B corporations: Stakeholder capitalism at work
Changes in corporate structure and law help social entrepreneurs envision a more inclusive and beneficial economy.
Tuesday, June 7, 2011 - 16:12
'B' TEA: Guayaki Yerba Mate is one of over 400 B corps around the country incorporating social and environmental responsibility into their corporate bylaws. (Photo: star5112/Flickr)
Economic growth: it is perhaps one of the only ideas that enjoys widespread bipartisan support these days in Washington. "Grow the economy!" is the rallying cry heard from Wall Street to Main Street, and probably even on Sesame Street (two marshmallows are always better than one, right?).
While the economic growth paradigm is questionable for reasons too numerous to get into here, not all economic growth has the same environmental and social impact. Many business owners believe that the forces of capitalism can be harnessed to promote positive change in their communities and around the world. And while many such businesses and non-profits have an explicitly social or environmental dimension to their missions, corporate law still places institutional barriers on for-profit companies attempting to do more than increase their bottom-line.
Enter the B corp, or benefit corporation, a new type of corporation specifically structured to serve a larger social and environmental purpose. While current law legally obligates corporations to maximize profits — corporate executives can be fired or sued for making decisions that benefit the community at the stakeholders' expense — B corps represent an alternative for social entrepreneurs with the common good in mind.
The founders of B Lab, a non-profit dedicated to developing, certifying and promoting B corps, have envisioned a different way of structuring corporations that would build in transparent social and environmental performance standards. This entails a profound shift from stakeholder capitalism to shareholder capitalism — a way of doing business that formally recognizes the many diverse shareholders that every corporation has beyond their investors.
Any corporation can become a certified B corp by taking a comprehensive Impact Assessment that measures a corporation's practices in five fundamental areas: accountability, employees, consumers, community and environment. This certification, similar in function yet significantly distinct from other product certifications like free trade or organic, serves as a powerful indicator that an entire company follows a determined set of ethical standards. And the new corporate form liberates social entrepreneurs to recognize community, employee and environmental shareholders in the corporation's operations. The certification creates the framework for companies to institutionalize social values and then recognizes those that have done so.
There are currently more than 400 certified B corps around the U.S., despite the fact that only four states have legally recognized this new corporate form. Virginia was the most recent state to sign benefit corporation legislation into law this year, but seven other states, including Pennsylvania, have legislation pending.
In fact, outside of California, no other state has more certified B corps than Pennsylvania. With more than 50 registered B corps, Pennsylvania companies from all across the business spectrum are getting involved: from photographers and travel businesses to construction firms and design companies. Just as importantly, the legislation in Pennsylvania has bipartisan support, giving it a fighting chance in a sourly divided State Legislature.
I had a chance to meet Hardik Savalia, one of B Lab's first employees and team members, as part of Climate Ride's Expert Speaker Series. And though I am generally wary of business models that still operate within the dominant growth paradigm, I certainly see the value in B Lab's mission to institutionalize social entrepreneurship and create legal space for mission-driven companies. While no one expects the Forbes 500 to all immediately alter their business perspectives, the B corp model adds significantly to the larger cultural narrative of sustainability and engages the massively powerful business sector in creating a better world.
In that endeavor, we need all the help we can get.
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