M-Prize Finalist
This hack is one of 24 outstanding entries selected as finalists in the Long-Term Capitalism Challenge, the third and final leg of the Harvard Business Review / McKinsey M Prize for Management Innovation.
B Lab's vision is to redefine success in business by building a global movement of entrepreneurs competing not just to be best in the world, but best for the world. These entrepreneurs are using business to solve society's greatest challenges. Their companies are called B Corporations. Our job is to empower these B Corporations and their stakeholders by supporting the global B Corp movement and building the market infrastructure necessary for them to succeed. Today, it's a new sector of the economy. Tomorrow, it will be a whole economy in which all business is good business and all capital is invested for impact.
Despite – or because of – an era of unrivaled economic growth and technological innovation, we are experiencing critical failures, including growing economic instability, massive wealth inequality, rising social unrest, and environmental crisis. While addressing many of these problems requires shifts in cultural values, the root problems are systemic. The private sector, the most powerful force on the planet, has the unique ability to attract capital and talent, and therefore resolve large societal issues at scale by creating value for society and not just shareholders. The business sector, however, currently lacks the infrastructure necessary to achieve these objectives. How do we empower entrepreneurs to solve society’s most pressing challenges? What market infrastructure is necessary to accelerate a global movement of entrepreneurs competing to be best for the world?
Our current business system was not built to solve social and environmental problems. In fact, the existing system of standards and laws for the private sector ensures that business does not pursue these objectives. There is an urgent need for both a global social movement that redefines success in business and for market infrastructure - standards for impact, new corporate form, public policy incentives – to empower entrepreneurs and their supporters to use business as a force for good.
The private sector has become the most powerful force on the planet, dominating our social and economic lives. Therefore, we must harness the power of business to create value for society, not just for shareholders.
Over the past 30 years, growing numbers of citizens have realized the power of business to address social problems. This fringe movement has become a market composed of social entrepreneurs, consumers, investors, and workers who are demanding a better way to do business. An entire ecosystem of organizations addressing this market has emerged. However, growing a market into a marketplace and eventually a new sector of the economy will require addressing several structural impediments: a lack of transparent standards makes it difficult for stakeholders to identify and support “good companies” and for investors to drive capital to those businesses; and the legal concept of shareholder primacy makes it difficult for corporations to consider employee, community, and environmental interests when making decisions.
This requires: a legal framework institutionalizing stakeholder interests to enable companies to maintain social and environmental mission as they scale; transparent, comprehensive, and comparable metrics to measure their impact; and a global movement led by entrepreneurs and supported by empowered consumers, workers, investors, and citizens.
B Lab’s unique innovation is that it drives institutional, behavioral, and policy change simultaneously through three interrelated initiatives that focus on empowering the entrepreneur as the agent of change: 1) Building and shining a light on the community of Certified B Corporations, companies certified for being not just best in the world, but best for the world. To earn certification, B Corporations must achieve a minimum score on the B Impact Assessment, which measures a company’s impact on its workforce, suppliers, consumers, community, and the environment, and are legally required to consider the interests of these stakeholders, not just shareholders, when making decisions; 2) driving capital to these entrepreneurs using GIIRS Ratings & Analytics, a platform that allows investors to assess and benchmark the performance of companies and funds in their impact investment portfolios; and 3) creating an enabling policy environment, including incentives and new corporate form legislation (the Benefit Corporation) that removes impediments to creating social benefit alongside shareholder value. These initiatives empower entrepreneurs and the individual consumers, investors, workers, and citizens who support them. They allow businesses to measure impact, manage supply chain decisions, and identify opportunities to benefit society.
B Lab is building the global movement and the market infrastructure necessary to redefine success in business. B Lab accomplishes this by advancing concrete, positive and integrated solutions to the systemic problems discussed above (lack of standards, legal impediments, market fragmentation).
During our first four years, we achieved proof of concept, early adopters, market traction, and high integrity content; now we are poised to scale for impact. B Lab has certified over 525 B Corps globally, a multi-industry, multi-billion dollar community of empowered entrepreneurs. This community continues to grow globally with the establishment of a new partnership with Sistema B that is promoting the certification and use of standards in South America. There are 198 GIIRS rated companies in 30 countries in emerging and developed markets from 55 investment funds. There are 18 investors (institutional, high net worth individuals, and family foundations) committing to invest in GIIRS rated companies and funds, and in most cases are driving market adoption of GIIRS. Benefit corporation legislation has been passed in seven states that enables corporations to institutionalize their commitment to create material positive impact on society and the environment. Tax incentive legislation passed in Philadelphia, and procurement preference legislation has been passed in San Francisco.
There is rising interest from public companies, from local, state, and federal policymakers, and from credible partners in expanding globally. Most importantly, individuals around the world are being inspired to take action. We believe that this early attention is coming from our concrete success at integrating community building (B Corps) with major public policy victories and capital markets activities, as well as the development of credible standards for measuring impact.
Through the growth of the impact marketplace, B Lab hopes to drive broad adoption of standards, providing a roadmap for businesses to measure and improve their impact. By providing a free impact measurement tool, businesses become empowered to improve their social and environmental performance. The company 1) becomes more aware of strengths and weaknesses and can identify opportunities to improve; 2) can benchmark their performance against a universe of comparables through reports on aggregated data published by B Lab, creating a ‘race to the top’ phenomenon; and 3) creates a demonstration effect for its supply-chain and capital markets as a result of its material improvement in value creation. In a generation, success in business will be redefined to include financial performance and social and environmental impact, and business will have a direct effect on alleviating poverty, rebuilding communities, and preserving the environment.
The first steps for redefining success in business require adoption and participation by everyone. We can all test this out because we all play multiple roles in life. Whether rallied to action via a call to ‘B the Change’, ‘B a Champion’, or to join the ‘B Corps’ (think AmeriCorps or Peace Corps for a new economy) individual citizens-- as entrepreneurs, consumers, workers, investors, and voters-- need easy engagement tools and action steps to support solutions to the problems they see and feel powerless to address.
The first step for a company is to take the free B Impact Assessment to evaluate its social and environmental performance. This evaluation process will set a baseline of the company's performance which can then be used to outline opportunities to improve in the different impact areas over time. The companies that score over an 80 on the B Impact Assessment are eligible to pursue B Corp Certification and join a growing community of high impact companies which has become an increasingly influential business constituency that speaks louder and can advocate for supportive policies that promote the development of mission driven businesses. Companies that take the B Impact Assessment can also get a GIIRS Rating, allowing them to raise capital and scale impact as well as financial return.
Every day individuals can make decisions to participate in this new sector of the economy. They can work for a company or B Corp that shares their personal values. As consumers they can buy products or services from these companies. As investors can put capital to work in B Corps or GIIRS rated companies and funds, and they will know that they are both making money and making a difference. Individuals can also take action and encourage companies to become B Corps by posting the link to the B Impact Assessment on the facebook page of companies they admire. Or they could start to fill out the assessment on behalf of the company giving them a jump start on the process and turn it over to the them to complete and get certified. Individuals also can join the business community in advocating for benefit corporation legislation and other proposed policies that support sustainable companies by calling and sending letters to their legislators and signing petitions.
There is an opportunity for all of us to participate in scaling the new sector of the economy as we all make decisions on what to buy, where to work, how to invest, and how to lead every day. We can each truly be the change we seek in the world. Be the change!
My partners Jay Coen Gilbert and Bart Houlahan, the entire team of 25 dedicated professionals at B Lab, and the growing community of over 500 Certified B Corporations.
From one view Benefit Corps are what all corporations already think of themselves as being, i.e. "good citizens".
So what would make "Certified B Corporations” not just “best in the world, but best for the world." is entirely an institutional business plan assessment method. There are huge numbers of competing corporate responsibility assessment plans, is one problem, that generally have conflicting features.
For one large omission, I don’t think any of them yet have scientific means for measuring environmental liabilities as economic costs. Another common flaw is not including a way to assure that the economy as a whole will remain profitable at its growth limits, as my submission provided to keep economies profitable at their limits: http://www.managementexchange.com/hack/adopt-natural-system
Still, the B-corp approach comes closer than others to meeting the strong standard of sustainability, the requirement that the economy indefinitely remain profitable. Without that were the economy to stop growing now there would still be ever growing accumulations of investment capital, producing ever shrinking total returns, and violate the whole system requirement.
So if B-corps lived by principles for keeping the economy profitable without growth, AND, for them to not to do business with uncertified companies, then world economy would have its own profitability as a goal for the indefinite future. So far that's not part of the B-corp plan, but this general approach could be changed to include that.
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I'm dubious of certification and ratings programs even coming from not-for-profit institutions. I'm even more dubious when a legal framework drives business towards that institution. It seems a formula for future corruption to me. I hope I'm wrong.
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Evolution naturally "generates" predators.
I too hope I'm wrong. But I doubt.
http://www.managementexchange.com/hack/define-%22society%22-first
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In 1988, during a community project in Mannenberg (Gang and drug Capital of the Western Cape - South Africa) we defined WEALTH as both ROI (Return on Investment) and ROL (Return on Life).
It was fascinating to see how some understood and embraced the concept whilst others dismissed it as a fanciful dream.
I think even the sleepwalkers will be waking up soon !
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