Can a Company be Good and still make a Profit?

This is a forum that has been set up so that members can send any interesting ideas and issues that they have come across in their wider readings or professional life, which they may wish to share with other members. Please send any links to interesting articles, or your own contributions to ontarget@cmawebline.org.

Professor Janek Ratnatunga, ICMA CEO kicks-off the discussion with an interesting new structure of a company that now has legal status in the USA.

By Prof Janek Ratnatunga

Prof. Janek Ratnatunga, CEO, ICMA Australia
Prof. Janek Ratnatunga, CEO, ICMA Australia

I would like to point CMA members to an excellent article by Bill Saporito in the TIME magazine titled “Making Good, Plus a Profit: A new type of company lures activist entrepreneurs”.[i]

Saporito talks of companies that are becoming B Corporations, short for “benefit corporation.” This fast-growing business structure reorders the traditional hierarchy, which dictates that investor returns must come first. In B corporations, profits still matter, but employees, suppliers, the community and the environment can be on equal footing with owners or shareholders.

B Corp companies represent a genre of capitalism whose mission includes attacking social and environmental problems. “Consumers, investors, entrepreneurs and policymakers have recognized that business is the most powerful man-made force on the planet and it can be used as a powerful force for good,” argues Jay Coen Gilbert, a former sneaker entrepreneur and a co-founder of B Lab, a nonprofit that certifies benefit corporations. “It can marshal talent and resources at scale and with speed unlike other sectors.”

For example, in Oregon USA, a company called A to Z wineworks became a B in 2014. For A to Z, being a B means that the grape growers it contracts with are guaranteed fair prices in both good years and bad; and that its distributors aren’t squeezed for every last penny. Employees are paid 43% over the local living wage, and the business is run on a sustainable basis. And yes, A to Z is profitable; this year it will produce 365,000 cases of wine.

Saporito says that unlike most for-profit corporations, called S corporations in the USA, a B Corp is not structured for a particular type of tax treatment; instead, the label is more analogous to a food producer’s organic certification. While the idea of socially focused companies certainly isn’t new, the fact that there’s now a legal structure backing the concept (in the USA) makes it more attractive. There are more than 1,200 certified B Corp entities, the majority in the U.S. They are regulated in 26 states, the latest being New Hampshire and Delaware. The blessing of Delaware, the legal home of many large U.S. corporations, is the most vital endorsement yet for making benefit corporations mainstream. Legislation is pending in 10 other states. Members range from large outfits such as Plum Organics (baby food) and Method (cleaning products) to utility Green Mountain Power of Vermont.

Can an electric utility become a B Corp? Yes, says Saporito, because the company, a wholly owned subsidiary of Canada’s Gaz Métro, generates most of its power with renewable energy such as hydroelectric and wind power. Green Mountain gets no credit for the 38% of its power generated by nuclear and fossil fuels. But it ticks other boxes: it pays more than 25% above the living wage and covers 80% of employee health care premiums. In a male-dominated industry, more than 25% of its managers are women or minorities. Workers also get paid hours to do volunteer work in their communities.

B Corp owners say their status is a competitive edge. “We’re really after a niche,” says Deb Hatcher, a co-founder and the head of marketing and sales at A to Z. “After Sideways [a film that romanticized pinot noir (a red wine)]; it’s become quite a crowded field. We see ourselves as leaders. We want to model best practices.” A to Z believes, for instance, that if it can train its grape suppliers to become sustainable growers, it will improve their soil, the environment will benefit, and the company will get higher-quality fruit.

But becoming a B Lab–certified benefit corporation isn’t simple, says Saporito. Companies seeking the status must undergo annual audits for B-worthiness in areas like governance, employment practices, community performance and environmental stewardship, measured on a 200-point scale. A to Z scored high on community performance and environment, less high on governance. Companies must score a minimum of 80 to qualify. This can further complicate the process and costs of starting and running a small firm.

Still, entrepreneurs say B status is about more than how they market themselves. It keeps them honest. Consider Biomimicry 3.8, which helps Fortune 500 companies create products based on nature’s designs–for instance, a carpet tile with a pattern that mimics the forest floor, making the replacement of worn tiles unnoticeable. Managing director Nicole Hagerman Miller says undertaking the annual B Corp audit keeps her company on mission. “It does hold us true to this commitment. It helps us go further, even though we feel we’re progressive.”

[i] Bill Saporito (2015), “Making Good, Plus a Profit: A new type of company lures activist entrepreneurs”, TIME magazine, Briefing- Business, March 23, p.12