- 04.07.14
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[Photo: Reinhard Hunger for Fast Company]
World-Changing Ideas: A Q&A With Andrew Kassoy, Cofounder Of B Lab
As a founder of B Lab, a nonprofit that certifies sustainable businesses, Andrew Kassoy knows all about the complexities of considering social good while trying to grow a business. Join Co.Exist senior editor Ariel Schwartz for a live chat with Kassoy on Tuesday, March 4 at noon (ET).
As more states roll out benefit corporation legislation, allowing companies to pursue social good missions without getting sued by investors, the possibility of a public company becoming a benefit corporation increases (in fact, that was one of Co.Exist's predictions in our list of World-Changing Ideas for 2014).
Andrew Kassoy, a former private equity investor who cofounded B Lab in 2006, knows all about the complexities of considering social good while trying to grow a business. B Lab, a nonprofit that offers B Corporation certification to companies that meet certain corporate social responsibility standards (this is different from benefit corporation certification), has been working for years to familiarize the public with benefit corporations‹and to grow the ranks of B Corporation-certified companies.
Join us as we talk to Andrew about B Corporations, benefit corporations, and the rising tide of companies that want to consider purpose alongside the bottom line.
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We're joined by Andrew Kassoy, a former private equity investor and the cofounder of B Lab—a nonprofit that certifies companies as B Corporations and campaigns for the growing benefit corporation movement (we'll define those terms in a minute). Today, over 20 states legally recognize benefit corporation status, with many more states on the way. There are B Corporations in over 60 industries and 29 countries. Andrew will answer questions today about benefit corporations, B Corporations, and why we should pay attention to both of these things.
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That's a good place to start. The two are often confused. They share much in common but have a couple of important differences. Certified B Corp is a certification conferred by the non-profit B Lab where I work - essentially it's a judgment by a private party - B Lab - that a company has achieved high levels of social and environmental performance, accountability, and transparency. Benefit corporation is a legal status - like a C Corp or S Corp or LLC or partnership - conferred by a state.
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While we wait for Andrew's response, some context: an article written by Ariel in 2011, detailing B Lab.
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There is some overlap. Since legislation started passing over the past few years, over 500 companies have chosen to change their legal status from C or S Corp to Benefit Corporation in the 20 states that have passed the legislation. About 20% of those 500 are also Certified B Corps. And that number is rising as more Certified B Corps decide to ensure they can continue to pursue their mission even as they scale, go public, or sell.
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That's exactly right. Corporate law gets a bit confusing because it's different in every state. But the summary is that a lot of B Corps are incorporated as corporations in states like CA, DE, and CO where existing corporate law didn't allow them to expand their fiduciary duties to consider a broader set of interests than just maximizing shareholder value. So those companies starting talking to legislators about creating a new corporate form that was purpose build for companies with a purpose.
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The benefit corp legislation, as it has marched through 20 states, culminating in Delaware, the home of corporate law in the U.S., is an incredible example of the power of the global B Corp movement. Collective action by a community of high impact businesses has changed corporate law in the U.S. and provided an opportunity for all of us to use business as a force for good.
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Delaware recently started recognizing benefit corporation status. This is a big deal, because over half of all traded companies and almost two-thirds of venture-backed companies are incorporated in Delaware. Have you seen a lot of traction for benefit corporations in Delaware since this happened last year?
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Here's a video that details the passage of legislation in DE:by Miles Kohrman via YouTube 3/4/2014 5:18:25 PM
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Governor Markell signed DE's benefit corp bill in July, followed by a huge convening of investors, entrepreneurs, and other business leaders and policy makers at the World Economic Forum in NY. It was a seminal moment for corporate law, as you'll see in the video. Delaware is where venture and institutional investors look for companies to incorporate, so if we wanted to offer mainstream business the opportunity to change, Delaware was the place that matters most. On the first day, 17 companies, including Method and Plum Organics, incorporated as DE benefit corporations. In only six months since then, there are about 80 benefit corps in Delaware, so it is the state with the fastest growth in incorporation. Next stop: public companies!
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To the point of the B Corp movement driving this change, on the day the legislation became effective, hundreds of B Corps signed an inspiring letter to business leaders on that day. Here's the link.
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Wild guess, but I'd bet less than 2 years. There are several large, venture-funded private companies that are considering it now that Delaware passed legislation. That said, there are hurdles, and our job is to help to educate and persuade to knock down those hurdles. Now that there is a legal corporate form, the biggest hurdle is culture: the operating assumption by lawyers, boards, and investors in the public markets is that short term shareholder value maximization is all that matters. We have to help them understand the opportunity to create better long term value, as well as more benefit for society (workers, community, environment), if they have a corporate charter that explicitly expands what they consider. Investors are conservative and skeptical, so this will take time. But there are phenomenal companies pursuing this, and they will be the ones to convince their investors.
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I'm curious about whether B Lab has any suggestions for larger-scale corporations that are looking to embrace a more societal engagement-oriented business strategy. While some of the older, more traditional corporations believe there is an advantage to this practice, it comes with quite a bit of re-engineering, as well as a fear of push-back from shareholders. Any insights?
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It starts with measuring what matters. For a lot of big, public companies, the ethos has been about corporate social responsibility - doing some good philanthropy or volunteering work. Those things are important, but they may have no effect on the real impact that the company has on society through its business practices or its products. To help companies measure what matter, we've opened up the same assessment tool that we use for certifying B Corps for ALL companies to use for free. It's called the B Impact Assessment. It allows any company to measure its impact on all of its stakeholders, and it provides benchmarking and improvement tools that allow a company to take action. Here's a link to the B Impact Assessment website:
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An awesome example is B Corp Etsy. They went through the B Impact Assessment as an internal exercise. They just made the grade (80 out of 200) for B Corp certification. But they weren't satisfied with their performance. They thought could create more value for their company, and all their stakeholders, if they looked carefully at how responsible and impactful a business they are. So they held a hackathon to gather ideas for how to improve. Since then, their B Score improved by about 25 points. There's a great story about it here:
Etsy's Hackathon for Good
Harvard Business ReviewHow the online shopping platform becomes a certified B Corporation. -
How cool would it be if Apple and GE each went through the B Impact Assessment given their recent opposite responses to pressure to explicitly state they do not pursue anything other than shareholder value maximization? Given Apple's admirable response, maybe they should become a benefit corp too - make it clear by making it legal!
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We've talked a bit about larger companies. But there can be a big financial burden on companies who want to become B Corps, because they have to meet certain strict social responsibility criteria. Is it a good idea for small companies/startups with limited resources to seek certification?
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It depends. There are lots of B Corps and other responsible businesses that would tell you that the work they've done to integrate mission into their business has saved or made them money - attract and retain talent, consumer loyalty, minimize risk, more efficient practices. There are some companies that make clear trade-offs, and the B Corp framework allows them to make that explicit and transparent so that they can attract the kind of talent, consumers, and investors who value that. There are 15,000 companies using the B Impact Assessment, lots of them small start-ups. So I'd point them there to get started while they're small.
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I am in Chicago and there are a number of thriving business incubators here - has B Lab partnered with any start up incubators to encourage certification and/or adoption of the benefit corporation business structure in the early stages so they can build the triple bottom line principals into their businesses from the start?
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Yes! One of the best ways for us to have impact is to partner with great organizations that are building the next generation of great businesses. We've worked with a lot of incubators and accelerators, as well as a number of venture funds, investors, business school competitions, and government entities, to use the B Impact Assessment and B Corp certification as tools for these businesses. Here's a link to a list of those partners:
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Skeptics pat B Corps on the head and say this movement is cute but small. The evidence is quickly becoming to the contrary as B Corps and companies like them scale, disrupting and replacing traditional businesses.
To borrow - or mangle - a great quote.... There are lots of skeptics. As the B Corp movement has gotten traction, skepticism from some with a strong interest in maintaining the status quo will transition to opposition. Eventually, it will just seem totally obvious that there is a better way to do business in which ALL companies compete not only to be best in the world, but best FOR the world. And when that happens, business as usual will be creating a shared and durable prosperity for all. -
Last question for you before we wrap up: where do you see the B Corp/benefit corporation movements five years from now? There has been so much traction just in the past few years that I imagine the landscape of participating companies could be pretty different.
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As the movement grows, there will be an increasing number of B Corps leading the way - 2,500-5,000. More important, we will move from 15,000 to 100,000 businesses using the B Impact Assessment to measure what matters. There will be thousands of companies using the benefit corp legal form, including many in the public markets. And millions of consumers will be making their purchasing decisions, and billions of dollars of investment capital will be flowing, based how much positive impact companies are creating for their society. And the movement will have grown exponentially globally. Today, there are B Corps in 32 countries - most recently Viet Nam and Lebanon - and 25% of the B Corp community is outside the U.S. In five years, well over 50% of the B Corp movement will be outside the U.S., bringing great companies to people who need them all over the world.
