Tired of Big Corporations? Check out B Corporations Instead

The Occupy Wall Street movement is now in its second month, and whether you agree or disagree with it, it clearly cannot be ignored. My own feelings towards it have been somewhat ambivalent. As a member of the 99%, I share the frustrations of many who are tired of seeing our government controlled by large corporations and am deeply troubled by the effects that a growing gap between the rich and the poor has on our democracy and the opportunities that this country has always offered. However, I feel that some of the anger has been misdirected at business in general. During the General Strike in Oakland on November 2, a large banner reading “Death to Capitalism” was prominently hung up during the march. How can I, as a business professional, support a movement in which some members view business as the problem?

Not All Businesses Are Created Equal

The truth is that not all businesses are created equal. Consider the following characteristics of Big Corporations:

  • Legally required to focus first and foremost on maximizing profit
  • Can operate largely without regard to how their business affects society and the environment
  • Drive local, independent businesses out of business
  • Take money out of the local economy and send it to shareholders and executives outside of the community

By contrast, consider the following characteristics of B Corporations:

  • Legally required to make decisions that are good for society, not just shareholders
  • Use the power of business to address social and environmental problems
  • Often local, independent businesses that operate within and give back to their local community
  • Help keep money in the local economy where it continues to circulate within the community

The problem is not business in general, or even Big Corporations alone, but instead it is the way in which large corporations have prioritized profit above all else. B Corporations are part of the solution. B Lab co-founder Andrew Kassoy captured this quite well in a recent piece in Forbes: “The Occupy Wall Street movement signals a collective dissatisfaction with the status quo. B Corporations and their supporters are offering an alternative.”

Harnessing the Power of Business – for Good

One of the reasons that I went into business is because I believe deeply that we need to address the social and environmental problems that we face. Yet, when I looked at the options for effecting change, I had to acknowledge that the government can’t solve our problems (especially in its current state of impasse) and the non-profits, where I worked for years, simply don’t have the resources to solve all the problems that they’re tackling. The private sector is in the best position to effect positive social change by harnessing the power of business and diverting it away from just making money and towards making a profit while acting responsibly – and this is exactly what B Corps do.

If you are a business owner, I encourage you to consider becoming a B Corporation. The process begins with completing the online B Corp Impact Assessment. If you are not a business owner, consider shifting your purchasing dollars to B Corporations and local independent businesses that provide jobs, produce positive social impacts, and protect the environment.

 

Benefit Corporations and B Corps: The Latest Buzz

Now that California has passed Benefit Corporation legislation, Benefit Corporations and B Corps are all the rage! If you’re trying to keep up with it all, here’s the latest from around the web:

  • An interview on KPFA last week explores the Benefit Corporation legislation. It’s well worth listening to, and you can Benefit Corporationsaccess it here.
  • Following the B Corp Retreat in October, Shift Alliance explains the purpose, progress, and future challenges of B Corps.
  • With the passing of the new legislation, it’s easy to confuse Benefit Corporations with B Corporations. Sometimes, however, a B is not a B.
  • What is being called the biggest change in NY corporate law since the introduction of LLCs in 1994? Hint: It involves turning profits while benefiting the public.
  • If you’re trying to make sense of B Corps, this primer on B Corps breaks it down for you.
  • What was the process for one company to become a certified B Corp? Rivanna Designs shares their story.
  • This short video by B Corp Impact Makers has been around for a while, but it’s worth watching because it explains their model for doing good – and challenges you to steal it!

Finally, if you haven’t yet read B Lab co-founder Andrew Kassoy’s post on B Corps and Occupy Wall Street, I highly recommend that you read it here.

Sustainability for One Small Business

When I started Cultivating Capital, I wanted to create a company that would not just help others to become more sustainable, but would also incorporate the best sustainable business practices. After all, if we are to reimagine business for the 21st century, we can’t just set up and operate our companies in the traditional way.

Supporting Companies with Shared Values Small business sustainability on main street

Most of the companies that I’ve worked with are B Corps or Certified Green Businesses. When it comes to defining what it means to actually be a green or sustainable business, there are few agreed-upon standards, which makes it easy for a business to call itself green even if it isn’t. However, Certified Green Businesses have met local standards in the Bay Area for environmental responsibility, and B Corps have met national standards for social and environmental responsibility. I know that these companies share my social and environmental values and have been vetted by reputable, third-party organizations. If we are to transition to an economy that supports local, sustainable businesses that minimize their environmental impact and give back to local communities, we need to support those businesses financially. This means making conscious choices about how we spend our business dollars and remembering that every dollar spent is a vote in favor of a company’s practices.

With that in mind, below is a list of some of the things that I’ve done and suppliers I’ve used to help Cultivating Capital be more sustainable:

  • LLC Filing & Legal Services: Katovitch Law Group, a local Certified Green Business and B Corp in Oakland. We specified in the LLC operating agreement that due consideration would be given to the company’s effects on stakeholders and the environment. This ensures that the triple bottom line of “people, planet, and profit” is in the DNA of Cultivating Capital (it’s also the legal framework for B Corps).
  • Business Banking: Mechanics Bank, a local community bank. One of the most important decisions that any of us can make around sustainability is deciding where we put our money. We may want to create jobs in our local community and support local, green businesses, but if we then give our hard-earned money to big banks that do not act in the best interests of that community, we actually undermine our best efforts.
  • Business Cards: Greenerprinter, a local Certified Green Business and B Corp. Beyond using recycled paper, Greenerprinter has implemented progressive practices within the printing industry, and offers high-quality printing at competitive prices. [Full disclosure: I was a Greenerprinter employee for two years.]
  • Business Insurance: Avail Insurance, a local Certified Green Business based in Berkeley.
  • Office Space: Cultivating Capital is based at the Hub, a progressive co-working space that attracts people working on “solutions for a better world.” The Hub is located in the David Brower Center, a LEED certified building in Berkeley and itself a Certified Green Business in Alameda County.
  • Office Purchases: Most of my office supplies come from Alko Office Supply, a local, independent business in Berkeley just around the corner from the Brower Center.
  • Transportation: With the excellent public transit system that we have in the Bay Area, I rarely drive anymore. BART can usually get me anywhere I need to go. In addition to reducing emissions and avoiding the traffic congestion on Bay Area freeways, there’s the added benefit of being able to use the time in transit productively to get work done.

Of course, this isn’t to say that I’ve done everything that I can to make Cultivating Capital the kind of company that I want it to be! These are simply the first steps that I took when I started the business; I just didn’t feel that I could honestly say that I wanted to create a triple bottom line, sustainable business if I created a traditional LLC, banked at Bank of America, printed my business cards at Vistaprint, and purchased my office supplies at Staples. But there’s still a lot more that I’d like to do. Here are some projects that are on deck:

  • Green Business and B Corp Certification: I would be remiss if I didn’t adhere to the very standards that I most respect for sustainable businesses! As a result, Cultivating Capital is currently going through the auditing process for Green Business Certification in Alameda County, and I’ve begun the process to become a Certified B Corporation (the first step of which is to take the Impact Assessment). [I'm also a Green Business Consultant with the Alameda County Green Business Program, but my business is, of course, subject to the same standards and auditing process as any other business.]
  • Giving back to the community: Currently I volunteer on the Board of the Sustainable Business Alliance, but I would like to identify other ways in which Cultivating Capital can give back to the community, including perhaps donating a percentage of profits to a local non-profit or making a micro-loan to an entrepreneur through Kiva.
  • Local, green web hosting: This was a tough one. I had wanted to use a locally owned, green web hosting service but for practical purposes, it was easier to use the hosting service that my web designer used; fortunately, his choice (Servint) has implemented some green initiatives, but I would still prefer to use a local service. This is one area that I’m hoping to change at some point in the future.

It’s important to remember that what it means to be a sustainable business is still being defined: “Make my business sustainable” is not something that can just be checked off a list! Rather, it’s an ongoing, evolving process of continual improvement. Nevertheless, that’s a rundown about what I’ve done so far to make Cultivating Capital a sustainable small business. I’d love to hear about what you’ve done in the comments.

Completing the B Corp Impact Assessment

B Corps (the B stands for “Benefit”) are companies that are committed to using the power of business to solve social and environmental problems. They Benefit Corporationshave emerged as one of the most important developments in triple bottom line business.

Since Cultivating Capital is going through the process of becoming a Certified B Corporation, I wanted to share with you an overview of the certification process, especially the Impact Assessment.

Becoming a B Corp involves a 4-step process: filling out the Impact Assessment, conducting an assessment review with a staff member, adopting the legal framework, and reviewing the certification fees. The Impact Assessment, along with the resulting Impact Report, make up the B Impact Rating System.

The B Corp Impact Assessment

The B Corp Impact Assessment is a comprehensive survey of your business practices that determines your impact on all stakeholders; it’s updated every two years to ensure continual improvement. Expect to take 60-90 minutes to fill it out, but since it’s an online checklist, you can work on it, save it, and then return to it later to complete it.

It’s divided into 4 different sections:

  • Governance: Standards related to mission, the Board of Directors, and transparency.
  • Community: Standards related to employee practices, supply chain, and community service.
  • Environment: Standards related to your overall environmental practices.
  • Beneficial Business Models: Standards related to how your business model serves the community and conserves the environment.

There’s also a Disclosure Questionnaire, which covers a range of areas in which a company must disclose its activities. These include identifying if a company is involved in activities such as gambling and firearms, whether or not it engages in animal testing and uses child or prison labor, whether people have had to relocate due to construction of a company’s facility, and whether there have been any fines, sanctions, or formal complaints to regulatory agencies against a company’s practices.

Taken together, the Impact Assessment and Disclosure Questionnaire comprise a holistic framework for any company that is seeking to do good through its business operations – which is, of course, what B Corps are doing!

The Impact Assessment and Your Business

The Impact Assessment is useful in a couple of different ways. Of course, if you’re interested in becoming a B Corp, it’s the first step in the process. By filling it out and seeking certification, you’ll be committing your business to the highest standards of social and environmental responsibility.

However, the Impact Assessment is a great tool even if you’re not seeking certification. According to the B Corp website, “[The Impact Assessment] is free and open to all, whether or not you’d like to become a B Corporation. You are welcome to use it as a benchmarking tool and to track your company’s social and environmental performance.” You could register online, access the Impact Assessment, and use it to identify areas where you can make improvements in your own company’s operations. If you’d like to see how your company compares to other sustainable businesses, you can then check out the B Corp Index; it compares the social and environmental performance of more than 1,300 companies (on average, B Corps score 25% higher than other sustainable businesses).

To learn more about B Corps, I invite you to read the post, “What Are B Corps?” If you have any questions about B Corps or the Impact Assessment, please leave them in the comments below.

Human Capital: The “People” Part of the Triple Bottom Line

The triple bottom line is one of the principles of sustainable business that gives weight not just to making a profit, but also to being responsible for how a business impacts people and the planet. In short, it looks at people, planet, and profit in all business considerations.

The financial component is the one that we are most familiar with, because it has traditionally been the only part that a company has to be concerned about. The concept of natural capital has gained increased attention as we realize that many of the natural resources we take for granted are not going to be around forever. The “people” part is really about human capital – the people who actually carry out the work of the company, as well as the people who are impacted by the company (this is the part that puts the “social responsibility” in CSR, corporate social responsibility).

Putting People First

Many forward-thinking companies look at how to really value their people. Perhaps one of the most important developments has been the emergence of B Corps, which expands the concept of shareholders to consider all stakeholders – basically everyone touched by the business, including employees, customers, suppliers, and community members.

Other examples of companies that are putting people first include: Human Capital: People Part of the Triple Bottom Line

  • Zappos, which CEO Tony Hsieh has famously built around employee happiness.
  • Semco, a Brazilian company that has implemented innovative workplace practices, including allowing workers to set their own salaries, as the “Caring Capitalist” video explains.
  • Clif Bar, the food company with 5 aspirations, one of which is to “create a workplace where people can live life to its fullest, even from 9-5.”

Companies that put people first realize that it’s good for business. Some early research suggests that green businesses may have happier employees – employee productivity may actually increase when people feel good about the sustainability initiatives of the company that they work for.

What Does This Mean for Your Business?

Remember that your business is all about people. Who is touched by your business? Obviously, employees and customers are, but what about others, such as the people who live in the community where your raw materials are originally extracted? Then ask yourself, “How can my business impact them in a positive way?” Some ways to do this are to implement employee engagement programs, partner with a non-profit in your local community, and ensure that, if you outsource any of your work, it is done in compliance with human rights and labor laws.

The more that you can do this, the more that you will build goodwill and loyalty among the people who make your business possible. In turn, this will help your business to be sustainable for the long-term.

AB 361: Benefit Corporation Legislation Introduced in CA

The state of California recently became another in the growing list of states to consider Benefit Corporation legislation. Introduced by Assemblymember Jared Huffman of the 6th Assembly District, representing Marin and southern Sonoma County, the legislation proposes establishing a new type of corporation in the state.

Assemblymember Jared Huffman’s website explains the proposed legislation:AB 361: Benefit Corp legislation - B Corp logo

AB 361 – Benefit Corporations: This bill creates a new type of corporation for a new type of corporate social responsibility. Current law requires corporations to prioritize financial interests and shareholder profits. This bill creates a new, entirely voluntary type of corporate entity to let California businesses balance the pursuit of corporate profits with environmental and social goals. “Benefit Corporations” would operate under a broadened definition of fiduciary duty that allows business leaders, shareholders, and employees to include environmental stewardship and community development as part of their companies’ mission – people, planet, and profit.

The ability to incorporate consideration of people, planet, profit – the triple bottom line – will allow Benefit Corporations to move past the limited focus on pursuit of financial profit, regardless of social and environmental impact. Instead, Benefit Corporations will be able to focus on making a financial profit while also being socially and environmentally responsible.

This follows on the heels of increasing momentum for Benefit Corporations nationwide:

  • Maryland and Vermont became the first states to pass legislation last year.
  • New Jersey and Virginia are awaiting the governor’s signature; legislation in both states has passed the state Senate and Assembly and both houses of the General Assembly, respectively.
  • Colorado, Hawaii, North Carolina, and Pennsylvania have all introduced legislation this year.

The B Corp website provides a complete list of Benefit Corporation legislation on their public policy page.

If you’re interested in learning more about B Corporations, the post “What Are B Corps?” contains some helpful background information.

What are B Corps?

The conventional wisdom when it comes to business is that, as a business owner, you have to make a choice: you can either make money, or you can do good.

This is, however, a false dichotomy. You don’t have to choose to either ensure your personal livelihood or to live according to your values. As one of my instructors from the Green MBA used to say, you can choose “both/and” – you can both make money and do good.

What are B Corps?

Benefit Corporations, commonly known as B Corps, are a new type of corporation. Unlike the traditional corporation that gives priority only to financial profitability, B Corps actually use the power of business to address social and environmental problems.

How do they do this? Among other things, they “institutionalize stakeholder interests.” Instead of taking the shareholder as the What are B Corps?primary person to which they are responsible, B Corps give primary consideration to the stakeholder. This is a very important distinction. A shareholder, as we know, is someone who owns shares in a company; a stakeholder, by contrast, is someone who has a stake in the company, regardless of whether he/she actually own shares. Who can have a stake in the company? Anyone who is affected by the actions of that company, such as employees, members of the local community in which the business operates, or members of the community in which the business has an environmental impact.

A traditional C Corporation will focus on increasing shareholder profits, often without regard to how that affects other stakeholders. This is why corporations sometimes do not pay living wages or provide inadequate health benefits – because those are costs that, if saved, can provide profit for shareholders. B Corps, however, are committing to taking social and environmental interests into account when making decisions.

Why are B Corps Important?

B Corps are important for several reasons:

  • They are demonstrating that business can address social and environmental problems. This by itself is important, as it provides a new model for how business can be different in the 21st century.
  • They are creating rigorous and transparent standards around social and environmental responsibility that support the triple bottom line. In effect, when a company becomes certified as a B Corporation, that company’s practices have been vetted by a third party.
  • There are already over 300 B Corps representing over 54 industries with $1.6 billion in revenues – and this is just the beginning.

However, beyond all of these reasons, there is one primary reason why I believe that B Corps are important. They are fundamentally changing the rules of the game when it comes to business.

You see, when a company becomes a B Corp, it doesn’t just earn a certification. It also commits to changing its legal organizing documents to include consideration of stakeholders. Earlier this year, the states of Maryland and Vermont became the first states to legally recognize B Corps.

One of the co-founders of B Lab, the non-profit that issues the B Corp certification, explained why this is important on the B Corp blog earlier this year:

“Today, there is a critical mass of entrepreneurs, investors, consumers, workers, and policymakers seeking to create social and environmental impact through business. However, they face two systemic obstacles: 1) the absence of transparent standards which allow all of us to support “good companies” not just good marketing; and 2) the legal concept of shareholder primacy which makes it difficult for corporations to include employee, community, and environmental interests in decision making.”

B Corp provides a fundamental alternative to these obstacles by establishing transparent standards and challenging the legal concept of shareholder primacy.

How can B Corps Help Your Business?

There are several ways that B Corps can help your business:

  1. Get certified! B Corps must get a score of 80 out of 200 on the Impact Assessment, a survey that covers all areas of the business, including corporate governance, employee benefits, and more. By becoming a B Corporation, you will ensure that your own business meets high standards, join a community of like-minded businesses, and support a larger movement towards sustainable business.
  2. Commit to stakeholder interests in your business. Prior to becoming certified by B Lab, you may be able to include your commitment to consideration of stakeholder interests into your legal organizing documents if you are an LLC, which is what I did for Cultivating Capital. However, be sure consult with an attorney about this, preferably one who is familiar with B Corps. The Katovitch Law Firm explains more about the legal implications of being a B Corp on their blog.
  3. Identify areas in which you can improve. Even if you do not get certified right away, the Impact Assessment is a tool that you can use to identify areas for improvement in your business. To get started with the Impact Assessment, visit the B Corp website.
  4. Support other B Corps. Every dollar that you spend, for yourself or your business, is a vote for either an economy in which businesses can make money at the expense of people and the environment, or one in which businesses can make money in support of people and the environment. Supporting businesses with a social and environmental mission will also help to green your own supply chain.

To learn more about B Corps, you might want to read a related post about “Completing the B Corp Impact Assessment.”

Reimagining Business: New Possibilities for a New Era

Do you remember rotary phones? At one time, rotary phones were in every home. Now they’re relics of the past, displaced by better, newer, faster technology.

If you were starting a business today, would you set up a rotary phone for your business? Of course not. The very idea is ludicrous. However, you wouldn’t do it because the rotary phone doesn’t work; technically, you would still be able to make and receive telephone calls. The reason you wouldn’t do it is because the rotary phone is not suited to the business needs of the present. To keep up with the pace of business today, you need a phone that you can take with you, that allows you to read email, search online, and send and receive text messages.

Many of our business practices and beliefs are just like the rotary phone. They were developed during a different era, in which they were widely used and met the needs of those times. However, they are not suited to the needs of the present, much less the future. Consider a few long-held beliefs that are now being challenged:

  • Resources are unlimited. At the beginning and during most of the Industrial Revolution, resources appeared to be unlimited. Drilling for oil was on the rise, forests were being cut down, and rivers and lakes were being polluted. However, we now know that those resources are actually limited. Just one look at the famous picture of the blue marble shows that our planet is finite, as it hangs in the vast darkness of space. Therefore its resources are generally finite as well, with the exception of certain renewables such as wind and sunlight. Simply put, there is only so much water, lumber, and minerals available on the planet. As economist Kenneth Boulding once said, “Only madmen and economists believe in perpetual exponential growth.” To expect unlimited resources on a finite planet is simply unrealistic.
  • Hierarchical management is best. What we accept today as the way that management must be set up is actually a system that developed in response to the manufacturing environment of the Industrial Revolution, when many low-skill factory jobs needed to be coordinated by a foreman. Unfortunately, this model of one person (or a few) at the top making the decisions and having everyone else fall into line is completely unsuited to the knowledge economy in which we now find ourselves. Today, all employees in a company have access to information, not just the senior management. By holding onto the old belief that only management has the knowledge to make decisions, businesses are actually  missing out on the wisdom of their own employees – and putting themselves at a disadvantage, when their more savvy competitors are tapping their own internal resources.
  • Financial profit should be the defining feature of business. As Milton Friedman famously said, “there is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” In other words, a business should exist only to make a profit. However, what happens when the rules of the game change? A generation ago, perhaps, we could plead ignorance to the destruction of the environment and exploitation of workers in pursuit of corporate profits. Now, in the wake of the Wall Street meltdown and the BP oil spill, the damaging evidence of the natural and social costs of pursuit of profits at all costs is all too clear. While financial profit must necessarily remain an important component for business, it cannot remain the only reason for business to exist. Indeed, businesses that embrace social and environmental responsibility are showing that it is possible to make money while doing good. B Corps provide an excellent example of this.

These are just a few examples, but they illustrate the point that some of our most central business ideas were developed under vastly different circumstances than the ones in which we now find ourselves.

It is time for us to reimagine business for the 21st century.