B Corp certification, which demonstrates a business’ dedication to using the power of markets to solve social and environmental problems, is expanding to allow multinational companies to become accredited. Will the certification of multinationals trigger a major breakthrough in responsible and purpose driven business?
While it is too early to definitively answer the question, B Corp certification may push mainstream enterprises to higher standards, and help prove that responsible business practices are possible for large multinationals.
Perhaps the main strength of the B Corp model is that it requires companies to not only earn a minimum amount of points, measured against the B Lab’s Impact Assessment, but also introduce legal requirements that fit a social mission and give voice to diverse stakeholders.
Initially B Corps were predominantly small and innovative start-ups, such as Kickstarter and Hootsuite. More recently, they have been joined by several publicly traded companies like cosmetics maker Natura and Triodos bank. Until now, however, no multinational companies have certified as B Corporations.
As things stand, multinationals cannot meet B Corp certification requirements due mainly to the complexity of their corporate legal structures. The parent company of a large multinational corporate group may have thousands of subsidiaries and other associated entities. If a parent company is granted B Corp status, each subsidiary and related entity must also independently meet the minimum performance requirements in order to use the B Corp label. While no parent company has earned B Corp status, subsidiary companies have opted to become B Corps. For example, Ben & Jerry’s Ice Cream, a subsidiary of consumer goods giant Unilever, became a registered B Corp in 2012.
“Economics and Enterprise are going through a major rethink and transformation, driven by new realities, innovation and new agents. The B Corps — better, bolder, best-for-the-world businesses — are at the forefront of this evolution, integrating the best of innovation and entrepreneurial acumen with the highest levels of societal and environmental responsiveness, extended fiduciary responsibility, good governance and transparency.” — Marcello Palazzi, Co-founder of BLab Europe, at the Creating Sustainable Companies Summit,
The challenge of B Corp certification for big company groups
There is a difficult balance to maintain between protecting the reputation and rigor of the B Corps standard while also bringing in new members. The complex web of globalized corporate structures makes it particularly difficult to effectively monitor what could amount to thousands of subsidiaries, factories, and suppliers for most of the global brands that have become household names. The B Corp movement aims to put in place a system that ensures that all business components are managed in accordance with the defined social mission of the enterprise at large. This is a daunting but achievable challenge, and not limited to B Corps — there has been a similar debate as increasingly large retailers and supermarket chains have sought Fair Trade certification.
B Lab, the non-profit behind the B Corp label, is committed to the challenge of adapting the B Corp certification to multinational groups, and has launched the Multinationals and Public Markets Advisory Council (MPMAC). The Council will last through 2017 and aims to address the systemic, institutional, and practical barriers to B Corp Certification for both private and publicly-listed multinational companies.
Protect companies’ purpose
An additional remaining challenge is to ensure that B Corporations, and more generally purpose-driven businesses, have a framework in nations where they operate that legally supports their social benefit. The law in most countries does not generally provide B Corps or indeed any corporation with a special arrangement to protect their core purpose beyond fiduciary duties to shareholders.
Some steps have been taken. In most U.S. states, and in Italy, a company can take on the legal structure of a Benefit Corporation, which has ‘a corporate purpose to create a material positive impact on society and the environment,’ requires directors to consider non-financial interests as a fiduciary duty, to report on social and environmental performance, and to give equal weight to social missions and profit making. Other jurisdictions may eventually follow suit and add benefit corporations to the existing business forms that blend profit and purpose (e.g. social enterprises and worker-owned enterprises).
In the UK, entrepreneurs may opt to incorporate as Community Interest Companies (CIC), a legal form that limits dividend and interest payments made to shareholders and financiers in order to ensure that profit is made but that the primary focus of the company remains on producing benefit for the community. The UK Government has also launched two initiatives to look at ways to promote purpose-driven business and prevent future corporate scandals: a mission-led business review and an inquiry on corporate governance.
Need for a paradigm shift in business culture
Seeking B Corp status is an effective way for companies to integrate environmental and social sustainability in the core of their business model — furthermore, a growing number of studies suggest that better sustainability performance translates into profit. Research by professors at Harvard and London Business School concluded that firms with good performance on material sustainability issues significantly outperform traditional companies over a 17 year time horizon. This is also acknowledged by corporate directors, as evidenced in a survey of 1000 CEOs in 103 countries conducted by Accenture in which 80% of managing directors considered sustainability as a means to gain competitive advantage.
Conversely, irresponsible business behavior exposes companies to legal liabilities as well as economic losses and brand damage, as evidenced by various corporate scandals, such as BP’s accident in the Gulf of Mexico, Toshiba’s accounting scandal, and Volkswagen’s recent “Dieselgate.” As pointed out by Paul Lindley, (founder of Ella’s Kitchen,) “in today’s world, consumers and investors are more educated, aware and responsible than ever before and — as profit warnings from VW and Sports Direct have amply demonstrated — they’re voting with their feet.”
However publicly traded companies are exposed to capital market pressure to maximize their short-term financial results. While it is not a legal requirement in any country to maximize quarterly returns or share price, the culture of shareholder value maximization remains firmly anchored in business culture and education. This pressure has led companies to prioritize short-term profits at the expense of innovation, sustainability, and employee and societal well-being. It has also been linked to the recent financial crises, thereby putting at risk the long-term health of corporations themselves. In this regard, it would be helpful for regulators to clarify that the purpose of corporations is not the short-term maximization of share value — and that corporations may choose to invest in positive actions for the people and the planet, whether they are B Corps or not.
For corporations that are able to resist the myopic demands of the market to maximize financial performance, B corp certification then offers a useful path to an inclusive business model that indeed sees business as a force for good.
Paige Morrow is Head of Brussels Operations at Frank Bold, a European certified B-Corporation and purpose-driven law firm. The firm leads the Purpose of the Corporation Project, which invites businesses, academics, policymakers, and civil society to debate the future of publicly traded companies.