23 Jan 2014

Are B-Corps a waste of time?

"B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency." They pursue what's often called the triple bottom line (people-planet-profit).

I've thought about these for awhile, and think they are vulnerable to wobbly vision, since they have to maximize three objectives. I'd prefer that they stuck with the old goal (maximize profits*) while leaving social and environmental targeting/constraints/management to individuals, non-profits and government.**

Even allowing for three goals, I have other questions:
  • It's not clear WHEN they are non-profits or just advertising virtue to make more profits
  • How does one weigh cash against other qualified outcomes?
  • What happens when stellar environmental performance comes with heavy cash losses?
  • Can "legacy industries" be B-Corps (e.g., tobacco firms) or are they not "progressive" enough?
  • What happens if activists set performance standards (e.g., vegan food only) that do not match social norms?
  • Is it harder to track three indicators and goals when their weights are in flux, socially?
  • Are B-Corps vulnerable to inertia, with "tradition" defended as socially optimal for workers?
  • Can defense or oil firms be B-Corps? If they give more to the environment than recycled shoe makers?
Bottom Line: You can have as many goals as you want, as long as you can keep them predictably balanced.

* Maximizing profits is not the explicit goal; serving shareholders is the obligation. Most shareholders want to maximize profits (Milton Friedman explained why), but they COULD agree to pursue B-Corp goals. Does that mean that the market has already spoken and found B-Corps lacking? Or have times changed? I doubt it when I look look at how so many people are eager to learn how to make easy money from the Wolf of Wall Street. (They line up to pay $1,000 to a convicted criminal and acknowledged liar and fraud who stole $100 million from people; ironic that they don't want to know an ex-felon responsible for a stolen car.)

** Fixed weights/ratios would return them to a single-optimization goal but leave them vulnerable to focussing on the wrong, rigid mix of weighted goals.

H/T to CD


Anonymous said...

I just read your b-corp blog and thought you slammed them pretty thoroughly. They do offer a checklist to help companies think about a more holistic way of managing, which broadens their horizons past their immediate corporate boundaries. I think that can be useful.

AF said...

Some replies from Andy Fyfe, of BLab (bcorporation.net)

- Non-profits can't certify.

- B Corps do a good job of balancing their bottom lines and ensuring their cash revenues are sustainable enough to continue their social and environmental commitments. Many B Corps actually save money through certification.

- There are some industries we do not certify, including the tobacco industry.

Other questions are much broader and I wouldn't say B Corp represents this entire contingent. There are many companies out there balancing the triple bottom line that are not B Corp certified. Yet, continued studies are showing that B Corps are achieving higher sales, having better survival rates through the recession, and are retaining engaged employees, among other facts.

David Zetland said...

@Andy -- Thanks for the replies. I'd worry about survivor/self-selection bias, i.e., the companies that go for B-Corp already have strong market share, employee retention, etc. The only way to know if B-Corp is really helpful in terms of clarifying goals, etc. would be to randomly separate a large number of corps into B- and C-Corp status and then observe results. Until then, it's just anecdotes...

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