B Corp concept harnesses profit for social good, co-founder says
The B Corp concept—or Benefit Corporation—is a legal structure that allows a company to build a mission statement or social benefit purpose into its corporate governance sturcture. Conventional corporations must as a matter of law hold their fiduciary responsibility to their shareholders above all else.
After a 16-year conventional investment career on Wall Street, Kassoy said he was exposed to the concept of social entrepreneurship.
“It was the idea of taking a totally entrepreneurial approach to solving problems in a new way,” Kassoy said at an event in Boulder, CO organized by Compass Natural Marketing this week.
There followed a stint mentoring social entrepreneurs, where he met Sara Horowitz, the founder of the Freelancers Union, a company trying to address the needs of the growing cadre of freelance and contract workers. He ended up joining her company.
“She realized the problems she wanted to solve would be solved a lot better with a for-profit business, it was called the Freelancers Insurance Company. She’s a third-generation labor lawyer and she realized that the labor movement was going to die because people didn’t have traditional jobs any more.
“So she went out and raised capital and used the profits of a for-profit insurance company to make insurance affordable for those workers,” Kassoy said.
When it was time to move on, Kassoy said he was looking to take the things he’d learned from working with Horowitz and broaden that mission.
“I realized as I looked around that there were tons of entrepreneurs tring to do the same thing,” he said. But they all faced a similar hurdle.
“How do you build a business that can scale while still maintaining a mission?” he said.
Investment fund was first idea
Kassoy and his co-founders Jay Coen Gilbert and Bart Houlahan at first fell back on their know-how in the investment field.
“The first idea we had was to start a business that would invest in these businesses but it would be more of a holding company, not a fund that would have to sell after a few years,” he said. “But, how are you going to decide what to invest in? There wasn’t a certifcation that rated the whole impact of a company’s business.”
When the time comes to sell a company that has such a structure, the mission of the founders can get lost, he said.
“The fiduciary duty of company directors (under conventional corporate governance) is to maximize value for shareholders, period. The directors have a duty to sell to the highest bidder.
"It doesn’t matter if the buyer intends to continue the mission. That drove us to say that we should create a certification by which the business can commit legally to consider the interest of their stakeholders, not just the shareholders.”
So the B Corp idea was born. The trio founded B Lab, a nonprofit certification organization that sets up the certification process that a company must go through to be labeled as a B Corporation. The organization also advocates for legislation making B Corps recognized legal entities. Kassoy said 12 states have adopted B Corp legislation and 17 more are considering it, including Delaware, the corporate home (for tax reasons) of a majority of US corporations.
According to the organization’s web site, B Corp certification is to sustainable business what LEED certification is to green building or Fair Trade certification is to coffee. B Lab certifies the companies on standards of social and environmental performance, accountability, and transparency. Participating companies fill out a detailed questionnaire. The process was designed to be rigorous, but not overly expensive so as to not to overtax early stage, entrepreneurial companies.
B Lab says it now has 728 certified B Corps in 26 countries and 60 industries.
B Corps in the food world
The concept has gotten traction in the food world; among the companies that have acheived B Corp certification are Rubicon Bakery, a Richmond, CA-based business that provides jobs for newly released prison inmates, Revolution Foods, based in Oakland, CA that works to improve the nutritional profile of school lunches, and Sustainable Harvest, based in Surrey, ME, that says it imports more than one of every six pounds of Fair Trade and organic certified coffee sold in the US and works to improve the lives of coffee farmers and strengthen local communities in Central America.
A key word search on "food" among the list of B Corps on the B Lab website brings up more than 80 entries. "Beverage" brings up another 20 entries.
Kassoy said B Corps have to be successful to survive, but they can take in a wider view than just focusing on the bottom line. And it seems to pay off in the long run.
“I don’t believe in this notion that it’s only OK to have a sustainable business if there is no tradeoff. For some businesses, they are choosing to maybe have a lower margin. But those companies with a sense of social purposestayed in business by a significantly greater margin through the recession than conventional corporations,” Kassoy said.
Sustainable future
And, he said, the B Corp model could prove to be a roadmap for the future as policy makers and business leaders struggle with coping with the world’s growing population, including finding sustainable ways to meet the wants and desires of the growing middle class.
“The reality is there are going to be 4.9 billion middle class consumers over time and their needs need to be met. To say those people just don’t get to have the middle class live they are striving for is not a sustainable answer.
“What I hope we are doing is building a community of businesses that consumers can have confidence in and trust,” he said.
