B Corps — The New 21st Century Economy

In the 21st century, we are on the verge of a great shift — from Capitalism 1.0 to Capitalism 2.0. In traditional shareholder capitalism, the company exclusively maximizes shareholder value. In the Capitalism 2.0 model, stakeholder capitalism will create social and shareholder value simultaneously. It is a movement where companies are using business as a tool for social change. The culture shift within companies living the triple bottom line model of people, planet, and profit is really shaking things up.  The shift is towards companies becoming Certified B Corporations or B Corps.

The Shift

Why is profit seen as the “be all and end all” of business? Milton Friedman, a University of Chicago professor and winner of the 1976 Nobel Prize for Economics, stated that a company’s only social responsibility is to increase profits for the owners (stockholders), as long as it doesn’t engage in deception or fraud. This theory ended up being known as the Friedman Doctrine. Contrary to Friedman’s beliefs, the old-fashioned notion of corporate social responsibility (CSR) is suddenly becoming popular again.

Business leaders and investors are embracing the wisdom of the triple bottom line. As of 2019, almost 10,000 companies around the world have signed the UN Global Compact — a promise to uphold social responsibility in human rights, labor standards, and environmental protection.

Why the shift?

If the profit-based business model remains unchanged, what could have inspired this sudden shift in attitude? There are two leading reasons: consumer demand and climate change.

Exceeding 80 million in population, and accounting for about one trillion dollars of total consumer spending in the United States, millennials are driving the shift. According to a 2015 Cone Communications Millennial CSR Study, “more than 9-in-10 millennials would switch brands to one associated with a cause,” and millennials are “prepared to make personal sacrifices to make an impact on issues they care about, whether that’s paying more for a product, sharing products rather than buying, or taking a pay cut to work for a responsible company.” No wonder businesses are scrambling to appease the demands of this up and coming consumer base.

In October 2018, the United Nations Intergovernmental Panel on Climate Change issued a report that shows we cannot continue to do business as usual. The U.N. report makes it clear that we are facing a real and imminent threat to our planet. Many business leaders are listening and trying to use business as a force for change. Many are familiar with Green Businesses, but a new movement has been growing around a certification called B Corporation certification.

What is a B Corp?

Certified B Corporations (B Corps) are businesses that have met the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. They have taken an impact assessment that measures how they treat their employees, their customers, their community, the planet and even kicks the tires on their governance. This assessment is then audited and verified by a third party non-profit, B Lab.

B Lab started in 2007 with 19 certified companies. Now, there are over 2,700 companies, across 150 industries in 64 countries. In the accounting world, there are currently 13 firms in the world and 5 in the United States. Currently, this certification is a powerful differentiator within the accounting industry.

The process of becoming a B Corp

During the impact assessment, a business’s entity type, geographic location, and industry are taken into consideration. The assessment questions are tailored a bit for each but has roughly the same amount of questions in five different sections. The sections include governance, workers, environment, community, and customers. There are a possible 200 points available for the full assessment and a company must reach at least 80 points in order to submit for auditing with B Lab. 80 points out of 200 may sound easy, but only 10% of the companies that attempt certification actually reach the required 80 points.

The process starts with B Lab’s Quick Assessment of about 45 questions. During that set of questions, you will gain a better understanding of the type of questions asked and the type of places you will have to look to gather the information needed. Once you complete the quick assessment, you will be invited to move on to the full impact assessment with roughly 300 questions. Many questions are multiple choice, and for every selection you must be able to show data to support your answer.

During the audit phase, B Lab will randomly ask for you to verify the answers on about 10% of your assessment. During the process, you might lose points or gain points as B Lab digs deeper into the data. At the end of the audit, you will have to maintain the 80 points to gain certification.

Companies are required to recertify every three years and B Lab can spot audit any company during their certification. They also conduct random spot audits to roughly 10% of B Corps each year around the world.

As you gather your data, you will need to work with different departments within your company. Some data will come from your human resources department, finance, information technology, office manager or administrative group, your CEO and your building management. It is an intense process for companies to go through, but certification has many benefits.

Why become a B Corp?

It quite literally pays to become a B Corp, in so many ways. According to Nielsen’s “The Sustainability Imperative,” consumers will pay more for sustainable consumer brands. Companies with a demonstrated commitment to sustainability have grown more than 4% globally, while those without grew less than 1%. Consumers are becoming smarter about sustainability claims as well. They look for true value in a company and are not fooled by marketing.

Many B Corps also report that the certification process helps them root out waste and operational inefficiencies. Certification helps connect employees with a business’s mission, leading to a more engaged workforce and less turnover. B Corps are part of a community that share best practices across different industries, enabling companies to compare and constantly improve to be innovators in their respective industries. In a report published by the Yale Center for Business, B Corporations were 63% more likely to survive a financial crisis like that in 2008 than traditional small to medium size businesses.

Why B Corps Matter

The unfortunate truth is that the government and nonprofits do not act quickly enough to make social change. Our free market can produce change much faster than either government or nonprofits, which both struggle endlessly with red tape and budget constraints. Aside from financial sense, becoming a B Corp just plain feels good. You know that your company truly walks the talk and that you are making this planet a better place. You are impacting your community, your employees’ lives, and your customers’ lives — in a good way.

Yes, becoming a B Corp is a process. You will have to invest money and effort. You will also likely need to make some adjustments and changes to your business to meet the requirements. However, you’ll reap some massive benefits and provide hope for the future. Corporate social responsibility isn’t a new topic, but the conversation has definitely changed. Simply being “socially responsible” is no longer optional for businesses.

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