Today Marks a Tipping Point in the Evolution of Capitalism
Today is an historic day.
Today marks a tipping point in the evolution of capitalism. It marks the coming home of a capitalism that returns business to its proper role in society to create shared and durable prosperity.
With Delaware Governor Jack Markell signing benefit corporation legislation into law, business leaders have a new freedom to make decisions that are in the best interests of society as well as their bottom line, and we – as citizens, customers, workers, and investors -- have the tools to dentify and support them.
Until recently, corporate law has not recognized the legitimacy of any corporate purpose other than maximizing profits. That old conception of the role of business in society is at best limiting, and at worst destructive.
The benefit corporation legal structure is a new and useful tool for everyone. For policy makers and the public interest, it combats the plague of short termism. For business leaders, it helps attract the best talent and turn customers into evangelists. For customers, it offers greater transparency to protect against pretenders. For employees, it promises higher quality jobs where they can bring their whole selves to work every day. And for investors, it mitigates risk, reduces transaction costs, creates additional rights to hold management accountable, and accelerates the growth of a big market opportunity to meet the needs of people who want to invest to both make money and make a difference.
Today, Delaware became the 19th state to enact benefit corporation legislation, but as home to 1 million businesses, including 50% of all publicly-traded companies and 64% of the Fortune 500, it is the most important state for businesses that seek access to venture capital, private equity, and public capital markets. The path is now clear to scale business as a force for good. For-profit social entrepreneurship, impact investing and the sustainable business movement have reached critical mass and are now at an inflection point. Accelerating consumer and investor demand has resulted in a big market opportunity. A large and increasing number of people want to support a better way to do business -- better for our workers, better for our communities, better for our environment. Although there is no reliable data on “social enterprise” company revenues, the American Sustainable Business Council is a partnership of 63 business associations representing over 165,000 businesses.
However, the current marketplace, continues to be fragmented and confusing. Entrepreneurs that are “sustainable,” “green” or “socially responsible,” struggle to distinguish themselves from other companies that make similar claims but don’t actually behave as they advertise. Furthermore, current corporate law requires only profit maximization, not social responsibility, let alone social impact, constraining the growth of these purpose-driven companies. Entrepreneurs with a mission-driven business may be reluctant to accept outside capital from investors who may not share their long term vision.
The ability to register as a benefit corporation empowers these entrepreneurs, not only to take their company to scale while maintaining mission, but to clearly identify themselves as purposedriven companies. By serving a higher purpose and by meeting higher standards of transparency and accountability, these companies build their most important asset -- trust. This trust enables them to attract talent, customers, and capital.
Investors, in turn, increasingly want to use their investments both to make money and to make a difference. The socially responsible investing (SRI) movement has grown over the past 30 years to represent nearly 10% of U.S. assets under management, or roughly $2.3 trillion. A November 2010 report by J.P. Morgan, entitled “Impact Investments: An emerging asset class,” estimates the size of this market opportunity at between $400 billion and $1 trillion.
However these investors lack the tools to understand a complete picture of a company’s performance across the full range of social and environmental measures. Benefit corporations are required to report on their overall environmental and social performance. A growing community of leading investors like Union Square Ventures and Generation Investment Management recognize that this increased transparency reduces transaction costs and risk for investors, and when third party standards are used to generate these reports, creates the comparability that will help the impact investing marketplace reach its full potential.
Like investors, consumers are increasingly frustrated by a lack of transparency. A significant and growing population of consumers already aligns their purchases with their values, and many more have become conscious of the issue. Approximately 68 million U.S. consumers have stated a preference for making purchasing decisions based upon their sense of a company’s social and environmental responsibility. Meanwhile, recent research has also indicated that where price and quality are equal, 86% of consumers would switch from their current brand to a brand that is socially responsible.
Yet as consumer demand for socially responsible products and companies is increasing, consumer trust in corporations is decreasing. Marketers use terms like “green,” “responsible,” “sustainable” and even “local”, yet there are no standards to back up the claims. Although there exist an increasing number of narrow product or practice specific standards (e.g. “Organic”, “Fair Trade,” “Energy Star”, “LEED”, etc.), there are fewer standards outside of the B Corporation certification that provide a comprehensive understanding of a company’s performance as a whole. This makes it difficult for a consumer to tell the difference between a “good company” and just good marketing. While nearly 800 leading businesses from more than 60 industries and nearly 30 countries have earned B Corporation certification (from iconic sustainable businesses like Patagonia and Ben & Jerry’s. to next generation social enterprises like Etsy in the U.S. and d. light in emerging markets), with benefit corporations, consumers and investors have another tool to clearly identifying those companies walking the talk and access the social and environmental performance data they need to make more informed choices.
The growing preference for supporting “good companies” is not limited to purchases and investments however. Perhaps most importantly for building world-class businesses, people also prefer to work for companies with strong social and environmental performance. More than two-thirds of employees (69%) consider the social and environmental track record of a company in deciding where to work. This preference is especially strong among MBA graduates, who overwhelmingly (88%) have said that they would be comfortable taking a pay cut to work for a company that has ethical businesses practices versus one that does not. The ability to bring their whole selves to work is especially important among Millennials, soon to comprise 50% of the global workforce. Rather than work-life balance, Millennials demand work-life integration. Benefit corporations fill this need, providing higher quality jobs at companies with a high purpose that is built to last.
There are lots of ways to participate in this global movement to redefine success in business and every company and every person should find the path that’s right for them. You can bake the values of your company into your legal DNA by registering as a benefit corporation. You can help your company put its higher purpose into practice by comparing and improving its social and environmental performance using a free educational tool like the B Impact Assessment. You can be recognized as a leader by becoming a Certified B Corporation. You can support these leaders by prioritizing B Corps in your investment portfolio or with your purchases. To learn more ways to get involved visit bcorporation.net and B the Change.