With the effects of the novel coronavirus continuing to send shockwaves through the economy, business leaders are, rightfully, worried about the fate of their companies. Those companies that survive certainly will be looking for ways to better prepare for the future. And while most leaders will rightfully turn their attention to crisis prevention and management, one of the best ways to solidify a company’s resiliency is by adopting a stakeholder governance framework.
Recent research shows a majority of online adults and the vast majority of millennials “consider company values when making a purchase,” and nine out of 10 people would be willing to earn less in order to work a purposeful job. “Values” and “purpose” are indicators of a business that considers—and works to improve—its impact on the environment, its workers, its community, and its consumers (in other words: its stakeholders).
And increasingly, businesses, investors and consumers alike are recognizing the unsustainability of the economy’s current trajectory. By placing impact across stakeholders as outside the responsibility of the business, naming them “externalities,” our current economy is extracting resources without limit with the singular goal of profit maximization. The climate crisis, global protests for social justice and an end to racism, and other global issues are clear indicators that the current economic structure isn’t working—and businesses need to build, and be prepared for, a new capitalism.
The nonprofit B Lab is a third-party organization that certifies companies, which pass a specified threshold on the B Impact Assessment (BIA), as B Corporations. The BIA measures a companies’ impact across five areas: the environment, community, workers, customers and governance. My research for Better Business indicates that B Corp certification effectively embeds stakeholder governance into a company and sets the company up for success as consumer and workforce demographics shift.
In a new report, I dive deeper into how and why this certification “future-proofs” businesses. The following is an excerpt from the report.
How Becoming a B Corp Can Future-Proof Your Businesses
B Corp certification is facilitating a new way of doing business that incorporates sustainability, equity and inclusion, and a long-term view in its very nature. Along with the foundation of stakeholder governance, other future-proofing mechanisms include aligning investors with the mission and creating a long-lasting, employee-centric culture.
This guide lists the most compelling advantages of such “future-proofing” as told to me by the founders, directors, investors and employees of pioneering B Corps.
Sustainability Through Long-Term Governance
B Corp governance offers a legal framework to protect all stakeholders. One way B Corps fulfill this obligation is by becoming a benefit corporation, a corporate form that recognizes companies’ responsibility to create a positive benefit for society and the natural environment, and be publicly transparent and accountable about those impacts.
But as a new way of doing business, there are challenges, too. First is how to balance multiple priorities in decision-making. For example, when choosing a new vendor, how can a company balance the price point of one against the more positive environmental impact and worker pay at another? While some companies have purchase-decision checklists to ensure suppliers match on social mission, others handle these decisions on a case-by-case basis.
Another important challenge is uncertainty around valuation and whether being a B Corp could potentially lower the amount investors would get if they sold the company. However, my research indicates these investor and public market concerns are changing, and increasingly support legally protected mission statements and stakeholder governance. Some companies that have done due diligence on this issue find adopting the form to be at worst a neutral change and that there are potential up-sides.
Aligning Investors with Social Mission for the Long-Term
In recent decades, an increasing proportion of investors are paying attention to not just a firms’ financials, but also its social and environmental performance. Perhaps most famously, Larry Fink, CEO of the BlackRock world’s largest investment firm has issued a number of annual letters recommending CEOs pay more attention to environmental performance to properly prepare for associated long-term risk. The BIA provides a framework for businesses—and investors—to assess these potential risks across the stakeholder profile.
On the private-equity side, the field of impact investing, where companies are proactively focused on social and environmental goals as well as investment returns, has taken off since the Rockefeller Foundation coined this term in 2007. The B Corp movement has served as a rallying point for impact investing, with many leading impact investors investing in B Corps and using the BIA as a foundation for social impact assessment.
Build a Lasting Employee Culture
Building and maintaining a positive organizational culture is one of the biggest challenges that business leaders face. A strong theme in my research for Better Business is that through its focus on positive employee practices and mission, the B Corp model helps companies build a positive and reinforcing organizational culture that provides a lasting competitive advantage for firms.
The employee-focused workplace of B Corps is commonly cited as leading to high employee attraction and retention rates. In addition, B Corps are measured in how well they are creating an inclusive and equitable workplace, as the BIA has increasingly focused on these topics. Numerous studies have shown that companies with more diverse perspectives to contribute to ideas, projects and company decisions are more resilient and, as a result, successful over the long term. Such practices will become even more important over time with demographic changes. B Corps are positioning themselves to win the talent battle of the current and future working generations.
To learn more about the benefits of B Corp Certification as it pertains to company resiliency—and to get insights from some of the top business leaders in the B Corp movement—read the rest of the report.