Is “Benefit” just another business buzz word?
Both the for-profit and nonprofit worlds have been shaped by ambiguous jargon for decades, and the grey area between the two is identified with a multitude of terms, including: social enterprise, creative capitalism, blended value, or impact investing. Emerging from the field most recently is something called a “benefit corporation.” Here’s a quick 101:
A benefit corporation is defined in The Harvard Business Review as having “a commitment to social purpose and a reliance on earned income.” In 2007, a nonprofit organization called B Lab began a certification process for this type of corporation, similar to LEED standards for green buildings. B Lab has since certified more than 500 benefit corporations from over 60 industries with the B Corporation title, which signals to customers and investors that these companies are meeting third-party social and environmental performance standards. To clarify, a company can be both a B Corporation and a benefit corporation only if it has undergone a third-party assessment and incorporated in a state that has passed Benefit Corporation legislation. B Lab has helped draft such legislation in seven states so far, California being the fifth, that offers certified B Corporations the opportunity to embed their social values within their legal framework. These companies will now be able to expand their responsibilities beyond shareholders to include consumers, the community, and the environment, and will eventually have such a strong influence that a fourth sector of business is created. (Watch a Tedtalk by one of the founders of B Lab on his vision of the B Corp marketplace.)
While optimists cheer a “new form of capitalism,” few seem to be willing to burst the bubble and ask, “What does ‘benefit’ really mean, and who is better off because of these companies?” As Heerad Sabeti points out in
The Harvard Business Review, “The fundamental value proposition for a for-benefit requires that the organization be able to account for its total impact and performance – financial, social, and environmental. Few conventional accounting systems and metrics are designed for such reporting.” (Although B Lab has developed such a system called GIIRS to assist what they call impact investing.)
But how to qualify the impact of a company that, for example, sells organic plant growth enhancers? Can an economic value be assigned to the benefit of providing shoes to poor children in Ethiopia? How does one company selling sustainable jewelry help the community bystander?
It’s not enough for companies to say what they do; they also must define and measure how exactly what they’re doing (or not doing) benefits society. Could one also argue that offering technology, like Apple’s iPhone, is providing some kind of social benefit? As B Corporations become a household name, it’s important that consumers and investors push for a clear definition of positive social and environmental impact.
The emergence of B Corporations can have a dramatic impact on how companies affect communities and the environment.
Sabeti reminds us, “for benefits cannot replace for-profits, governments, or nonprofits; a resilient, competitive 21st century economy needs all four sectors.”
Let’s make sure the long-term success of this emerging fourth sector is defined by the right criteria.