Andrew Kassoy is one of the three founders of B-Lab. Here, in the concluding article from our B Corp journal he argues why half a century of shareholder primacy is at an end.
FIFTY YEARS AGO, THIS YEAR ON SEPTEMBER 13, 1970, THE NEW YORK TIMES PUBLISHED MILTON FRIEDMAN’S SEMINAL ESSAY ENSHRINING THE DOCTRINE OF SHAREHOLDER PRIMACY – CONFIRMING THAT BUSINESS SHOULD SOLELY CONCERN ITSELF WITH MAXIMIZING PROFITS, WITH THE ASSUMPTION THE MARKET WOULD TAKE CARE OF ALL OTHER STAKEHOLDERS.
FIFTY YEARS LATER, IT’S TIME FOR A CHANGE.
As a counter, this September B Corp launched a new coalition called Imperative 21. The group is made up of many other networks of business and capital markets that want to see a fundamental economic systems change.
We helped form the group because we believe that we can collectively carry a more powerful argument for stakeholder capitalism together.
That collective, unified voice is what B Lab was built on all those years ago, and will continue to build on in the coming decades.
Myself, Bart Houlahan and Jay Coen Gilbert had been friends since high school and over the course of our different careers – as entrepreneurs, operators and investors – had witnessed the same thing.
Despite business having an enormous capacity to attract capital and talent, and therefore the means to solve some of the biggest social and environmental problems that we face, it wasn’t. In many cases, it was actually causing them.
We knew the structures and systems the private sector had come to rely on didn’t work for the challenges we faced as a society anymore.
It was time for a Capitalism reset.
The incentives and purpose of business, set by culture and law (and most notably Milton Friedman), was to maximise value for shareholders. Not to create value for society. This was a significant impediment to a large number of entrepreneurs we knew interested in social purpose who were hitting unnecessary obstacles.
The market just wasn’t built for them.
After hearing the same story over and over, we realised we needed a systems change, not simply individual businesses behaving heroically. We founded B Lab back in 2006 to build a market infrastructure and rulebook that would allow us to have a different economic system – one that was inclusive, equitable and regenerative for all.
On a practical level, there wasn’t a roadmap to do business in a different way, or an easy way to identify what is a good company for people and planet. In a world where all companies claim to be good and where green-washing is rampant, we knew the best way for a business to make a long-term commitment to be accountable to all of its stakeholders was through certification: B Corporation.
Initial reactions ranged from extremely sceptical to a patronising pat on the head. For a few however, there was real excitement and desire to travel in the same direction.
In our first year, 80 companies signed up to be founding B Corporations. It was an act of leadership, saying ‘we’re in’, without knowing what they were in for…They were willing to take a lead, even if the brand had no value at the time.
Now, we’re a global movement writing purpose-built corporate statutes in multiple US states and countries, allowing companies to consider all of their stakeholders, not just their shareholders.
B Corporation communities have cropped up all over the world – from Latin America to Europe, East Africa to Asia – with leaders wanting to adopt these principles in their own local context.
The last several months have been particularly momentous for us.
In the wake of Covid-19 and the global uprising around racial equity, we’ve seen some amazing actions from companies in the public market. Whether it is the CEO of Danone, Emmanuel Faber, announcing that its French arm intends to establish stakeholder governance, or the venture capital funded insurance firm Lemonade securing 2020’s most successful IPO with B Corp legal governance in place, we’re seeing investors and business serious about accountability.
Now we’re focused on building a community across the globe that is inclusive and diverse in a time where we know the impact of Covid-19 and other issues such as police violence has been disproportionate on BAME communities and businesses.
We worried that the pandemic would lead to a period of retrenchment, of businesses simply trying to survive. What’s been incredible, and speaks to the power of the movement, is that the number of submissions to be certified has gone up across the board, from both big and small companies.
We live in a world where we play multiple roles. We’re consumers, workers, entrepreneurs and for some through their retirement plan, investors. In every one of those positions we can put pressure on the companies we engage with to act responsibly.
This Journal has been a wonderful opportunity to shine a light on the practical steps needed to behave as such, and I hope, an illustration of how we can create value differently.