body Shop, a long-standing socially committed company. More recently, Natura bought Avon. It’s now one of the biggest cosmetic companies in the world, and it is a B Corp, committed to responsible products and an empowered workforce.

B Corps commit to measuring their impact on their workers, community, environment, and customers through the B Impact Assessment. In our research, we found that employee-owned B Corps outscored similar non-employee-owned B Corps significantly, primarily because of their high scores related to how they treat their workers. What did you learn about the intersection of employee-ownership and the B Corps model for triple-bottom-line businesses?
Writing this book I came to understand that employee ownership is vital to building sustainable economy. Jeffrey Hollender, co-founder of Seventh Generation and a pioneer in socially responsible businesses, told me, “Every other ownership model is contributing to widening economic inequality in the world.” When venture capitalists invest in a business, they might get 3x, 4x, 10x their investment on exit. That money could be going to employees. New Belgium Brewing is a great example. As an employee-owned company, when it was sold recently to Kirin Holdings, the employee shareholders got, on average, a $100,000 payout. A lot of people got much more. Ownership in the hands of employees is a very important way to address wealth inequality. Well-known B Corps like King Arthur Flour and EILEEN FISHER demonstrate that employee ownership fits with the ethos of responsible business. It’s a very effective way to take care of your employees.

The B Impact Assessment also gives businesses extra points for being employee owned, so this may be an incentive for firms to share ownership or at least consider more widespread profit sharing.

Even when a firm is not employee owned, B Corps incentivize investing in and developing employees. Can you elaborate on some of the good practices you encountered?
For so many of the companies I talked to, being a B Corp makes recruitment easier and increases retention rates. Millennials and Gen Zs want to work for companies with social missions. They know about and value of B Corps. HR folks told me that often people answer the question “Why do you want to work here?” with “because you are a B Corp.”

Also, many B Corps see providing quality jobs as a core part of their mission. At Boloco, a New England based fast-casual Mexican restaurant, for example, many employees don’t speak English as their first language. The company provides English lessons as well as career counseling and skill development. The founder realized he wants his employees to grow beyond making burritos for their whole lives. So he supports them in learning how to write a resume, how to interview for a job. When people leave, it is more like they are “graduating”; you don’t see the constant churn among workers that most fast-food restaurants have.

One of the things we have identified as a challenge for mission-driven businesses is that moment when the founder exits. Will mission survive? Or will new investor/owners seek the greatest return? You write about Seventh Generation, Ben & Jerry’s and Etsy, three B Corps where founders have exited, not always on their own volition. Are these cautionary tales or success stories?
One of the reasons I’m passionate about the B Corp model is that it is designed to preserve mission. First, it is important to recognize the two elements of the model. B Corps are companies that have achieved a corporate certification overseen by B Lab. Benefit corporations are companies that have incorporated under a new legal structure that recognizes companies’ responsibility to multiple stakeholders. For example, Patagonia founder & CEO Yvon Chouinard has always been committed to responsible business, particularly sustainability. When California passed its benefit corporation law, Patagonia registered as a benefit corporation because, as he said, “This is a way to encode our principles in the foundation of the company.” That, along with the B Impact Assessment, which firms have to do every few years, ensures the firm is systemically tied to the mission in the roots and tendrils of the organization. These structures and processes embed mission beyond an original leader.

Ben & Jerry’s and Seventh Generation are good examples. Both are owned by Unilever, and both are still B Corps. If you look at Ben & Jerry’s, it’s a very activist firm; the company continues to express its stance on a range of social justice issues, which indicates that despite being owned by a large conglomerate, the company has the freedom and autonomy to follow its social mission. I recently interviewed Joey Bergstein, CEO of Seventh Generation, and was very impressed by the firm’s commitment to using recycled plastic. They put significant R & D resources into developing a cap for their bottles from recycled materials, which suggests to me they are still focused on mission, not just giving more of their profits back to Unilever. The media reported some hiccups in the initial acquisition of Ben & Jerry’s but overall it has gone very well and set the mold within Unilever for these socially focused subsidiaries and that probably had an impact on Seventh Generation’s experience as well.

The Etsy case is different and maybe demonstrates the other side of the coin. Etsy is no longer a B Corp. The firm was part of a unique cohort of companies that became certified B Corps before benefit corporation legislation existed. After that legislation came in, all B Corps were required to incorporate as benefit corporations. This is one of the reasons Etsy dropped its B Corps status. It wanted to go public and didn’t think shareholders would support the change. Without the legal status, the original CEO, who was passionate about social mission, was jettisoned for a new CEO who eliminated many of the social benefits, presumably to save money in the short term. It is reported that the culture is very different now, and Etsy is no longer a special workplace. So if you lose the key leaders, and don’t have benefit corporation governance, shareholder primacy can reassert itself.

I read a recent op ed in the New York Times where Gregory Mankiw said that CEOs shouldn’t be responsible for anything other than financial performance, because it was too hard to measure social and environmental impact. Why do businesses choose to do the hard work of tracking these metrics?
I titled the book “Better Business,” because so many companies told me that going through this process “made us a better business.” This isn’t a fringe movement, where folks are giving up profits to do good in the world. These are people who are committed to doing good for their communities by running a responsible business.

If you look at big private equity investors — Kleiner Perkins to New Enterprise Associates to TPG — they all have B Corps in their portfolios. These are hard-nosed business people but they see this model can be consistent with economic benefits. A business can be more sustainable over the long term if you meet the needs of all your stakeholders rather than focusing narrowly on shareholders.

And there are B Corps that have successfully gone public, demonstrating that investors have an appetite for responsible businesses that value all their stakeholders. Laureate Education, a for-profit education firm, for example, went public in 2017. In July of this year, Lemonade (home insurance) and Vital Farms (pasture-raised eggs) began publicly trading.

How do we move from the economic crisis we face today to growing an economy that truly works for all?
There is a passion, particularly among Millennials and Gen Zs, for trying to make the world a better place. What is unique about the B Corp movement is that it provides tools and processes to help businesses actually achieve those goals. Plus, as a consumer, you know that the B label is real and authentic. The firm isn’t just “greenwashing.”

Over 100,000 companies use the B Impact Assessment to measure and track their impact and demonstrate accountability. A lot of venture capital investors use it to assess their portfolio companies. These trends demonstrate growth beyond the circle of certified B Corps. Recently, B Lab announced a new initiative to bring more multi-national, publicly traded companies into the B Corporation movement. To impact the economy at scale, these global firms need to be brought along. Can that happen with a voluntary process? If consumers demand it, I think we will increasingly see more firms moving in this direction.

Karen Kahn is a communications consultant and the editor of Employee Ownership News.

To follow Employee Ownership News, subscribe to the Fifty by Fifty newsletter or follow us at Medium.

Originally published at https://www.fiftybyfifty.org on September 14, 2020.

Employee Ownership News

News and analysis from the movement to grow the number of…

Fifty by Fifty: Employee Ownership News

Written by

Working to grow employee ownership in the U.S. to 50 million by 2050. Learn more at http://fiftybyfifty.org and http://medium.com/fifty-by-fifty

Employee Ownership News

News and analysis from the movement to grow the number of employee-owners in the US to 50 million by 2050

Fifty by Fifty: Employee Ownership News

Written by

Working to grow employee ownership in the U.S. to 50 million by 2050. Learn more at http://fiftybyfifty.org and http://medium.com/fifty-by-fifty

Employee Ownership News

News and analysis from the movement to grow the number of employee-owners in the US to 50 million by 2050

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