Stakeholder Governance

A stakeholder governance structure ensures that your stakeholder orientation—and your specific company purpose—can thrive through leadership and ownership changes, especially if you think you might need to bring in private capital or access the public capital markets to help your business scale. The stakeholder governance tool of the B Corp movement is a relatively new legal structure called a benefit corporation. The benefit corporation legal structure ensures that the directors on your board will consider stakeholder interests—and your company’s purpose—when making decisions.

This is particularly useful if you anticipate a future sale or public offering. In a sale scenario, traditional corporate law dictates that directors’ scope of considerations must narrow to maximize short-term shareholder returns, even if doing so runs contrary to maximizing long-term value for all of your stakeholders or to serving your specific company purpose. (See the following sidebar.)

The benefit corporation legal structure offers some protection to publicly traded companies from the virus of short-termism that has infected the public capital markets. For starters, a publicly traded company that has adopted the benefit corporation legal structure may be less likely to be targeted by short-term-focused activist investors in the first place. The power of these kinds of activist shareholders lies largely in their ability to initiate proxy contests to replace existing directors with others more sympathetic to their desire for short-term value extraction. Most of these contests never reach a formal vote but instead are fought privately in a battle for the hearts and minds of large shareholders and publicly through the use of PR firms. When evaluating potential targets, a short-term-focused activist investor would know that a publicly traded company that has adopted the benefit corporation legal structure has two characteristics that make a successful outcome from their perspective less likely. First, the existing institutional shareholder base has already agreed to a governance structure that explicitly commits to a long-term stakeholder orientation, so presumably they would be less likely to side with the activist whose positions reflect a short-term orientation. Second, unlike directors of traditional corporations, the directors of a company that has adopted a benefit corporation legal structure have a fiduciary duty to consider the interests of stakeholders when making decisions, so they would be under less pressure to bend to the demands of activists they believe might destroy long-term value for shareholders, or even for other stakeholders. Leading companies like Whole Foods Market, Unilever, Procter & Gamble, Nestlé, and Etsy have all come under activist pressure or been the target of unwelcome acquisition offers that have often resulted in leadership, management, and ownership changes. While activist shareholders and mergers and acquisitions can play a vital role in an efficient capital market, adopting the benefit corporation structure can help ensure that board decisions made in these contexts are done so with a long-term stakeholder orientation.

There are already more than 5,000 registered benefit corporations in the United States and approximately 800 in Italy (legislation is moving forward in a half dozen other countries). While many companies have converted to the benefit corporation structure from a traditional corporate structure, it is easiest to incorporate as a benefit corporation as a startup, before things get more complicated with new partners and outside investors. After all, you have to file incorporation anyway, so doing so as a benefit corporation incurs no additional legal or filing fees. Adopting the benefit corporation legal structure early ensures that your company will be built on the most solid legal foundation to help you preserve your stakeholder orientation and specific company purpose through all stages of the life cycle of your business. For existing businesses, converting to a benefit corporation structure is relatively straightforward, requiring a shareholder vote to amend your articles of incorporation and a filing with your state (typically $70–$200).

You can learn more about the benefit corporation legal structure (and similar tools for LLCs), find a list of corporate attorneys familiar with it, and read case studies about how to convert to and operate as a benefit corporation from companies that are publicly traded, venture-backed, Fortune 500 subsidiaries, family-and employee-owned, and independent at www.benefitcorp.net.

Stakeholder Management

A stakeholder orientation will also benefit from a stakeholder management system to plot your course and to measure your progress in turning these powerful principles into peak performance. The stakeholder management system of the B Corp movement is the B Impact Assessment (BIA). Conscious Capitalism has partnered with B Lab since 2013 to encourage its members and followers to use the B Impact Assessment.

The B Impact Assessment is free and confidential, and it is available to any company in the world whether or not the company ever intends to pursue certification as a B Corporation. The B Impact Assessment helps companies measure and improve their stakeholder performance by offering a comprehensive assessment of a company’s positive impact on all of its stakeholders—its workers, customers, community (including suppliers), and the environment. While the B Impact Assessment asks all companies questions about their current practices related to each of these stakeholders, the specific questions, the number of questions, and their weightings vary by company size, industry, and location to ensure that each company receives an assessment most useful to its specific situation.

There are already more than 60,000 businesses around the world that have registered to use the B Impact Assessment. Nearly half have completed the full assessment and have received a free B Impact Report, which benchmarks their company’s performance against the tens of thousands of other companies that have completed the assessment, as well as against the performance of Certified B Corporations. A typical small to midsized business is asked between 75 and 200 questions and will take between two and six hours to complete the assessment.

The performance standards in the B Impact Assessment are governed by an independent Standards Advisory Council. As with software, new versions are issued periodically; version 6.0 of the B Impact Assessment will be launched in early 2019.

You can learn more about the B Impact Assessment and read case studies of how companies of all sizes and stages of implementation of their stakeholder orientation have used the assessment as a management tool to affirm their culture, engage their team, and improve their performance at www.bimpactassessment.net.

Community of Practice

The leaders of the B Corp movement are Certified B Corporations. These 2,200 companies are leaders because they have met the most rigorous standards of stakeholder governance and stakeholder management. Certified B Corporations earn a verified minimum score of 80 out of 200 available points on the B Impact Assessment. That may seem low at first, but think of that score as a .400 batting average and a first-ballot induction into the conscious company hall of fame. The average B Corp scores in the mid-90s, and B Corps who make B Lab’s annual Best for the World lists typically score between 125 and 175. Certified B Corps also make their B Impact Report, which includes their overall B Score as well as scores for more than fifteen individual impact areas, transparent to the public. Lastly, Certified B Corps adopt a benefit corporation structure or its LLC equivalent to institutionalize stakeholder governance. Certified B Corps are diverse: they come from more than 130 industries and 50 countries and vary in size from sole proprietors to multibillion-dollar multinational companies like KeHE (a US natural foods distributor), Laureate Education (the world’s largest provider of for-profit higher education), and Natura (the Brazilian cosmetics company and sustainability icon).

B Corp certification is like organic or LEED, but for the whole business, not just for a gallon of milk or a building. Like organic and LEED, the Certified B Corporation logo is public facing and carries value to customers who increasingly seek out good products from good companies and are increasingly skeptical about what companies say about themselves. The combination of verified performance by a credible third party and unmatched public transparency builds trust, which helps turn transactions into relationships and customers into evangelists. The unifying B Corp trust mark builds a collective voice for companies that seek to distinguish themselves in a cluttered marketplace.

Certified B Corps performance is verified by B Lab standards analysts who have review calls with every company seeking certification; review documentation for answers on the BIA as well as any “negative” answers on the Disclosure Questionnaire; and conduct random on-site audits of 10 percent of all Certified B Corps each year. All Certified B Corps must recertify every two years, which means every Certified B Corp completes a new BIA that reflects its performance at that time.

This earned trust has proven valuable not only in attracting customers but also in attracting and retaining talent. CEOs of every size company and across diverse industries point to their Certified B Corp status as a key tool for reinforcing a values-driven corporate culture, for engaging employees of all generations (especially Millennials) who want to bring their whole selves to work every day, and for attracting talent that seeks purpose, not just a paycheck. For most Certified B Corps, the most valuable asset of certification is the B Corp community itself.

Certification grants access to a community of practice among like-minded, high-performing leaders. This community shares best practices in culture building, employee engagement, marketing and communications, raising purpose-aligned capital, creating values-driven supply chains, waste and carbon reduction, workforce development, and many more ways to create value for all stakeholders. Certified B Corps share knowledge via an online community called the B Hive, and in-person gatherings like B Local chapters, regional B Corp Leadership Development days, and annual Champions Retreats that foster collaboration and collective action to help B Corps achieve their business goals and create the change they want to see in the world.

This last point highlights perhaps the most valuable asset of the certification. Beyond a robust community of practice, Certified B Corps have created a powerful community of purpose. Certified B Corps recognize that the change they seek begins with but is greater than the improved performance of individual companies. Certified B Corps recognize that it will take more than heroic individual leadership to fulfill the promise of capitalism to create a shared and durable prosperity. Not even the most enlightened leadership of the largest Fortune 500 company can move the needle alone. Each of us is an important but small part of a much larger social and economic system. The culture shift from an era of shareholder primacy to an era of stakeholder capitalism requires the power of collective action from a community of credible leaders.

The first act of B Corp collective leadership is to subject themselves—even, perhaps especially, if they are already perceived to be leaders by their peers and the public—to a credible third-party standard of performance, transparency, and accountability. This rebuilds trust in an economic system that many feel does not care about them and has left them behind. Healthy businesses cannot exist over the long term in an unhealthy society. Capitalism is one of the most powerful systems devised by humans to improve our quality of life; that system is built on trust. Radical transparency of verified high performance within a legal structure that aligns the interests of business with those of society is an important first step in rebuilding trust and thus strengthening the economic system that has delivered so much and yet has so much further to go to fulfill its promise.

We know the leadership of this community of purpose is already moving the needle beyond their own improved performance as individual companies.

As a result of the collective action of the community of Certified B Corporations, their stakeholder governance and stakeholder management practices are being adopted by tens of thousands of companies around the world. The stakeholder governance requirement for certification has become law in thirty-three US states and has already been adopted by more than 5,000 companies. And this stakeholder governance model is going global. After its adoption in the purpose-aligned governance recommendations of the G8 Social Impact Investment Taskforce, Italy recently passed a benefit corporation law, and similar legislation is in process in more than a half dozen other countries. This stakeholder management system is not only being used by individual companies but also by corporate supply chain managers, impact investors, fund managers, credit providers, business associations, and government entities who want to know more about—and increase the positive impact of—the businesses with which they work and in which they invest.

Unleashing the heroic spirit of business is a team sport. The community of Certified B Corps is proud to be a part of the Conscious Capitalism team and hopes that more conscious companies will become part of the community of Certified B Corporations.

You can learn more about B Corp certification and hear from B Corp leaders as they describe the value they receive from the certification process and the B Corp community of practice at www.bcorporation.net.