We know that corporate directors and officers hold fiduciary responsibilities. One of these responsibilities is the duty to maximize profits for their shareholders. While making money is great, companies must do so within the bounds of ethics. For some companies these ethics follow the letter of the law – nothing more, nothing less. Other companies take a more nebulous view. In either case, business ethics generally don’t require corporations to take any particular social or political stance. Recently, however, many companies are voluntarily adding social responsibilities to their codes of ethics – and reaping the rewards. This poses an interesting question: if becoming socially responsible will substantially increase profits, is there a duty to do it? The answer is likely no, but the case is compelling.
Benefit Corporations or “B Corps” are an emerging trend on the corporate landscape. B Corps are one of two things: a for-profit business certified by the non-profit B Lab to meet “rigorous standards of social and environmental performance, accountability, and transparency,” or a legal entity formed as a “benefit corporation” under state law (available in 20 states, including Delaware, as a result of B Lab’s zealous legislative efforts). Both B Corp designations carry with them the promise that the designated company has volunteered to be held to higher standards than everyone else.
As a result of the movement, many B Corp companies have seen a wave of positive attention, as well as financial gain. A prime example is BlueAvocado, an Austin-based company that sells products made from recycled plastic bottles. At the time BlueAvocado became B Corp certified in March of 2013, their products were available in approximately 300 Target stores. Post-certification, the company reports that their products are now available in more than 1,000 Targets, and 2,500 new stores, including Kohl’s, QVC, and Duane Reade. BlueAvocado’s CEO, Amy George, attributes the growth to the B Corp certification. King Arthur’s Flour and eyeglasses innovator Warby Parker saw similar positive results following their certifications.
Business experts muse that B Corps have what many in the marketplace are lacking – trust. Not only trust from consumers, but trust from investors and potential employees. This trust will allow B Corps to prosper where others have and will fail, and they have numbers to prove it. According to B Labs, companies with B Corp designation were 63% more likely to survive the Great Recession than similarly-sized companies without it.
Consumer expectations also play a role. A startling 54% of global consumers say they don’t trust brands in general, with 55% percent saying they’ve boycotted a company because of irresponsible business practices. This is in addition to the 68 million U.S. consumers who prefer to buy from socially and environmentally responsible businesses. In its distilled form it’s a simple idea: social responsibility sells. Dealing with stiff competition and slow economic recovery, business are struggling to differentiate themselves, and searching for any advantage over the competition. B Corp designation may be that advantage.
Additionally, B Corps attract investors. With the number of self-designated “socially responsible investors” (SRI) growing, the market needs a way to filter truly progressive companies from the riff raff – and the B Corp designation seems to fill that void. With J.P. Morgan estimating the size of the SRI market to be between $400 billion and $1 trillion, this is a resource begging to be tapped.
B Corp status may also broaden the talent pool, so says Wall Street Journal. In their article, “Social Seal of Approval Lures Talent,” the WSJ highlighted how the B Corp designation has helped companies attract more qualified candidates. This was especially true for candidates between the ages of 21 and 32 (aka “Millennials”). It’s probably not a coincidence that more than 80% of job seekers in that age group want to work for a company that is socially and environmentally responsible. However, even if we remove the fresh-out-of-college-no-idea-how-the-real-world-works-hippie-crusader-Millenials from the mix, there’s still something there; enough, in fact, for the Yale University School of Management, NYU’s Stern School of Business, and Columbia Business School to each institute student-loan assistance programs for graduates who go on to work for B Corps.
If the above information holds true, then becoming a B Corp has the potential to become a viable source of profit, increase customers, increase market share, and help businesses hire more competent workers. The mounting evidence begs the question: At what point does having some sort of social responsibility designation become a profit-based business decision, instead of a philosophical one – a business strategy instead of a moral standard? If and when there becomes a solid business case for become a B Corp, many in the traditional business world may be faced with the choice of following suit or losing money.
This and many other interesting articles were originally published in Ethikos, our business ethics publication. Learn more and subscribe here: http://www.corporatecompliance.org/Resources/IntheMedia/Ethikospublication.aspx