Since the Industrial Revolution, corporations have been responsible for some of the greatest injustices – from pollution to wage slavery to war – in the name of profit. In 1970, American economist and Nobel laureate Milton Friedman famously said, “the Social Responsibility of Business is to increase its Profits.” That statement has been widely criticized as justifying these extractive and exploitative business practices. In 1994, British entrepreneur John Elkington redefined corporate responsibility with the Triple Bottom Line: businesses are not only responsible to shareholders but also for their economic, social, and environmental impact on society. A growing number of entrepreneurs and CEOs are rethinking what kind of legacy they will leave as they shift their priorities from shareholders to stakeholders. Thirty-five states including New Mexico have adopted benefit corporation legislation to protect business operators who value their impact as much as their profits. Over 4000 Certified B Corps have been recognized for their commitment to the highest standards of social and environmental responsibility.
During the Fall 2022 semester, I participated in UNM’s Business For Good Clinic. The goals of the 16-week course were to teach students how businesses can be used for positive social, environmental, and economic change and bring students and local companies together to improve their impact through the B Impact Assessment (BIA). During the classes, we learned skills to help us with our semester project such as team dynamics and measuring corporate responsibility. There was plenty of time after each lecture to engage in thoughtful discussions about the topics.
My team worked with TruFit Adaptive Fitness whose mission is to make fitness more accessible to people with physical disabilities. This project gave us first-hand experience with the B Corp certification process. A business must score 80 or more points in the BIA to achieve Certified B Corp status. We learned how businesses must approach the BIA differently to maximize their points. For example, using 100% renewable energy is worth 0.33 points while donating 12.5% or more of your revenues is worth 12.63 points. We were able to help TruFit focus on areas where they could have an impact like relative job growth and hiring underrepresented people because they are a small and growing company. On the other hand, there are fewer opportunities for them to score points in the Environment section because they have no manufacturing and little consumption. The good news is that the BIA is continuously being evaluated and improved to be more equitable so that businesses can be rewarded for having a more diverse impact.
The class also included guest speakers from local B Corps who gave us their perspectives on B Corp certification, lessons learned in achieving it, and where they are headed in their journey to do good. Each speaker focused on a different impact area: governance, workers, community, environment, and customers. They provided insights into challenges and opportunities to be a business for good like providing workforce housing assistance, waste reduction programs, identifying responsible suppliers, engaging with lawmakers to shape policy for good, measuring performance, and developing processes to gather and maintain institutional knowledge.
One speaker – Sam Wolf from Falling Colors – especially helped me to understand a fundamental criticism of free market capitalism: Corporations fail to account for their economic, social, and environmental impact. For example, a company saves money by using a manufacturing process that emits more greenhouse gases, but it doesn’t know how much it affects farmers’ crops a continent away. A company may pay substandard wages while the welfare system picks up the slack. While these may seem like obvious injustices, others can be more insidious. In my community, a federal contractor enjoys a seemingly unconstrained budget to create new jobs. So what’s wrong with more employment? These jobs compete with local small businesses for workers. Why wait tables or build houses when you can get paid more sitting at a desk doing bureaucratic busy work? The result is a company town devoid of business diversity. This is not in the long-term interests of the company because workers who produce value for the company will move to communities where local business diversity offers a better quality of life.
As Alex Edmans notes, the problem is many of today’s corporate leaders – and those in government that are supposed to hold them accountable – practice the narrow-minded version of Friedman doctrine. That is, they sacrifice the long-term futures of stakeholders at large for smaller, short-term gains of the shareholders. There is another interpretation of Friedman’s statement that long-term profits depend on long-term positive community impact. As Ryan Honeyman notes in the B Corp Handbook, “governments and nonprofits are insufficient to address society’s greatest challenges.” Government moves too slowly, and nonprofits are limited financially. Businesses must work with their communities to ensure prosperity for all. For that to happen, we need an immediate and drastic change in leadership to those who will press forward with reinventing business as a force for good. Consumers must also support these community-minded businesses with their wallets. The post-COVID economic crisis makes that especially challenging, but also more necessary than ever that we abandon consumption-led, wealth-concentrating business models.
The final lesson I learned is that while doing business for good is a virtuous path, it is also long, difficult, and sometimes messy. B Lab has been criticized for its opaque self-regulation and controversial certifications. Critics have also said that B Lab needs to do more to ensure B Corps are doing good holistically. However, it is a relatively young movement and there will be growing pains as we all figure this out. As long as the B Economy continues to grow and hold itself accountable to do better, I believe we have a fighting chance to get out of the hole our corporate predecessors dug for us.
I’ll be presenting on the topics of this article at the Rotary Club meeting on Tuesday, January 24, 2023 at 12:00 PM in the Cottonwood on the Greens community meeting room (4290 Diamond Drive). [Zoom link]