When Shareholders Aren’t the Only Ones Who Matter: Public Companies Increasingly Say Yes to B Corporations
August 13, 2019 All Industries
It’s been more than 10 years since ice cream manufacturer Ben and Jerry’s Homemade became a B corp., a label that positions the company as a “force for good.”
Becoming a force for good is no easy matter. The B Lab nonprofit certifies a company as a B Corp. after a rigorous assessment process, scoring points for the treatment of workers, communities, suppliers and the environment.
The certification made sense to Ben and Jerry’s, given its long history as a values-based organization from its 1978 founding in Vermont to the global brand it is today.
“[Young people] want to support companies [that] are showing a commitment to society or the world,” explains Rob Michalak, social mission special projects director for Ben and Jerry’s.
Although most B corporations are privately owned, they have grown to include about 3,000 companies, including an increasing number of large, publicly-traded ones. Ben and Jerry’s is a wholly-owned subsidiary of the London- and Rotterdam-based publicly traded Unilever.
There are many benefits of becoming a B corp., but there also are costs involved as well as an additional set of complications for public companies. That hasn’t deterred Brazil-based Natura, which purchased The Body Shop in 2017 and agreed to acquire U.S. exchange-listed Avon Products in May 2019, from becoming a B Corp. Nor has it deterred for-profit Laureate Education, a B corp. that operates in developing countries and went public two years ago. French yogurt maker Danone and clothing retailer Gap both have announced intentions to become B corporations. They already have B corp. subsidiaries such as the Gap’s Athletica and Danone North America.
“The B corp. brand has become more and more well-known and people can see a clear value to that,” says Andrew Kassoy, one of three co-founders of the nonprofit B Lab, which certifies B corporations. Companies that meet the standards reduce risk and create long-term value by attracting more customers and by treating employees, suppliers and the environment better, he says.
Still, there are some hurdles. Companies needs to change their charters to reflect that it is accountable to stakeholders such as employees and the environment, Kassoy says. The reason for this is that the concept of “shareholder primacy” has gained legal authority in much of the world in recent decades, exposing directors and executives to liability if they stray from the concept of putting shareholders first.
Public companies require a majority of shareholders to approve elevating other stakeholders’ interests above theirs, which can take some effort. The eyeglass retailer Warby Parker dropped its B corp. status as it reportedly contemplated going public; online retailer Etsy dropped its status after going public and undergoing a leadership change.
To become a B corp. in the United States, public companies must change their charters to a benefit corporation, a legal entity recognized in more than 30 states including Delaware. A benefit corporation provides liability protection for directors and executives of organizations with a social purpose. Baltimore-based Laureate Education had no problem with that and became the first B corp. to go public two years ago.
“Nobody knew what would happen,” says Adam Smith, director of communications and public affairs for Laureate. “Nobody had done this before. No one could say what’s the response from the investor community?”
It turned out that there wasn’t much of a response. Smith doesn’t think the investor make-up is substantially different as a result of Laureate’s B corp. status. The benefit, he says, comes from having a third-party review. Questions in the assessment process are specific, including whether the company banks locally and seeks local suppliers, not just what it does to reduce carbon emissions.
But the assessment is rigorous, with lots of feedback and correspondence with the B Lab. There’s also a cost involved, with large organizations paying more than smaller ones. Laureate pays $50,000 annually to be certified as a B Corp., but smaller organizations pay as little as $500 per year.
Is all the time and expense worth it? Earlier research into the impact on financial and social performance has produced mixed results, according to a 2019 study in the Academy of Management Discoveries. A survey of 249 privately owned corporations in North America found that short-term growth slowed after B corp. certification, especially among smaller and younger firms, as management was likely distracted by the time-consuming assessment process.
Organizations that continued to re-certify find it of value, though. Clothing maker Patagonia, another B corp., has tripled its profits and revenues since 2008, according to an article in Fast Co. Ben and Jerry’s now is sold in 38 countries. The company’s internal surveys have found that when customers learn about the good the company does, they are 2.5 times more loyal to the brand.
Unlike Ben and Jerry’s, Laureate is part of an industry with a terrible reputation in the United States after the closure of several for-profit colleges that saddled students with debt and failed to help them get jobs. Smith says B corp. status differentiates Laureate from competitors, and attracts employees who wouldn’t otherwise work in a for-profit university system.
Other companies are similar to Laureate and are looking for a way to separate themselves from competitors doing very little for society or the environment, so-called “greenwashing,” says Suntae Kim, assistant professor of management and organization for Boston College.
Other companies want B corp. status because they were founded with a social purpose and want to participate in a movement that legitimizes their identity, Kim says. That seems true for Ben and Jerry’s.
“We need to look at the long-term,” says Ben and Jerry’s Michalak. “We can’t just look at the next quarter or the first half’s performance. We need to look decades out in terms of how our businesses impact the world.”