While the B Corporation concept has its place, ‘conventional’ businesses remain the corporate leaders on sustainability issues
The concept of B Corps was introduced in 2007 and it was going to change the world.
The B Corporation website lays out the scale of the ambition. “We envisage a global economy that uses business as a force for good. This economy is comprised of a new type of corporation – the B Corporation – which is purpose-driven and creates benefit for all stakeholders, not just shareholders.”
It sounds great, but it’s hard to argue that the current scale of the reality matches the ambition. As it stands, there are around 3,500 B Corps. Notwithstanding that the website currently humblebrags about being swamped with new applications, it remains very much a minority sport in a world of approximately 190m businesses.
Blame the ‘system’
The premise for the initiative is founded on the presumption, oft-repeated, that “capitalism is broken” and the system we currently have is responsible for climate change and poverty and, according to some people, just about every other human ill.
The answer was to reshape the legal definition of a company, so that it was legally obliged to take account of all its stakeholders, not just its shareholders. And, in so doing, to end the rein of the followers of Milton Friedman, who argued that the only social responsibility of business is to make profit while staying within the laws of the land.
It’s a fine experiment. If the aim is to produce a niche branding that will appeal to painfully ethical entrepreneurs servicing similarly committed consumers, then it certainly has its place. And a number of the (mostly) small businesses that have signed up are enthusiastic supporters. But the ethical market niche is, by definition, a niche.
If you want the world economy to work within the constraints of the environment for the benefit of society, you need to ask the hard questions about what works at scale. It’s going to look a lot more like the red-in-tooth-and-claw grimy and imperfect world than people would like to think.
After all, the B Corporation proposition misses one extremely important truth. Capitalism has worked better for most people than any alternative competing system in history. Over recent decades, the absolute numbers of the human population have doubled even as absolute poverty has halved – an astonishing achievement, largely driven by free markets. Systems that promised higher ideals have consistently delivered poorer results – often tragically so.
Rich vs poor?
When I was an idealistic teenager, there was very clearly a rich world and a poor world, and I heard then (and believed) the campaigners who said that capitalism would inevitably push them further apart. For the rich to get richer, the poor were going to have to get poorer. Zero sum game.
But that’s not what happened. With all the flaws and imperfections of the market running its own business largely unstymied, the overwhelming majority of countries gradually moved in the right direction. Indeed, all the social measures – hunger, child mortality, life expectancy, extreme poverty – all of them have been moving the right way, at least up until the Covid-19 pandemic struck.
Of course, that’s only one side of the picture. The cost for all that social progress has been that some of the most important environmental indicators have been moving the opposite way in a way that can no longer be ignored. And that’s the problem that we face. Can we retain the very real benefits of companies working the way they do best, but also make them responsive to those unintended consequences, so far as they are responsible for them?
Businesses are astonishingly well-designed to create value out of raw materials, to do it at scale and to distribute it efficiently. And, as the pioneering research of Jim Collins
has highlighted, the ones that create value for shareholders the best generally do so by having a values-led proposition, a purpose beyond profit. And the truth is that businesses in general have always benefited a wide range of stakeholders, not just shareholders.
There is a flipside. They have an inbuilt incentive to externalise any costs they can, including the cost of pollution. If we assume that businesses are the way they are because people follow incentives, then the question is how can the incentive signals be improved?
The good news is that we seem to be making progress on that very question. When it comes to actually taking action on climate change, some of the major corporations have been well ahead of governments.
The sort of corporations that B Corps supporters love to hate, such as Wal-Mart, and Nestlé and a host of others including Nike, Ikea and Unilever, are taking far-reaching leadership positions. They didn’t need to become B Corps in order to do that. And they haven’t trimmed their profit ambitions – so it must be that their management has accepted that the rules of the game within which you can pursue traditional business goals have changed.
To the frustration of some, the age of Friedman was already past. The major corporations of today know perfectly well that society expects more of them, and are trying to solve the problem of how to make that work. Businesses are the most impressive problem-solving institutions in history, after all, and the only human institutions that positively manage change.
It is a process of evolution that’s going on, and it’s happening relatively organically. Which means, of course, it’s messy and imperfect. Even if it has a lot further to go, and many challenges to overcome, it is at least happening at significant scale.
According to B Corps supporters, this shouldn’t be happening, because – they say – conventional companies are constrained by laws that define their only legitimate purpose being to maximise shareholder return.
There’s no doubt that there have been constraining assumptions that have slowed progress. There remain attitudes and incentives that drive businesses to become overly focused on short-term results. Mediocrity in leadership afflicts businesses just as much as it does in government and civil society (a reality that B Corps are equally subject to).
But in practice managers and directors have been shown to have significant latitude to manage the business in the best way for the business and its ability to make profits in the future.
Businesses are a part of society, they don’t stand apart from it. And in spite of what the B Corp promoters may say, we don’t need B Corps for business to become a force for good in the world. In their imperfect, messy, inconsistent way, they already are. Making them fit for the future is still a work in progress, but it is decidedly not a niche project.