B is better

Like most of my fellow citizen-consumers, I am alarmed by certain corporate players and entire sectors that have persistently played down public protests against industry practices relating to health (e.g. tobacco companies), the environment (e.g. fossil-fuel companies) and social welfare (general hiring and wage inequality). But in all honesty, corporations get away with it because we consumers buy too much and look for ways to play the system - a bit like feeding the hand that bites us. Over the years, I have become a more thoughtful consumer, but my has son caught me on many points – if capitalists and consumers are part of the same system, how come the corporations are always winning? – and our conversations compelled me to find a better capitalism.

When I started, I needed a crash course in business models and in corporate history. I knew about sole-proprietorships, partnerships, and LLC (limited liability companies). I knew that corporations were different enough from these to be incensed that they can have the same rights as individuals, but individuals on corporate boards can not be held liable for their actions. Regulations for traditional business models [1] in the US have focused on protecting owners and shareholder investments. Indeed, companies have been legally required to consider the best interests of shareholders in all decisions. For the past 50 years, since Milton Friedman published his theory on business ethics, shareholders have been pretty much all that has mattered in corporate decision-making. The sole alternative form has been non-profit organizations, which are only allowed to raise funds through grants or donations.[2]

But many people - frustrated consumers, investors and company owners - have questioned these traditions. In my search for better business models, I found the landscape has been changing in some very interesting ways. And it continues to change, as corporate boards are confronted by a growing number of people demanding accountability and a society that is increasingly willing to rethink traditional structures.[3] Here is a summary of what I found.

The Social Enterprise model, which emerged in the 1970s, is a hybrid of traditional corporations and non-profits. A social enterprise can include social and environmental objectives in its business plan but is not limited to raising funds through grants and donations. The shoe company Tom’s follows a common social enterprise model; it is a for-profit company with a goal to donate one pair of shoes for each pair sold included in its mission statement. Tom’s has partnered with charities and service organizations such as UNICEF and the Red Cross to carry out its mission. Other social enterprise companies are Ten Thousand Villages, Solar Sister and Textbooks for Change.

Since 2007, companies have been able to incorporate using the Public Benefit model, allowing them to be mission driven. This model actually requires that the needs of all stakeholders (employees, customers, suppliers, the local community, even the natural environment) be considered in the decision-making process, a provision that reduces pressure on business owners to pander to profit-seeking shareholders. Since this model is relatively new, the laws and procedures that benefit corporations must follow are still being developed. For example, the possibility for international contracts and agreements remain limited. Although public benefit corporations are owned by the shareholders, the company mission remains in place even when leadership changes. Furthermore,  stakeholders are protected in the case of liquidation or sale. Two well-known benefit companies in the US are King Arthur Flour and Danone. In an interview with Ezra Klein last November, Kickstarter co-founder Yancy Strickler explained why that company purposely chose, in 2015, to switch from a traditional C corporation model to a public benefit model so that the value the company created could be distributed to the larger community and not solely to shareholders. Both the social enterprise and benefit models have spawned business organizations that provide oversight and promotion functions.[4]  The Social Enterprise Alliance (SEA) has fostered the recognition of social enterprises by offering guidelines and interactive support since 1998. Organizations that are part of the SEA include many religious-based charity organizations, as well as well-known service organizations such as the American Medical Association and Leaf Financial Services.

Public benefit corporations often apply for Certified B Corporation status through B Labs, a non-profit organization that provides oversight for B Corporations worldwide. In order to be certified, corporations are vetted on criteria based on the sustainability triangle such as financial transparency, social and environmental policy and performance, as well as stakeholder consideration. Companies must be recertified every two years. B certification has the advantage that it is recognized worldwide, making it ideal for companies that operate in countries where the public benefit model is not yet available. At present, over 3500 companies are B-Certified. These include Ben and Jerry’s, Patagonia and Dr. Bronner’s. The Raiffeisen Banking Group in Switzerland is B-Certified. 

I must admit I am still confused about business models, but at least I understand how I can begin to modify my consumer habits. Citizen-consumers have more power than they are currently using to influence how commerce and industry work with all stakeholders to envision and create a global economy that works well for everyone. The more we understand, the better we can use our voices and our wallets to do so.

My nascent knowledge has helped me follow the recent spate of large corporations touting rather optimistic climate goals.[5] I am more willing to believe a company pairing big promises with transparent oversight.[6] One of the podcasts I listen to has recently aired interviews with executives from well-known traditional corporations that are taking rather extraordinary steps to address energy-transition and other sustainability goals.[7] Companies such as Unilever, BP and Gucci seem to be leading a notable shift in corporate responsibility. This shift has been further strengthened by pledges made in the context of the Climate Week NYC in September 2020.[8] As welcome as all these pledges are, we need to hold corporations to their promises. I hope B Labs, SEA and numerous other climate accountability organizations will help to foster this change. But teenagers seem to be doing a pretty good job; more than one corporate executive has cited pressure from teen-aged children as a motivating factor in making climate decisions.[9]  Our children have pretty good reasons for asking us to be better.

postscript: I was scolded by a couple friends and by my son for not mentioning the obvious and best alternative to corporations, which is of course cooperatives and other employee-owned models. I hope to write about cooperatives in the near future. In the meantime, check out these articles on coops in the EU and in the US. David Bollier has written an excellent book, Think like a Commoner, on many types of common ownership.