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Wednesday, April 8, 2015

Strategic CSR - B-Lab

The article in the url below contains an interesting announcement by Unilever:
"The movement to put purpose at the heart of business strategy has received a major boost with news that several multinationals, including consumer goods giant Unilever, are considering becoming B Corps, for-profit corporate entities that commit to positive social and environmental goals."
This follows on from the certification of Natura, the largest Brazilian company and the first publicly-traded company to receive the B-corp certification (see here):
"[In December], Brazil's top cosmetics, fragrance and toiletries maker, Natura, became the largest – and first publicly traded – company to attain B Corp sustainability certification. B Corps are certified by NGO B Labs as contributing social and environmental benefits beyond the financial bottom line."
While Unilever's announcement would be an important step in its groundbreaking efforts to become more sustainable, I thought the more interesting statement came from the head of B-Lab (the organization that issues the B-certification) commenting on the lack of resistance Natura faced from institutional investors when it announced the move:
"Jay Coen Gilbert, co-founder of B Lab, the non-profit company that began the B Corp movement, said the lack of resistance from Natura's institutional investors was a major breakthrough.
'The investors found it a non-issue as it was not a material change from how Natura was already operating,' he said."
I think this begs the question: If the change involved no material difference, why was it necessary? I understand there is symbolic value in announcing to the world that you intend to operate your business in the interests of a broad range of stakeholders, but I also think you do not need any change in legal structure or external certification in order to do so. In other words, Natura's investors already knew that was the way the firm operates and they invested with that knowledge. Gaining external validation of that operating structure did not ruffle any feathers because the way they were operating was completely acceptable (and accepted) within existing operating practices of the for-profit corporation.
My limited knowledge of corporate law tells me that B-Lab (whether lobbying for the change in legal structure or issuing the B-corp certification) is unnecessary (Chapter 8; Case-study: Benefit Corporations, p497). The non-profit pitches its services as a means of avoiding lawsuits in the event that shareholders feel the firm is not being operated in their interests. However, corporations make decisions to that effect all day, every day. To my knowledge, nothing in current law prevents the firm from operating in the interests of all of its stakeholders. By definition, all firms already do – it is how they employ employees at acceptable wage rates, how they make products consumers want, how they abide by government laws, how they have productive relations with suppliers and distributors, and so on and so on.
In short, firms add value (i.e., become profitable) by operating in the interests of their broad range of stakeholders. No legal change or external certification is necessary for them to continue doing so. At best, B-Lab is a waste of time and resources; at worst, it is a distraction that clouds the real issues – ensuring firms make decisions to optimize the relationships in which they are already fully engaged.
Take care
David Chandler & Bill Werther
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Will Unilever become the world's largest publicly traded B corp?
By Jo Confino
January 23, 2015
Guardian Sustainable Business