When corporations work to also do good

The traditional and outdated view that a corporation’s purpose is to maximise profits is, at best, severely limiting. At worst, it is severely destructive. This is why it is encouraging to see leading entrepreneurs using the power of business to solve social and environment problems.

This shift marks the coming home of capitalism, where business is returning to its proper role in society to create a shared and durable prosperity. There are several ways to support such enlightened entrepreneurs, namely certification, benefit corporation legislation and analytics.

Certification can be provided for companies that meet the highest standards of social and environment performance, accountability and transparency. This helps companies to build their most important asset —trust — which can in turn attract customers, talented employees and capital. It also helps certified companies distinguish themselves from other companies that make similar claims, but may not actually behave as they advertise.

An example of this is B Corporation certification by B Lab. There are currently more than 1,000 Certified B Corporations, from more than 35 countries across 120 industries, all working together towards one unifying goal: To redefine success in business. These include well-known brands such as Ben & Jerry’s, Patagonia, Etsy and Method Products. While there are currently no B Corps in Singapore, they can be found throughout Asia — in China, Hong Kong, South Korea, Mongolia, Taiwan and Vietnam.

Entrepreneurs face various hurdles in running their business, especially for those determined to address society’s greatest challenges at the same time.

To address this growing group’s needs, new laws have been passed in 26 states in the United States to create a new corporate form, the benefit corporation. Historically, the sole duty of the corporation is to maximise shareholder value. For example, in a liquidation scenario, previous laws state that the director is required to “take the highest offer” regardless of the impact this decision may have on other non-financial interests. However, benefit corporations must meet higher standards of purpose, accountability and transparency.

This is because benefit corporations have a corporate purpose to create a positive impact on society and the environment. They are required to consider their decisions’ impact not only on shareholders, but also on workers, the community and the environment. Benefit corporations are also required to make an annual benefit report publicly available that assesses their overall social and environmental performance against a third-party standard.

This new legal structure helps as business leaders have a new freedom to make decisions that are in the best interests of society, as well as their bottom line. It also means that the rest of us — customers, employees, investors, policymakers and society — have the tools to identify these companies and support them.

The final piece of the puzzle is for governments, non-profits and businesses to support the growing class of impact investors — those making investments with the intention to generate social or environmental impact alongside a financial return. This is done by offering tools to make the process of measuring social impact easier and more meaningful. The Global Impact Investing Network, for example, has established a common set of impact definitions called IRIS, allowing impact investors to more easily compare funds and speak a common language.

USE BUSINESS AS A FORCE FOR GOOD

Consumers are increasingly more willing to support brands that take steps towards building a better world. Last year’s Cone Communications Social Impact Study indicated that where price and quality are equal, 89 per cent of consumers would switch from their current brand to a brand that is socially responsible.

There is also an increase in the number of impact investors, who are interested in understanding how their investments serve a higher purpose. The increased transparency required by benefit corporations, and the growing database and analytical tools, reduces investor’s risk and allows comparability, further helping impact investing to grow.

It is not only the consumers and investors who show a preference for supporting “good companies”. Today’s best talents echo this demand. The next generation of employees want more than only a salary; they want to work for the right purpose. A Brooking Institute report found that in the US, almost two-thirds (64 per cent) of millennials said they would rather make US$40,000 a year at a job they love, than US$100,000 a year at a job they think is boring.

In addition to providing purpose, benefit corporations generally offer more to their employees, including better benefits, a vibrant working environment, family-friendly and fair working conditions and motivating rewards.

There has never been a better time to join the Business As A Force For Good movement. By looking beyond only profits, everyone will be able to build the next generation of world-class businesses and create shared, durable prosperity for all.

While every individual and company must find the path that is right for them, to attract the best talent, develop trust with customers and build a company to last, businesses must start measuring and managing their impact.

ABOUT THE AUTHOR:

Bart Houlahan is the co-founder of B Lab, a non-profit serving a global movement of entrepreneurs using the power of business to solve social and environmental problems. On Dec 8, he will speak at the forum Business, A Force For Good, organised by NUS Enterprise and Family Business Network Asia.