Earlier this month, we introduced our Business Trends report 2021 based on in-depth conversations with top CSOs in our Outthinker Strategy Network. We will be expanding on one of these trends every week with the intention of supporting your organization’s strategy for the next year and beyond. This is our second installment.
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The new purpose of a corporation
For most of the history of capitalism, it was assumed that corporations existed for their shareholders. Since 1978, Business Roundtable, a non-profit association of CEOs from top US companies, has issued its Principles of Corporate Governance, and since 1997, every version of the document has stated that “corporations exist principally to serve shareholders.” Until now.
In 2019, the organization announced a new statement on the Purpose of a Corporation: “to promote an economy that serves all Americans,” including responsibilities to deliver value to customers, invest in employees, deal fairly with suppliers, and support communities.
The decade-long shift in perspective from profit to purpose has finally reached a culminating point. Corporations are realizing that shareholders are just one stakeholder they are here to serve. More importantly, they owe a debt to society, their employees, suppliers, and the environment.
The B Corp movement leads the way
A commitment to serving all of these stakeholders has shifted from “nice-to-have” to requisite for organizations that wish to survive in the future.
“The American dream is alive, but fraying,” reflected Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co., on the new statement of purpose. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.”
The B Corp movement was already a step ahead of the Business Roundtable statement, with 10,000 certified companies across 150 industries and 60 countries. Organizations like Ben & Jerry’s, Lemonade insurance, and Patagonia have vowed to hold corporations legally accountable for their promises to use business as a force for good.
The efforts of certified B Corps like Patagonia demonstrate how the label is much more than a marketing effort. In the last two years, Patagonia has dedicated its $10M tax cut to environmental causes and created a citizen-activism site for local groups across the US. The company has donated more than $100M to environmental nonprofits since it was founded.
Furthermore, results show that doing good has a positive impact on business results. The father of impact investing, Sir Ronald Cohen, has measured “how impact is directly correlated to a company’s stock price”.
At Outthinker, we have been tracking the momentum of the “Be Good” trend over the past decade, and economists like Nobel Prize winner Jean Tirole have been arguing that economies should be managed not just for maximizing economic wealth but for the common good.
A big year for B Corp
This past year has been exceptionally pivotal for the B Corp movement. Christopher Marquis, author of Better Business: How the B Corp Movement is Remaking Capitalism, said that this summer indicated a huge step forward in the movement when two B Corporations, Lemonade and Vital Farms, went public and six large, multinational companies began the journey toward obtaining B Corporation status.
Certification is an arduous process involving an in-depth assessment of how a company interacts with its employees, customers, community, and the environment along with a legal requirement and transparency principles to determine a score that must be updated every three years.
How to apply “Be Good” in your organization
The movement does not appear to be slowing down anytime soon. Studies have shown that Millennials and Gen Z, as both employees and customers, favor companies that align with their values.
According to the B Corp website, 120 venture capital firms have invested more than $2B in Certified B Corporations. If your organization is not quite ready for the B Corp certification process, but still recognizes the urgency of the need to “Be Good”, here are some questions to help evaluate and improve your contribution to all of your stakeholders:
- Employees: How do you invest in your employees? How does your company’s compensation compare with market rates? What benefits do you offer to employees? What were the results of your most recent employee satisfaction survey? What percentage of your company is owned by full-time employees?
- Environment: Does your company monitor and record its waste production? Does your organization use renewable energy? Do you conduct environmental audits and share them with the broader community?
- Community: Which underserved populations does your business impact or target? Are employees allowed time off for community service? What percentage of management is from underrepresented populations?
- Overall Purpose: Is your business model aligned to being good? Does your growth benefit all stakeholders? Does your revenue model incentivize you to make the right choices?