19 Feb 2020
At a time when the world has created a globalised model of capitalism that has lifted great numbers out of poverty and improved living standards for thousands more, we are also increasingly aware of the model’s flaws.
Inequality rises in developed economies and the growth-at-all-costs mentality that has led to work force disruption and downward pressure on real wages is being questioned.
"80 per cent of global consumers believe business must play a role in addressing societal issues.”
When organisations undertake a deep exploration of their purpose and impact, real positive results emerge. Businesses are creatures of people and all people seek purpose in their lives.
B Corps are committed to delivering profit with purpose and meeting the highest standards of verified environmental performance, public transparency and legal accountability. B Corps recognise the need to adapt to stay relevant in the changing business environment.
The concept stems from Jay Coen Gilbert’s B-Lab which in 2007 began certifying a new type of company called a B Corporation, with a mandate to benefit all stakeholders and a commitment to submit to regular tests of its social and environmental impact. The concept has become increasingly mainstream.
With huge growth in demands on businesses from a wide range of stakeholders, the idea that environment, social and governance (ESG) principles are merely the soft underbelly of corporate practice is falling away and recognition of a new paradigm is starting to take hold.
It is abundantly clear that we, as a society, don’t like this state of affairs.
Edelman’s Trust Barometer states 80 per cent of global consumers believe business must play a role in addressing societal issues. It is against this backdrop that B Corps emerged and over the last decade have grown in number to over 3,000 across the globe.
B Corps are big and small, listed and privately held, and operate across 150 industries in 65 countries globally. They think long-term and focus on the impact they have on their workers and customers, as well as on their local communities and the natural environment around them. They measure their impacts against a comprehensive assessment framework and their performance is certified by independent assessors, with results online for all to see.
When you buy an organic lemon, you know something about how that fruit was grown, but when you buy from a B Corp you also have confidence in the way the fruit pickers were treated, the energy and materials used in packaging and delivering the lemon to your local shop, and the way in which the shop itself marketed and sold that fruit to you.
Not all B Corps are the same, many perform differently, but they are universal in their transparency and commitment to doing business in a way that benefits people and planet. B Corps recognise the interdependence shared responsibility we have to each other and future generations.
In Australia and New Zealand, B Corp businesses like KeepCup, Intrepid Travel, Stone & Wood Brewing Co, Whole Kids, Australian Ethical Investment Super and Kathmandu lead the way. Globally, Patagonia, The Body Shop and Laureate Education are high profile B Corps with reputations for leading their respective industries.
The B Corp model was developed in the USA over a decade ago by a group of entrepreneurs who saw the need to upend the doctrine of shareholder primacy (which dictates a company exists first and foremost for the financial benefit of its shareholders) and to shine a light on high-performing businesses who are purpose-driven and create benefits for all stakeholders.
In Australia, you won’t find a law that expressly states a business’ primary purpose is to deliver shareholder financial returns - we can largely thank Milton Friedman for this idea.
The idea is most often wielded as a defence to allegations of business’ poor practice, as an explanation of why a business may have fallen below community expectations, failing the all-important Australian ‘pub test’: “we were maximising shareholder returns, which is what we’re supposed to do”.
Yet when seen so narrowly, the doctrine itself fails on many levels. Directors of well-performing boards will often engage in wider consideration of those impacted by their decisions. Managing climate risk is increasingly required practice, both to mitigate the impact on long-term profits but also as a way to ensure the conditions that allow a business to exist are maintained. Businesses no longer consistently put shareholder returns first (if they ever did).
Why is this? Well I would argue the debate itself is circular.
For businesses to drive returns to shareholders, they must consider their impact on people and planet, for failing to do so in both the short and long term will deny them the very conditions they need to derive profits: a stable market, predictable (and enforced) rules, a healthy workforce and natural resources.
To B Corps it is simple: to meet the expectations of our shareholders, we consider wider stakeholders. To have a sustainable business model, we need a sustainable planet.
Friedman certainly didn’t envisage a corporate takeover of government and a market where compliance on the rules of taxation, environmental regulation and labour force management were simply disregarded in the pursuit of short-term shareholder returns. He may well have embraced the idea of profit and purpose working alongside each other.
Reliance on the Friedman doctrine is increasingly the game of companies and directors who seek to justify their own failures to act in the interests of both shareholders and stakeholders. Such a narrow view should not be tolerated.
Global consumers are making their expectations clear and businesses are responding, or even leading the change. We can all support this through directing our spending and investment dollars to businesses that perform to the higher standard.
As we face increasing challenges, from bushfires to global pandemic, we need businesses that contribute to a better world and businesses, and embrace our interdependence to thrive.
Andrew Davies is CEO of B Lab
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
19 Feb 2020
13 Dec 2016