Firms with Benefits: B Corporations and the Future of Business

The recent financial shenanigans of high-wealth individuals stuffing dollars under the proverbial mattress of offshore tax havens raises serious questions about modern-day corporate leadership says Sara Bice, a Senior Associate of the Australian Centre for Corporate Social Responsibility. This article was originally published in The Conversation.

Current financial news paints a dire picture of a limping global economy and firms crippled by avarice, corruption and self interest. Meanwhile, the collective behaviour of companies like Goldman Sachs, Barclays and many others raises further concerns about the judgement and ethics of contemporary firms.

Will the early 21st century be remembered for the failure of values to discipline free-market enterprises? Or will this era be recalled as the “social turn”, a fundamental shift in the expectations for and roles of the corporation?

Enter the benefit corporation, a concept which likely has economist Milton Friedman — of “the business of business is business” notoriety — rolling in his grave. In an attempt to resuscitate the heart of business (or to locate it in the first instance, if you’re of the “business is a Tin Man” persuasion), benefit corporations value the collective good, committing to generate public benefit and financial profit.

A small but growing group of businesses see such a commitment as the next and necessary iteration of the free-market economy. And a coterie of forward-looking Australian firms are getting in on the ground floor of a potentially transformative phenomenon.

Launched in 2010 in the United States, benefit corporations fall into two main categories: legal “benefit corporations” which face legislative requirements to generate both shareholder and social benefit, and ‘Certified B Corporations’ which are not legally bound but are certified by US-based Not for Profit B Lab. Both types of entities are referred to among proponents as “B Corps”. Twelve US states have passed benefit corporation legislation and a further 20 are reportedly “working on it”.

Today, 728 B Corps operate in 26 countries, generating over $3.35billion in revenues.
Since the June 2012 certification of Australia’s first B Corporation, Small Giants — a Melbourne-based company partnering and investing in social enterprises and sustainable business — a further five Australian firms have qualified for Certified B Corporation status. While the number of firms that are B Corp certified remains very limited to date, Australia is home to a thriving social enterprise community.

An estimated 20,000 social enterprises, defined by Social Traders as organisations “led by an economic, social, cultural or environmental mission consistent with public or community benefit”, are in operation throughout Australia.

Taken within the context of this thriving social entrepreneurship movement and a consumer base progressively concerned with non-financial performance, the arrival of the B Corporation on Australian shores is an important bellwether for the future model of business. As the benefit corporation grows, and as legislative options are weighed up within Australia, it is very likely the B Corp will become as familiar as “fairtrade”, as omnipresent as ‘organic’.

Why is such a mainstreaming of benefit corporations or social ventures likely?
Recent collective actions demonstrate that there is a growing consumer demand for ethical, for-profit businesses with a social purpose. Global protests, epitomised by the Occupy movement, reveal an expanding pocket of dissatisfaction with the nature and power of the contemporary corporation.

Combined with a strong willingness to act and improved ability of like-minded consumers to connect globally, such movements hold an ability to effect change previously not possible. Research results reflect the disapproval of the modern corporation manifest in protests like Occupy.

For example, the 2013 Edelman Trust Barometer — the largest global survey of public trust in governments, media and businesses — summarises this year’s results as demonstrating a “crisis of leadership”.

Results suggest that trust in these major social institutions is at a worryingly low level. Banks and financial institutions fare particularly poorly, with trust levels of 50% or less in two-thirds of the global markets surveyed.

What do studies like this have to do with benefit corporations?

They tell us that current business models are failing the expectations and needs of consumers and citizens. Survey results detailed in a US White Paper on benefit corporations show that, all factors being equal, 86% of US consumers would switch from a current brand to one which is certified as socially responsible.

Ethical behaviour and social responsibility are also increasingly important to the new generation of job seekers, with the white paper noting that 88% of MBA graduates surveyed would take a lesser salary if it meant working for an ethical corporation. The investment side of the market (discussed in detail in an earlier article) is also showing concern for social impact, with the 2010“Money for Good” survey estimating a US$120 billion dollar demand for investments with positive social impact.

Are factors like these generating a perfect storm for corporate identity? Only time will tell; B Lab aims to certify 100 B Corps outside the United States this year.

Current trends suggest the Australian market has a great number of potential candidates.