Is America Really Ready for a B Corporation Revolution?

February 22, 2022 Post a Comment

Are we ready for a B Corp revolution?

A powerful grouping of CEOs announced a shift in their turn a profit-first thinking final week. But, B Lab's founders warn, words alone won't brand necessary change happen.

Aug. 27, 2019

In an announcement last Monday, the Business Roundtable added their voice to a steady drumbeat of of import market signals stating the need to movement away from the failed ideology of shareholder primacy toward a new culture of shared prosperity. Information technology's a meaning sign of our shifting culture that the country'southward largest corporations and the organization representing their interests are revising their definition of the purpose of the corporation from profit maximization to leading their companies "for the do good of all stakeholders—customers, employees, suppliers, communities and shareholders."

The B Corp movement is now comprised of over 10,000 Certified B Corps and benefit corporations across 150 industries and 60 countries, all of which represent the kind of activity needed to put credible weight behind whatsoever public commitment to upend shareholder primacy and shift the cultural narrative of business in order.

Ensuring that our capitalist system is designed to create a shared and durable prosperity for all requires this civilisation shift. But information technology besides requires corporations, and the investors who ain them, to become beyond words and take action to upend the cocky-defeating doctrine of shareholder primacy. They can do this by making themselves legally accountable to create value for their workers, customers, suppliers, and communities—not just talk about information technology.

To the cofounders of the B Corporation motion, this view of the role of business in society isn't new. We created the B Corp certification to identify business leaders who demonstrate that their companies evangelize value to all of their stakeholders, non just their shareholders—to maximize value, non just profits. And so we realized that we needed to go further to address the doctrine of shareholder primacy past passing do good corporation legislation in 37 U.South. jurisdictions, including Delaware, that allows corporations to make themselves legally accountable to create value for their stakeholders. The B Corp movement is at present comprised of over 10,000 Certified B Corps and do good corporations combined beyond 150 industries and threescore countries, all of which represent the kind of activeness needed to put credible weight behind any public commitment to upend shareholder primacy and shift the cultural narrative of business concern in society.

Video While information technology is advisable to annotation, fifty-fifty celebrate, the Concern Roundtable's declaration as a sign of an accelerating culture shift, it is important to recognize that the people who are enervating this shift are demanding action. People want to buy from, work for, and invest in companies that serve a college purpose than maximizing profit at whatever cost to people, communities, and the natural world on which all life depends. People are demanding a new social contract between concern and society in which business concern and the uppercase markets create long-term value for all stakeholders. People are demanding it, in part, because they've seen a credible alternative in the B Corp movement that is leading the transformation from 20th-century shareholder commercialism to 21st-century stakeholder capitalism.

The skillful news is that new structures and tools exist to help the members of the Business Roundtable turn their principles into practice. Information technology is imperative that they do this rapidly because, equally others like Blackrock CEO Larry Fink take said, not only is there a strong business case to prefer this long-term stakeholder orientation, but if businesses and investors exercise not demonstrate fabric progress in this management, they risk more than than losing the public trust—they adventure losing their license to operate.

So here are three opportunities to ensure that the ideas raised by the Business concern Roundtable and capital markets leaders like Larry Fink go actions that benefit us all:

Corporate Governance Shift

The CEOs who signed the Business Roundtable letter accept an opportunity to walk the walk by shifting to stakeholder governance, making their companies legally accountable to balance the interests of their shareholders with those of their Do Something other stakeholders. Stakeholder governance is important because it'south arguably impossible for CEOs to make an authentic commitment to all stakeholders if their fiduciary duty is to intendance just about shareholders (Delaware Supreme Court Master Justice Leo Eastward. Strine Jr. called this "The Dangers of Denial"). The tools exist—do good corporation governance statutes to enable stakeholder governance, B Corp certification to signal third-party verification of social and environmental performance—they just need to accept the moral courage to apply them.

Capital letter Markets Endorsement

To create an economic environment that favors long-termism, the capital markets need to shift from over-valuing the short term. Asset managers similar Larry Fink and the long-term nugget owners who requite him capital to manage tin support the CEOs who want to adopt stakeholder governance by stating their endorsement for information technology. This connexion appears lost on the Council of Institutional Investors, which released a critical response to the Business organisation Roundtable announcement, raising an outdated red herring that stakeholder governance will lead to a lack of management accountability. In fact, numerous studies show that good stakeholder environmental, social, and governance practices are simply better governance for long-term investors and their beneficiaries.

Public Policy Dispatch

Policy makers across the ideological spectrum—from Mike Pence to Marco Rubio to Elizabeth Warren—have identified shareholder primacy equally an obstruction to high-quality jobs and shared prosperity. In that location is an opportunity for a bipartisan policy consensus to enable companies and investors to make this culture shift interpret into meaningful and lasting beliefs change that benefits workers, communities, the environment, and shareholders. This might include corporate or investor tax incentives and procurement preferences for stakeholder-governed companies, as well as investor fiduciary duty reforms to enable investment managers to focus on responsible long-term stewardship of their portfolios using stakeholder governance, and/or guardrails to ensure that companies and investment portfolios are governed to avoid negative externalities and create value for social club.

People want to purchase from, piece of work for, and invest in companies that serve a higher purpose than maximizing profit at any toll to people, communities, and the natural world on which all life depends.

An increasing number of publicly traded companies are looking for ways to break out of the box they're put in by short-term shareholder primacy. These companies recognize that in that location is both safety and power in collective activeness. Like the CEOs of the Concern Roundtable, they understand that they demand investor support to lead for the long term, to manage with stakeholder governance, and to measure and value more than than pure financials. Nosotros believe that the Business Roundtable's declaration has just created a bigger opportunity for all companies to follow the pioneers that have already adopted stakeholder governance. Alongside other partners, we are excited to support CEOs in a "coalition of the leading" to engage with long-term investors and policy makers to adopt apparent stakeholder governance structures similar the benefit corporation that ensure these companies tin can create high-quality jobs, rebuild local communities, and restore natural ecosystems in the U.Due south.

Read More It'southward time nosotros work together to redesign an economical organization for the 21st century that prioritizes the long term over the short term and the creation of value for all stakeholders, not just shareholders. Unless we address the systemic context in which CEOs operate, celebrating their latest announcements about purpose will remain more hope than strategy.

Jay Coen Gilbert, Andrew Kassoy, and Bart Houlahan are the cofounders of the B Corporation movement. A version of this story outset appeared in Fast Company .