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B Corp certification won't guarantee companies really care for people, planet and profit
Weeks after the collapse of his restaurant group and the loss of 1,000 jobs, celebrity chef Jamie Oliver announced that he was creating an “ethical” B Corporation or “B Corp”, a sort of company certification designed to show its holder gives equal weight to people, planet and profit. While it has loosely the same aim as the “triple bottom line” of the social enterprise model, B Corp certification is available to for-profit companies that apply to B Lab, a non-global profit organisation, and pay for it.
B Lab was founded in 2006 by Stanford University alumni and businessmen Jay Coen Gilbert and Bart Houlahan, and former investment banker and Stanford colleague, Andrew Kassoy. There are now more than 2,900 certified B Corps in more than 60 countries, cutting across industries and sectors. Through extensive lobbying and promotion it has expanded worldwide through new local offices. With the number of B Corps opening under the organisation’s UK arm growing at 14% a year, is this really a new way of doing business?
People, planet and profit
On the face of it, the certification should indicate a company’s environmental performance, employee relationships, diversity, involvement in the local community, and the impact a company’s product or service has on those it serves. This in turn can attract staff and consumers seeking socially responsible businesses, boost an established public company’s stock price, and help investors find companies that balance profit and purpose.
In the B Lab certification process, a businesses must sign a “Declaration of Interdependence”, committing it to using “business as a force for good.” The company must modify its governing bylaws to allow directors to “consider stakeholders besides shareholders in company decision-making”. Companies must also disclose information on “any sensitive practices, fines, and sanctions related to the company or its partners”. Certification is done chiefly over the phone, with around 10% selected for more in-depth review. Companies must re-certify every three years.
While B Corp claims that certification balances the interests of shareholders with the interests of workers, customers, communities and the environment, B Corp standards are not legally enforceable. Neither the board nor the corporation are liable for damages if a company fails to meet them. Even the changes in company bylaws remain secret. A business can fill out the initial B Corp Impact Assessment in a few hours, and complete the certification process in between four and eight weeks, finally paying a certification fee of between US$500 and US$50,000, depending on revenue.
B Corp certification is available to any for-profit business around the globe as long as it’s been operating for at least 12 months. Certification is initially self-assessed, and doesn’t override the profit-driven focus of the company.
A cash-generating machine?
B Lab has raised over US$32m since launch, and receives much of its funding from major foundations and organisations such as Prudential, Deloitte LLP, the Rockefeller Foundation, and even the US Agency for International Development. In 2017 it received about US$6m in certification fees, and US$5.6m in donations. Its board members primarily come from the business sector, with B Lab paying US$6m in salaries and compensation in 2017.
In the face of this highly cash-generative activity, B Lab’s rhetoric (“lead a movement”) fails to spell out compelling reasons for certification. B Lab claims that traditional corporations cannot be socially responsible, because they open themselves to liability for not following shareholders interests. But there is no law that explicitly requires directors of businesses to maximise shareholder revenue to the exclusion of all other corporate objectives. European (EU Directive 2014/95/EU) and UK law already push companies to practice sustainability reporting, and British firms have always had the flexibility to amend their articles of association with shareholder consent to reflect their social responsibilities. Pharmaceutical company Novo Nordisk, for example, changed its Articles of Association to state that it “strives to conduct its activities in a financially, environmentally and socially responsible way”.
So while B Lab speaks of seeking to meet the “highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose” it has nevertheless certified companies allegedly involved in tax avoidance, those producing cannabis-related products, for-profit college education companies, corporations working in the prison sector, and those allegedly involved in union busting.
What value does it add?
My research into one of the earliest certified B Corps, CouchSurfing.com, shows how certification can be used to pacify angry consumers and attract investors. Certified companies can simply walk away if they feel being a B Corp no longer suits their profit-making aims or strategy, or if it threatens short-term shareholder profitability. The online marketplace Etsy is one that walked away, while others dropped certification after being bought out by larger companies that had other plans.
There is no directory of former B Corporations that dropped certification or had it removed. The closed nature of a private certifying body that sets and regulates its own standards is problematic, even if well intentioned, and especially so if it seeks to control the process by which certified businesses are held accountable. Certified corporations are as accountable to B Lab as they are to their stakeholders. The lack of full transparency and rigorous vetting in the face of its aggressive expansion indicates that B Lab’s certification should not be seen as a reliable method for certifying corporations to some standard, from the perspective of either the general public, investors or regulators.
Which isn’t to say that the efforts haven’t been worthwhile. B Lab could re-focus and promote new global benchmarks and corporate structures such as low-profit limited liability companies (L3Cs) in the US, or community interest companies (CICs) and multi-stakeholder co‑operatives in the UK. Rather than striving to become a political-economic actor spending millions on creating and marketing a private company certification offering brand building and expensive workshops, B Lab might consider whether its market-driven certification offers solutions to market-produced problems.
Jamie Oliver is largely transparent in his business values and commitment to social responsibility. He would be better to say “goodbye and big love as ever” to B Lab as he did in his goodbye letter to staff, and focus instead on working with co-operatives, worker and community-owned businesses, and other non-profits that are building a new economy now – without the need to buy a certificate.