Where We’re Headed - Bart Houlahan at the 2012 Social Finance Forum
On November 8th and 9th 2012, hundreds of entrepreneurs, along with members of the corporate, non-profit and academic communities gathered at the fifth annual Social Finance Forum in Toronto. Hosted by the MaRS Centre for Impact Investing, the sold out event featured numerous presentations, workshops and networking sessions aimed at examining the current opportunities and challenges surrounding impact measurement. Day 2 of the Forum kicked off with a compelling opening address by Bart Houlahan, founder of B Lab, the non-profit behind the thriving B Corporation movement and the Global Impact Investing Ratings System (GIIRS). Bart began by reflecting on his time as President of And1, the socially conscious basketball goods company that he led throughout the 1990’s, and how its ownership succession inspired the creation of the B Corp certification.
While at the helm, Bart helped transform And1 into a company with over $200 million in annual revenues, and the second largest market share for basketball shoes at its peak in 2001. And1 was dedicated to serving its stakeholders, where the company donated 10% of its profits to charities and placed a strong emphasis on employee engagement and the environment. Yet, when the company was sold in 2005, its new owners were not as committed to the And1’s culture or social values. Naturally, this drove many of And1’s employees to leave the company, while market value suffered significantly. Though Bart tried to enforce the company’s social mission after it was sold, he discovered that legal barriers made it difficult for a company’s social values to persevere following the succession of ownership.
These legal impediments, combined with a lack of standards to measure what companies were doing to be sustainable, led to the launch of B Lab in 2007. Five years later, 8,000 organizations from 60 different industries around the world have taken the B Impact Assessment, while 650 of them have become Certified B-Corps. In addition, benefit corporation legislation has been passed in twelve states, providing organizations with the legal protection needed to focus their efforts on more than just shareholder value. Despite the polarized political state of the US, benefit corporation legislation passed with bipartisan support in each of the twelve states.
As the B-Corp certification gains more traction, Bart hopes that municipal and state governments begin taking additional steps to create additional incentives for organizations to become benefit corporations. While many governments have refrained from offering tax benefits for fear of political backlash, Philadelphia has begun offering a $4,000 tax break to benefit corporations. San Francisco is also paving the way by serving as the first city to adopt procurement policies in support of benefit corporations. In San Francisco, benefit corporations receive a 10% bonus in scoring when competing for government contracts.
North of the border, 54 organizations across Canada have become Certified B Corps, representing the greatest number outside of the US. Though impressive, the growth of Canadian B Corps remains constrained by the fact that no legislation has been established to create a new type of corporate legal structure such as the benefit corporation. As such, similar to the challenges experienced by And1, becoming a Certified B Corp in Canada does not guarantee that a company’s commitment to all of its shareholders will be sustained during management or ownership succession. As a result, a handful of Canadian organizations have had to forego their B Corp status in order to scale their business through outside investment.
As Bart concluded that we have arrived at a point where a business can no longer be defined solely by its bottom line, I couldn’t help but feel that this notion was somewhat premature. While B Lab’s current strategy is to scale the number of companies becoming Certified B Corps, their ability to do so is contingent upon a company registering as a benefit corporation. Any US company that wants to become a Certified B Corp would have to alter its articles of incorporation to become a benefit corporation, and legally declare a commitment to consider the interests of its stakeholders, as opposed to just shareholders. Management does not have the power to make these changes without the approval of the company’s owners, namely shareholders. As such, noticeably absent from the list of Certified B Corps are Fortune 500 Companies, or any publicly traded US company for that matter. (However, Bart mentioned that he could 'almost guarantee' that we would see the first publicly traded B Corp in 2013.)
This leaves start-ups and small businesses as the only markets eligible for B Corp certification. While these two groups may represent a large component of the labour force, their proportion of GDP relative to publicly traded companies is insignificant. Without the political and economic influence that large corporations can leverage, B Lab’s quest to harness the private sector for public benefit at a rapid pace is limited for the time being. Nonetheless, B Lab has emerged as an invaluable resource for the growing number of social enterprises, a group whose path to transforming the global economy is only just beginning.