James Perry: B corporations - a better way for business?

16 Nov 2016 Voices

The B Corp model is a valuable tool in the social sector's armoury, says James Perry.

At the risk of stating the bleedin’ obvious, it’s probably true to say that people tend to devote their working lives to the things that they care about. So, if you care about community, society, the vulnerable and so on then it’s perfectly logical to get a job working in that field.

The corollary of that is that often people who care about creating wealth go into business. There’s nothing wrong with that. Ultimately, all of those in vocational work or public service rely on the tax revenues or the charitable giving that, at source, is created by the engine of business.

Business is the most powerful force invented by mankind. It shapes our world like nothing else. It is, at the end of the day, a machine. Capitalism is the system that we have created to direct that machine.

But what have we directed it to do? Have we directed it to create value for all, to solve social problems and to create a net positive impact on society? Or have we directed the machine of business to go into the world, seek out value, acquire it and return it to the people who control the machine?

The fundamental design principle of the global economy is ‘maximising shareholder value’. Economic theory has suggested that - as wealth is created for shareholders - then all society benefits. After all, we’re all shareholders through our pension funds, insurance policies, savings. Shareholder prosperity is taken as a proxy for the prosperity of society.

Trouble is, it’s not working out like that. It’s increasingly looking to many (especially Brexiteers and Trump supporters) that business is more like a giant global vacuum cleaner that sucks up value wherever it can be found and returns it to the wealthy – leaving our communities stripped bare, demeaned, leaving our broken families to clean up the vomit and deal with the obesity, the climate change, the poverty of opportunity. The statistics on global wealth distribution certainly suggest that there’s a problem – we live in a world where 62 people own half of the wealth of the entire human race.

Does this mean that business is bad? Or does it just mean that this machine of extraordinary power has been misdirected by our current system of capitalism?

It is worth bearing in mind a couple of things. The first is that businesspeople are people, just like those in vocations or public service. They have families, children, values. The design flaws of the current system are as clear to them as they are to everyone else. The second is that our current version of capitalism is not the only one. Think of it, rather, as a system in evolution. We have ascended from the Neanderthal system of feudalism to colonial and industrial capitalism, and we now live in the age of shareholder capitalism. There must be a better way for capitalism – the status quo is untenable.

We are fortunate to live in a time where we are on the brink of an historic culture shift. Capitalism is rapidly evolving. The homo erectus of shareholder capitalism is just starting to die out, as it is replaced by the homo sapiens of stakeholder capitalism. From shareholder value to value-for-all.

All economists will tell you that there are three economic inputs: land, labour and capital. Marx wanted to pay the labour at the expense of the others. The Greens want to pay the land at the expense of the others. And modern shareholder capitalism wants to pay the capital, at the expense of the others. All of these are equally flawed.

But there are signs that this new stakeholder capitalism is emerging, which values and rewards all three of these inputs, in mutuality.

These signs are in the explosion of early-stage movements seeking to express this better alternative. The most powerful of these movements is the global B Corporation movement, which started in the USA (where the problem is arguably most acute) in 2007, and has now spread to 50 countries. It is led by businesspeople (and their shareholders) who have chosen to put the interests of all ahead of the narrow interests of shareholders. They do this, firstly by changing their legal constitution to make the directors legally responsible for running the company for all stakeholders, not just for shareholders. And secondly by measuring, and holding themselves to account, for their social and environmental impact. There are now nearly 2,000 B Corporations around the world with combined revenues of over $30bn. Benefit company laws have been passed in 32 US states, and Italy. Further laws are in development in further US states, European and Latin American countries, Australia, and the UK. Around 50,000 companies around the world have started to use the social and environmental performance measurement tools. A growing number of multinational companies, in recognition that capitalism must evolve, are seeking to understand how they might join this movement.

For such companies, social sector organisations start to form a key part of the value chain, as it is often they who are best placed to create social value. At COOK (which I co-founded) we have a business goal to increase the percentage of employees who are recovering addicts or returning citizens from 2 to 3 per cent this year. Social sector organisations become key ‘suppliers’ to us if we are to achieve this goal.

If we are to find a better way for society (as the Better Way network are), then a better way for business will be a key. It has such a profound influence in shaping our work, our communities, our way of life. The good news is that a better way is already here. The challenge is to distribute it, and to re-engineer our system of capitalism so that it supports, rather than resists, this transition that we all so desperately need.

I hope that civil society and social sector organisations can do everything that they can to support this shift, which has the potential to align their goals with the goals of business.

James Perry is co-founder and director of COOK, a certified B Corporation. He is co-chairman of B Lab UK and a member of the B Lab’s global governance council. He leads Panahpur, his family’s foundation, which has transitioned from grant-maker to for-beneficiary investment company. He is also a deputy chairman of the Social Stock Exchange, a trustee of Access Foundation, and a member of the founding group of A Better Way.

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