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Are B Corps An Elite Charade For Changing The World?

In anticipation of next Thursday's Citizen event, B Lab's co-founder argues in a Forbes column for giving capitalism for good a chance

In anticipation of next Thursday's Citizen event, B Lab's co-founder argues in a Forbes column for giving capitalism for good a chance

Next week, I will be in public conversation with Anand Giridharadas, former columnist for The New York Times, about his new and important book, Winners Take All: The Elite Charade of Changing the World. In provocative style and with compelling substance, Giridharadas speaks truth to power, calling elites to account for giving so much lip service to “changing the world,” while mostly upholding an unacceptable status quo.

Do SomethingB Corps are among those about whom Giridharadas is critical. Giridharadas frames B Corps as a promising attempt, yet one that does not go far enough and is still trapped in a worldview that the market alone can solve our problems. Despite his powerful narrative, Giridharadas misses a few fundamental distinctions between B Corps and other market-driven solutions. Giridharadas also offers a binary view of market-driven vs. government-driven solutions, overlooking the historic interplay between the public and private sectors.

Giridharadas and I will be speaking shortly in front of a few hundred people in Philadelphia at an event organized by The Citizen, so I thought it might be fun to begin that conversation now and engage a wider audience with this important debate.

What’s Needed: Questioning the Rules and the Narrative

Giridharadas’ thesis is a compelling critique of what he calls “MarketWorld”—a set of beliefs that have overtaken our culture with the idea that “if you really want to change the world, you must rely on the techniques, resources, and personnel of capitalism,” ignoring the possibility that capitalism itself, as it is largely practiced today, might be at least one cause of the problems we are seeking to solve.

Joseph Stiglitz, Nobel Prize winning economist, agrees:

“Like the dieter who would rather do anything to lose weight than actually eat less, this business elite would save the world through social-impact investing, entrepreneurship, sustainable capitalism, philanthro-capitalism, artificial intelligence, market-driven solutions. They would fund a million of these buzzwordy programs rather than fundamentally question the rules of the game— or even alter their own behavior to reduce the harm of the existing distorted, inefficient and unfair rules.” (emphasis added)

There is often more talk than action in elite gathering places like Davos and Aspen. And the actions taken—perhaps particularly by elites in business and finance—are often marginal, sometimes self-serving, and almost always unquestioning of the existing system that produces the problems in the first place. Loudly applauded TEDTalks, open letters, and corporate programs that “do well by doing good” amount to little more than efforts to rearrange deck chairs on the Titanic of an economic system that seems, as Giridharadas says, to be producing much technical innovation, but little human progress. This economic system generates growing profits that benefit too few while it generates growing instability and risk for too many.

Mostly overlooked in early reviews is Giridharadas’ deeper critique—that as the belief that “only the market can save us” becomes more widely accepted, and even goes unchallenged, the more marginalized government becomes in our collective thinking about what role the public sector can and should play in society. In so doing, we would be ignoring the prominent—if checkered—role government has played throughout American history improving our quality of life in many ways, including by fostering innovation and economic growth.

As support for this analysis, I recommend reading The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato, who argues that the public sector, in addition to its “traditional” roles, has long played a role not just as fixer of market failures and guardian of market excess, but also as a shaper of market opportunities. This may be an important point to keep in mind when thinking about the recently introduced legislation by Sen. Elizabeth Warren—the Accountable Capitalism Act—which seeks to require all large businesses to adopt the B Corp model of corporate governance embodied in the benefit corporation legal structure.

What About B Corps?

Amid the criticism of Goldman Sachs, Uber, AirBnB, the World Economic Forum, the Aspen Institute and the Clinton Global Initiative, Giridharadas asks whether B Corps are just another “elite charade for changing the world.”

Giridharadas writes:

A new breed of community-minded so-called B Corporations has been born, reflecting a faith that more enlightened corporate self-interest—rather than, say, public regulation—is the surest guarantor of the public welfare.

Giridharadas continues, writing about what he feels is the toxic cultural air this generation is breathing that assumes the best solution to every problem is a market-driven solution:

They might have heard of companies becoming B Corporations and signing on to a new ‘Declaration of Interdependence,’ which committed them to using “business as a force for good” and fostering “the change we seek.”

Criticism of B Corps is welcome.

As a co-founder and managing partner of B Lab, the nonprofit behind the B Corp movement, I know that we test our core assumptions to ensure that we are challenging existing power structures to “fundamentally question the rules of the game — [and] alter . . . behavior”first our own, and then, hopefully, others.

One of our guiding principles is continuous improvement. The B Corp idea has evolved dramatically since its conception in the mid-2000’s, and we expect it will continue to do so, often as a result of the thoughtful criticism from both inside and outside our community. I have little doubt that the 10,000 Certified B Corporations and registered benefit corporations would eagerly adopt new best practices shown to be more impactful, individually and collectively. (For the purposes of this post, I’ll use the term B Corps to refer to Certified B Corporations and benefit corporations both, unless it is necessary to uplift the difference.)

Giridharadas uplifts a powerful warning to all of us, especially us elites trapped in our own biases like fish who don’t know what water is: Many of them believe that they are changing the world when they may instead—or also—be protecting a system that is at the root of the problems they wish to solve.

From our biased perspective, Giridharadas might have more accurately written:

“A new breed of community-minded corporations, called B Corporations, has been born, reflecting a belief that more accountable corporate governance–perhaps alongside, say, public regulation—is the surest guarantor of—or at least a necessary contributor to—the public welfare.”

B Corps don’t believe they are THE solution to or guarantor of anything. B Corps do believe that business can be a significant contributor to creating and scaling solutions, and further that business has a necessary role to play because government and nonprofits are, like business, necessary and also insufficient to solve our most challenging problems alone. We can only do this together. That is the most fundamental belief of the B Corp community as expressed in its founding document the “Declaration of Interpedendence.”

In that Declaration about which Giridharadas seems to be a bit dismissive, B Corps state their belief that all “businesses should aspire to do no harm and benefit all.” This foundational commitment toward doing less harm is exactly the commitment Giridharadas has said he wishes elites would make—first and most courageously in a speech at the Aspen Institute, the response to which inspired him to write Winner Take All.

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If B Corps only signed a Declaration of Interdependence, Giridharadas’ apparent dismissiveness would be wholly justified. However, B Corps distinguish themselves specifically because they transform those potentially empty words in the Declaration into credible, concrete actions in the marketplace.

The actions of B Corps address the fundamental design flaw in our economic system—shareholder primacy. Shareholder primacy is the legal principle that states the purpose of the corporation is to maximize profits for shareholders by any legal means necessary, even if doing so harms people, communities and the natural environment on which all life depends.

B Corps overthrow shareholder primacy.

B Corps are required by law to balance the interests of shareholders with the interests of workers, customers, communities and the environment. B Corps fundamentally shift power structures and the legal system which reinforces them. B Corps fundamentally change the rules of the game.

Certified B Corporations go even further. Certified B Corporations meet the most rigorous standards of third-party verified, overall social and environmental performance. Through additional transparency requirements, Certified B Corporations also shift more power to the people by providing them with credible, comparable information about the business’ social and environmental impact so that the people—whether they be workers, customers, investors or policymakers—can make more informed decisions about whether that business is acting in a way that deserves their support, whether through their choice of where to work, what to buy, or when to invest. Certified B Corporations offer proof that they walk their talk.

A Healthier—and Surprising—Consensus

Giridharadas says, “There is spreading recognition, both both sides of the ideological divide, that the system is broken and has to change.” From Main Street to Wall Street, from Bernie to Donald, that is true.

For too long, the consensus view—sometimes referred to as “TINA”—has been that There Is No Alternative to the current economic system. That is no longer true.

B Corps don’t believe they are THE solution to or guarantor of anything. B Corps do believe that business can be a significant contributor to creating and scaling solutions, and further that business has a necessary role to play because government and nonprofits are necessary and also insufficient to solve our most challenging problems alone.

There is a viable alternative that has gained unusually broad bipartisan support from Sen. Elizabeth Warren to Vice President Mike Pence—that alternative is a new form of capitalism called stakeholder capitalism. What these and other policymakers see, what the world’s largest investors see, and what the market-shaping generation of citizen-consumers and citizen-workers see, is that we are moving away from an outdated 20th century model of capitalism that might be called shareholder capitalism, and we are moving toward a vibrant 21st century model called stakeholder capitalism.

The purpose of shareholder capitalism is to maximize returns for shareholders. The purpose of stakeholder capitalism is to balance returns for all stakeholders—for shareholders, yes, but also for workers, customers, communities and the natural environment. Today, stakeholder capitalism is best embodied in the B Corp movement and by the benefit corporation model of governance.

Questions for Us Fish

Giridharadas uplifts a powerful warning to all of us, especially us elites trapped in our own biases like fish who don’t know what water is:

Many of them believe that they are changing the world when they may instead—or also—be protecting a system that is at the root of the problems they wish to solve.

Is the idea of B Corps protecting—even enabling—a fundamentally flawed system?

Is capitalism irredeemable?

B Corps, and those who support them, don’t think so. But these are exactly the right questions for us to ask.

As we grapple with these overarching questions, here are a few more pointed critiques we ask ourselves every day about the B Corp model that dig a little deeper. If you have additional critiques, please share them in the comments and I will respond to all of them in a follow-up post:

  • Does the B Corp model go far enough?
  • Isn’t B Corp just preaching to the choir, ignoring bad actors whose behavior is most important to change?
  • Will enough business leaders, especially of large businesses, push to adopt the B Corp model?
  • Will investors allow even interested business leaders to adopt the B Corp model?
  • Will the B Corp model of stakeholder governance alone change behavior in a meaningful way?
  • Without meaningful government regulation, are voluntary efforts at stakeholder capitalism like B Corp, however well conceived, too little too late?

The Big Question

Much as policymakers once scaled a private sector innovation called Head Start that Giridharadas uplifts as the kind of government-led problem-solving he seeks, Sen. Elizabeth Warren recently introduced legislation called the Accountable Capitalism Act to scale a private sector innovation called benefit corporations. Rather than rely on market forces to drive adoption of the benefit corporation, Sen. Warren would require all large businesses to become benefit corporations. Given that benefit corporations overthrow shareholder primacy, some applaud Sen. Warren’s attempt to impose this new form of stakeholder governance on the big businesses for whom people have the least trust. Others see it as unnecessary or even harmful government intervention in an economy they believe thrives most when government engages least.

This public debate, likely to continue through the 2020 election given Sen.Warren’s profile and potential ambitions, highlights the central, if surprisingly overlooked, question raised by Giridharadas in Winners Take All.

The simple yet profound question that sits at the heart of our political and economic life:

What is the right relationship between business and government to create a shared and durable prosperity for all?

Jay Coen Gilbert is co-founder of B Lab, a global movement of people using business as a force for good. This article first appeared in Forbes.

Photo via Pxhere

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