We often talk about tech innovation as the biggest driver of change in the market and in society. But there are other disruptions taking place that stretch beyond chatbots and 5G. We’re talking about the profound cultural and legal shifts happening at the foundational level of the purpose of business itself.
Some business leaders and academics are calling it a reinvention of the Chicago School of Economics, introducing a new school of economics in which the idea of profit being the only purpose of business is no longer the name of the game. Milton Friedman may have won the Nobel Prize in 1976 for his thinking about monetary policy – best summarized in his statement that “only money matters” – but perhaps his more profound legacy has been popularizing the belief for the last 40 years that “the social responsibility of business is to create profits”. However this kind of economic theory model is increasingly recognized as belonging in the past.
Today, a new school of thought and practice is emerging – businesses with the ability to walk and chew gum at the same time, operating to create both profit and purpose simultaneously. Often with the former serving as the means to a nobler end. And, as happened decades ago, academia is providing the intellectual rigor and framing to bring new thinking into the mainstream and establish new cultural norms. One example is at Oxford’s Saïd Business School where academics such as Colin Mayer make the business case for the market power of a business’ firm commitment to profit and purpose. In another project, the Saïd Business School is working with Mars on a research project focused on understanding new management practices and models based on the principles of mutuality.
Read more: Profit isn't everything, you need purpose too
Business leaders may have heard about the B Corp movement when Fast Company deemed it to be one of the 20 moments in the last 20 years that moved the world forward, or when Fortune said thatto be like a B Corp was one of five key business trends to master. For those new to the idea, B Corps are for profit businesses that have met a rigorous third-party standard for overall social and environmental performance, legal accountability to align the interests of their business with those of society, and radical transparency to rebuild trust with a skeptical public. Essentially, these are businesses working for a purpose as well as a profit. They include big well-known brands such as Patagonia, Warby Parker, and Hootsuite as well as UK companies Elvis & Kresse, COOK and Patients Know Best. B Corps have been thought of as an innovation largely confined to the ranks of small business, but that’s changing.
A growing number of large multinational and publicly traded companies have decided they indeed want to be like a B Corp. Over the last several years, B Corps have been hot acquisition targets. If you can't beat them, buy them. And when you buy them, protect your investment by maintaining their B Corp certification so that their evangelical consumers stick around because they still trust the brand they came to know and love. This is an exciting and growing trend, especially in the consumer goods space. Earlier this month, UK B Corp Pukka was acquired by Unilever, joining Ben & Jerry’s and Seventh Generation as the third B Corp in Unilever’s portfolio.
And B Corps are making big acquisitions of their own. Natura, a Brazilian cosmetics and personal care company operating in the US, Latin America and France (and the first publicly traded B Corp) bought The Body Shop last week – a transaction that represents the first billion dollar B Corp deal. What does this all mean? Big brands are seeing that business as a force for good is good for business – and betting that being aligned with the B Corp movement will attract consumers, talent, and long term minded investors.
Read more: Patagonia wants to sell fewer clothes to help save the planet
Last year, Bancolombia announced a partnership with B Lab (the nonprofit behind the B Corp movement) to help the thousands of businesses with whom they work across South America be like a B Corp. In a pilot, more than 600 Bancolombia small business customers are using the B Impact Assessment to manage and improve their social and environmental impact. The company has now announced plans to roll this program out to thousands of its customers. After all, a bank's positive impact is primarily through who they lend to and how they help their lendees become better businesses (and, not incidentally, bigger customers).
Earlier this year, Laureate Education raised $480 million in its IPO, becoming the first company to go public having already adopted the B Corp legal framework for stakeholder governance. Laureate’s IPO was backed by private equity giant KKR, global financial institutions like the IFC, and global banks Barclay’s, Credit Suisse, and Morgan Stanley. Laureate followed IPOs of Etsy and Rally Software, and joins other publicly traded B Corps outside the US such Natura, Silver Chef and Australian Ethical Investment.
Then there's Danone, where CEO Emmanuel Faber is taking this to a whole new level. Danone’s recent acquisition of White Wave and subsequent merger with Danone N.A. to form DanoneWave has created the largest benefit corporation in the world with more than $6 billion in revenues. In announcing the merger and benefit corporation conversion, Faber announced that DanoneWave would seek B Corp certification, joining Happy Family and three other Danone subsidiaries around the world as part of Danone’s B Corp portfolio. All this has been in pursuit of a much more ambitious goal. At its April 2017 shareholder meeting, Faber announced his intention for Danone itself, the parent, to achieve B Corp certification too, which would make it the first Fortune 500 to earn that distinction. These concrete actions seem prescient as one market analyst from Credit Suisse has arguedthat Danone’s commitment to the B Corp movement might provide shelter from recent hedge fund pressure.
This seems to be just the beginning. Spurred by the increasing interest from multinationals and public companies, B Lab, the organisation I work for, has created a Multinational and Public Markets Advisory Council to identify the specific standards and requirements necessary for businesses of this size and scope to achieve B Corp certification. The initial recommendations of the Council will be made publicly available for comment before the end of this year.
As these businesses prove that business for good is good for business. Maybe Milton Friedman would approve after all?
Charmian Love is is co-founder and co-chair of B Lab UK. Jay Coen Gilbert is co-founder of US-based B Lab
This article was originally published by WIRED UK
