Benefit Corporations are ambitious in their goals. According to the slogans on their website, they are trying to “redefine success in business,” to “use the power of business to solve social and environmental problems.” B Lab, a third party nonprofit, certifies benefit corporations (or “B Corps”) that meet “rigorous standards of social and environmental performance, accountability, and transparency.” B Lab’s efforts represent a noble push toward a new breed of socially conscious businesses. But the recent buzz around B Corps raises a few questions that have plagued voluntary environmental programs (VEPs) for a while. Can VEPs really change the rules and goals of business? Can they really use market-forces to solve environmental and social problems? How much consarned good can they really do?
Historically, VEPs have questionable efficacy. A 2008 study on VEPs by Nicole Darnall and Stephen Sides suggests, “There is little evidence that overall VEP participation is associated with improved environmental performance.” This study conducted a meta-analysis of the relationship between VEPs and environmental performance (measured based on pollution reduction) that included over 30,000 businesses. Separating VEPs into those involving self-monitoring vs. those monitored by a third party, the study concludes that self-monitoring VEPs performed worse than nonparticipating companies. VEPs monitored by third party performed only slightly better than nonparticipating companies, but not enough to be statistically significant. Darnall and Sides suggest that the weak structures of voluntary programs largely account for their inability to ensure that participants implement program goals, or that their goals are any stronger than nonparticipating programs. However, the authors leave open the possibility that voluntary programs, if structured correctly with good measurements and enforcement of performance standards, could improve environmental performance and change business culture toward using more environmentally and socially conscious practices.
B Lab is trying to do that through its comprehensive certification process, which includes changing company bylaws to account for other bottom lines besides maximizing profits. As a B Corp, company directors enjoy legal protection (from shareholders) to set non-financial goals that account for environmental, community, and employee welfare. On its website, B Lab suggests that it aims to make “companies compete to be the best for the world, not the best in the world.” B Lab grades company performance based on five “impact categories”: accountability or transparency, employee welfare, consumer benefit, community welfare, and environment. And the nonprofit maintains the right to strip certification from a poorly performing company. Also, as part of its mission, B Lab is fighting to change business laws. The nonprofit and its certified businesses are pushing legislation in individual states to allow for a new kind of corporation called the “benefit corporation.” So far 12 states have accepted the new legal status. As B Lab clarifies, “Certified B Corporation is a certification conferred by the nonprofit B Lab. Benefit corporation is a legal status administered by the state.” So benefit corporations do not need to become certified B Corps.
Achieving B Corp status offers conscious organizations an opportunity to have their consciousness recognized. For-profits can serve moral ends within the cutthroat environs of a free-market system. One B Corp called Sustainable Harvest, for example, serves as a Fair Trade coffee importer that invests two-thirds of its operating expenses in farmer training and community development in Guatemala. In a recent New York Times article, David Griswald says that a nonprofit business model would not have allowed for the same level of community investment.
“ ‘It was only when my company grew, and I began to reinvest my earnings in coffee communities abroad, that I saw I could really make a difference.’ He said he felt that a nonprofit business model would have slowed down his progress. He wouldn’t have been able to bring together growers (farmers overseas) and roasters (businesses usually based in the United States) without a profit motive for both, he said.”
According to Griswald, getting certified as a B Corp gives a bit of “street cred in the nonprofit world.” It provides legitimacy when dealing with foundations that want to support business. This legitimacy allows companies greater access to venture capital investments geared toward making social impacts.
B Lab representatives insist that benefit corporations are not meant to compete in the nonprofit marketplace. Theoretically, they aren’t competing for the same investments. In the Nonprofit Times, B Lab representative Erik Trojian states that B Corps give 10 times more than the market average to nonprofits. In other words, B Corps are great for nonprofit businesses too.
B Lab deserves major kudos for creating more environmentally and socially conscious standards than (I assume) currently exist in federal or state laws. They are shouting into an abyss or general absence of free-market morals. Some businesses, consumers, and lawmakers are hearing the call. In this way, B Lab’s efforts hold some promise to shift both demand and legal willpower toward more conscious business structures.
Their efforts appear more than normal green-washing or window-dressing for complying businesses. As B Lab states, they are doing for businesses what LEED or Free Trade certifications do for building or international trade. They are trying to drive capital toward more conscious business. They might even help change the way we think about capital – both its paper and human forms – as positive moral forces rather than purely economic ones. In theory, capital invested in a conscious way holds the power to increase the economic opportunities of marginalized folks. In theory, more morally conscious markets can lift everyone.
B Lab’s philosophy and goals raise some serious questions, though. First, there is the argument about whether or not free-markets can solve the social and environmental problems that free-markets largely caused. Can more moral or conscious free-markets account appropriately for all the external costs in their supply chains? I’m not sure. Despite the allure of magical terms like conscious free market, such terms sound like oxymorons for a reason. To function transparently and fairly, markets need third party guidance and oversight that make for inherently un-free markets. They need restraints and rules to guide their conscience or to account for what they have not accounted for. I think B Lab and other organizations that promote “social enterprise” or moral investments will admit this. B Lab, for example, provides third party oversight and feedback as part of its grading system and support service to certified companies. But organizations like B Lab also continue to praise the power of free-market solutions. Why they do this is understandable. They rely on market forces to push their causes. They lean on the good aspects of capitalism. And their legitimacy depends on deeming some investments more moral or socially conscious than others. But in continuing to cater to free-market solutions, organizations like B Lab could be sabotaging the long-term feasibility of the economic transformations they say they want.
B Lab is a crucial part of a culture wide shift in consumer demand toward more sustainable businesses. But the larger question is if they truly stand for changes in the structure of the market place and for changes in the laws of doing business? Do they stand for setting the curve of conscious business, for defining the laws and practices necessary to transform our economy? Or do they simply stand for a material way for a handful of businesses to self-congratulate themselves for volunteerism that is ultimately hurting their bottom line?
I hope it is the former. Maybe B Lab can help provide a framework for sustainability that is sensitive enough to account for more of a company’s externalities, so that consumers can know more about what they are paying for – what good (community development or restoration projects) and what harm (pollution or poor working conditions). VEPs like B Lab are uniquely placed to guide this conversation, to refine our definition of business consciousness by giving it more concrete and meaningful metrics, both qualitative and quantitative. What things need to be assessed or measured? And how can we measure them? B Lab has valiantly strode into the assessment field, but hasn’t been too forthcoming about the nature of its assessments. For example, how is it scoring its impact categories (I don’t see any of this on its website)? More crucial than their ability to shift demand toward sustainable companies, better metrics will help policy makers determine the laws and regulations that can transform an economic system.
For my money, tight and toothed regulations can do a lot more to create a new economy than voluntary certifications that may or may not be enforced. To this end, it would be a glorious day to see B Lab, along with its B Corp compadres, lobby for stricter and more conscious regulations based on good science and principles. If these businesses are ahead of the consciousness curve, they should lead the industry push towards sustainable development in every way possible, especially through legal means. Maybe such lobbying starts with B Lab’s current focus – obtaining legal recognition as a “benefit corporation.” But the fact that obtaining legal status is such a struggle (currently 12 states have recognized these businesses) should show us how far we have to go. In other words, I hope that obtaining legal sanction to actually do some good for the world is just the beginning of the fight to subvert a system much more beholden to shareholders than society.