Since the 1970’s the predominate view has been that the primary reason for establishing companies is to create value for shareholders. This view has been changing over the past decade. Emphasis on a company’s impact and benefit for society is increasing. Initiatives such as Corporate Social Responsibility are evidence of this.
Some History
It is interesting to go back to where the idea of companies originated. Most will know that the basis of the modern day company originated in England. What isn’t so well know is that the purpose of creating companies was to advance the national interest. The idea was the companies were to deliver value to both the investors and the community as a whole.
The word company derives from the Latin word companio. This had the meaning of:
“one who eats bread with you”
The concept of a company had origins as being part of the community and being for the benefit of that community.
The Problem
Society is now expecting better corporate behaviour. And companies are wanting to prove they are better. Unfortunately, it is hard to see if a company is genuine in their social purpose. This has led to terms such as “green washing”. Where everyone is saying the right things, but it is harder to see who follows through.
This is because following their social purpose is dependent on two things:
- The leader of the organisation at that moment. It is the leadership that determines the level of contribution back to society. And how that contribution is made.
- The profitability of the company. It is easy to give when times are good. But when times aren’t so great, it is the contribution to society that easy to cut. This is because the company’s DNA is still about profit for shareholders first.
The Solution
A new type of company. One that has their social purpose as part of the company’s DNA.
The B Corporation.
B Corporations are those that have been certified based on how they create value for non-shareholding stakeholders. This includes their employees, the local community, and the environment. The certification is via a not-for-profit organisation called B Lab.
The Benefits
Being a certified B Corporation has many benefits. In my view the biggest is that its proves that you are authentic in the social purpose you are pursuing. It allows communication of this to your customers, employees and other stakeholders. And seen as having integrity.
In building these ideals into the company’s governance, it becomes part of its DNA. Which means that the company will pursue these irrespective of who the leader is. Through good times and bad.
B Corporations are still aiming to make a profit and shareholders remain a stakeholder. They are just not doing it at the expense of society. And through being a profitable company, they can provide the benefit to society for the long term.
As the number of B Corporations have increased we are also seeing a collective benefit. It is starting to redefine the way people perceive success in the business world.
Becoming a certified B Corporation
The certification process is more than a tick the box exercise.
First, the company needs to have a social purpose that it is working towards. It might be that this has been informal, or the company is in the start-up phase.
Once you are clear on the social purpose, you need to go about having this explicitly incorporated. This will mean incorporating it into the governance documents of the company. This legally binds your company to following its social purpose as part of its reason for being.
Last, is ensuring the ability to identify key performance indicators that reflect your social purpose. These will sit alongside commercial key performance indicators. Together providing transparency to your stakeholders on your progress.
Need some help?
Justin Hogg is an Accountant and Governance professional that can help you on your B Corp journey. Remaining focused on your social purpose whilst strengthening your fiscal performance.
To arrange an initial, complimentary discussion, email justin.hogg@rightsource.com.au or call 0414 896 696.