Encountering Benefit Corporations

06/02/2015 12:49 am ET | Updated Jun 01, 2016

I first met Jay Coen Gilbert, founder of B Lab, the nonprofit behind the B-Corporation concept, 10 years ago at a Spirit in Business meeting. I invited the group to my "Circle of Entrepreneurs" meeting, and Jay showed up. He liked the way we had created something out of nothing, a talent he certainly displayed by founding AND1, a successful basketball shoe and apparel company, and continues to show as B Lab blossoms globally.

Inspired by Gandhi's purported statement that "we must be the change we seek in the world," and with the help of Untours founder Hal Taussig, the idea for B-Corporations was soon born. The original idea was to create a fund by investing only in "Newman Ventures": companies that make good use of under-utilized resources and donate 100 percent of profits to charity. Over time, that idea morphed into a for-profit fund of companies that would be committed to meeting high standards of social and environmental performance, transparency and legal accountability.

When taken public, we imagined that these companies would inoculate the "market" with a positive antidote against the Wall Street culture of greed. In other words, trading for-benefit companies on the public market could demonstrate that these standards would be highly valued by investors even in terms of stock price. The recent IPO of Etsy, the online purveyor of handcrafts, will be a good test case of this premise. As a B-Corp, Etsy is legally committed to consider all stakeholders as equal in importance, not just to favor the shareholders and maximize profits without concern for the long-term impact on others. So far investors seem to be shying away from the opening price, but we will see long term.

Today, B Lab is a not-for-profit standard bearer, and has certified over 900 companies as having met these standards. Now this community of businesses is storming the statehouses. One by one, states are passing laws to create a new corporate structure that allows companies to be publicly accountable for their impacts on society, not just shareholders. Technically, these new entities are called Benefit Corporations.

According to Jay in an email exchange, "B-Corps try to avoid 'green-washing' by having their social and environmental performance assessed and verified by an independent nonprofit organization (B Lab), by making that verified performance transparent and available on bcorporation.net, and by amending their legal documents to give shareholders new rights to hold management accountable to achieve social, not just financial, objectives."

All generalized rating systems, whether done internally or externally, are by nature imperfect because each endeavor is more or less unique. The weighting of factors to rate the benefit of each corporation may not be entirely perfect, but this is the early days of a revolution in thinking.

The external rating of "impact funds" has been taken up by B Lab via B Analytics, a data platform for measuring, benchmarking and reporting on impact, developed primarily by Beth Richardson. In a parallel initiative, Jed Emerson leads a group to choose the annual "Impact50" list of their favorite impact funds for each year, with hundreds vying for inclusion. The winners show a wide range of style and substance, from low financial return and high social or environmental return, to higher financial return and perhaps less social relevance, though the two are not mutually exclusive and tend to go hand in hand.

Over time, standards will continue to rise until investors can choose from a plethora of funds that meet the sustainable financial goals of, say, a pension fund, while providing cleaner air, water, soil, access, security, health, wellness, empowerment and even inspiration.

The consequences of benefit corporations are potentially game-changing. Increasingly freed from purely monetary considerations, executives will be encouraged to make important beneficial decisions for the common good. Their companies' valuations, in the transformed marketplace, will increasingly include external rates of return -- the degree to which they add measurable value to all external stakeholders, and ultimately the common wealth of the planet.

I was privileged to hear Jeffrey Hollander, founder of Seventh Generation, speak at a Social Venture Network (SVN) meeting about CEO leadership a few years ago. His words should be repeated again and again until the culture of business is healed: "Whenever a CEO says they can't do something that is good because they might be sued, they are simply exposing their own lack of courage and conviction."

To lead an organization takes inner fire. If inspired by greed, the fire will burn out quickly. If inspired by a desire to do good, the fire will last because it will spread to other employees, investors and community stakeholders. Greed isolates and creates a chilly work environment, while altruism leads to collaborative, lasting relationships.

TrustAcrossAmerica.org, a nonprofit, has been tracking the trustworthiness of large corporations for over a decade. Not surprisingly, the most "trustworthy" of these corporations, as a group, based on their data, have outperformed peer corporations in long-term success. Investments in these companies have been rewarded. Creating for-benefit business cultures that inspire trust takes passion and results in deeper reasons for being in business altogether. But "green-washing" is rampant, and checks and balances are needed to ensure the leaders are genuine.

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