Revitalizing capitalism: B Corps and accountability - Activate World

Revitalizing capitalism: B Corps and accountability



b corps revitalizing capitalism

Jay Coen Gilbert, Co-Founder, Managing Partner, B Lab, Forbes contributor

Jay Coen Gilbert writes about culture shift to redefine success in business, the impediments in our way, and the leaders that remove and overcome them. Co-founded and sold AND 1, a $250M basketball footwear and apparel company based outside Philadelphia. Jay led AND 1’s product and marketing for almost 13 years and was the company’s CEO during its period of most rapid growth.


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Season 1, Episode 5:

The benefit corporation form was first created in Maryland in 2010. Later, Conscious Capitalism became a movement based on a 2013 book co-authored by John Mackey, CEO of Whole Foods. Together, capitalism and business models require more than just maximizing shareholder value. Senator Elizabeth Warren has recently proposed new legislation on accountable capitalism that will present new opportunities and challenges for business leadership.

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Transcript

Revitalizing Capitalism: B Corps and Accountability

Jay Coen Gilbert, Co-Founder, Managing Partner, B Lab, Forbes contributor

Season 1, Episode 5 Transcript

Jon:                00:02          Welcome to the Activate World Podcast, a series on how business leaders have more power to solve societal issues than any elected official. We explore business activism with substance and depth of thought.

Jon:                00:17          We’re excited to have Jay Coen Gilbert with us today. He is the co-founder of B Lab and the movement of Certified B Corporations. Welcome Jay, to the Activate World Podcast. Give us a little more insight into your background.

Jay:                00:30          Sure. Thanks so much for having me, Jon. I appreciate it. I started B Lab with two college buddies after a career in the private sector. We founded a non-profit called B Lab, which supports this global movement of people trying to use business as a force for good. As you mentioned, the centerpiece of that movement is this community of Certified B Corporations, and that community’s been around for about a dozen years now. There are now tens of thousands of businesses around the world following the lead of these Certified B Corps looking to redefine success in business. It’s about not just being the best in the world, but being the best for the world.

Jon:                01:17          What a great way that’s unfolded. As you started to look at those options, what got you interested in this mission to improve business and capitalism?

Jay:                01:24          Great question. I guess each of us had a different path, but all of us sort of arrive for different reasons at the same conclusion, which is business is one of if not the most powerful manmade forces on the planet. As both government and non-profit or civil society, NGOs, are necessary but they’re insufficient to solve our most intractable problems. Whether you’re concerned about inequality or climate, water, soil, the affects of automation, the future of work, etc, at the center of all those things is going to be the relationship of business to society. What seemed to us to have happened over the last generation or so, is that we collectively … all of us including literally ourselves, kind of lost our way a little bit. We started seeing society in how it could serve the interests of business, and how our politics could serve the interests of business, as opposed to how business could serve the interests of society.

Jay:                02:35          We were called to see how we could support those entrepreneurs. Like you mentioned when we were talking just before we started, a growing number of citizens around the world, whether they’re millennials or boomers, who are all pretty fed up with a system that feels rigged against them. That both feels like and in fact is hardwired not to really care about them. That misalignment of the core operating system of capitalism with the core desires of us as human beings to lead fulfilling lives, to have work with dignity, to contribute to something bigger than ourselves … All of those core, innate motivations aren’t really being met in an economy that’s focused on maximizing shareholder value and increasingly, that in short term time frames.

Jon:                03:30          What do you see as the similarities and differences between Conscious Capitalism, benefit corporations, and the Certified B Corporations movement.

Jay:                03:37          That’s a great question. All of those different things are really all part of one global movement of people using business as a force for good. They’re each of those different sort of parts of the ecosystem. They may be focused on a particular industry or a particular impact, whether it’s environment or local or social justice, but they’re all united by this common vision that we can use the power of markets to serve the public interest. That those things don’t have to mutually exclusive.

Jay:                04:11          When I think about conscious capitalism and B Corp specifically, I think that one of the co-founders and current board members of Conscious Capitalism, a guy named Raj Sisodia … Professor formerly at Harvard business school, I’m not sure where he is now. He said every B Corp is a conscious Capitalist. We Conscious Capitalism and B Corp are really symbiotic and complimentary, is B Corp puts the theory of Conscious Capitalism into practice and gives people concrete tools whether they are management tools like the B Impact Assessment that help people measure and manage and improve their impact with as much rigor as their profits, or whether it’s governance tools, like stakeholder governance tools, like the Benefit Corporation legal structure that you mentioned before.

Jon:                05:02          Yeah. It seems like B Lab assessments put the teeth in Conscious Capitalism to a certain degree, at least in providing a framework to see how companies are doing as well as holding them accountable and making them more transparent. Do you agree with that?

Jay:                05:15          Yeah, 100%. One way to think about it is Conscious Capitalism gives the movement wings. B Corp makes sure that we’re putting one foot in front of the other. Like as you said, making measurable, credible, transparent progress on our journey. Once you get inspired by that vision of Conscious Capitalism, the question that many people ask is, “Great, now what? What do I do tomorrow?”

Jon:                05:41          Right.

Jay:                05:43          That’s where B Corp comes in with the tools like the B Impact Assessment. Our job is to use that Impact Assessment to ask thoughtful questions that create a space for the people in those companies, the Conscious Capitalists themselves. They’re the ones that have to answer the questions, and then when they answer those questions, there’s now a common yardstick that they all can use to measure their progress. Not just against their own expectations, but against the performance of others, so they can get a sense for how they benchmark against other people who’ve got similar values and are taking similar actions.

Jay:                06:19          For sure, this is about the journey, not the destination. No company is a perfect company. No B Corp is a perfect company. The great worker-owned cooperative may not have the greatest environmental practices, or the greatest cradle-to-cradle circular economy … business may not be the greatest place to work for low-wage workers. No one does everything perfectly, and our job is to sort of widen the aperture on everybody’s lens so they’re seeing the whole business. Then we’re sharing with them questions around each of those areas, community, workers, environments, supply chain, so they can improve on each of those areas at the speed that makes sense for them.

Jon:                07:01          There’s another layer that’s starting to percolate. Senator Elizabeth Warren has introduced the Cannibal Capitalism act. You had highlighted there’s some similarities between the proposed legislation and Benefit Corporations. There’s been bipartisan support of Benefit Corporations through some of the State activities. What are your thoughts on how this conversation will continue to unfold?

Jay:                07:22          Yeah, it’s a great question. As you mentioned, Benefit Corporation legislation has been passed in 34 states. In those 34 states, there were 30 different unanimous votes by legislators either in the State house or the State Senate. Amazing bipartisan support. It was signed into law by 16 Republican Governors, including Vice President Mike Pence when he was in Indiana. The range of support, from different ends of the ideological spectrum, is about as broad level of support as any legislation can get.

Jay:                08:03          Senator Warren sort of recognized that and felt like she’d like to accelerate adoption for this new form of corporation governance that creates more accountability of business to take into consideration the needs of ordinary people and our favorite places. I think what’s interesting is the core part of her legislation basically says, big businesses should become benefit corps. It then adds some other things that are a bit more prescriptive around selling of stock and transparency around political contributions and worker representation on boards, that go further and are more prescriptive than anything in any of the Benefit Corp legislation.

Jay:                08:47          The core piece of her legislation is that those big companies should adopt this form of corporate governance. On that part, we obviously think that she’s right. That it’s a better way to do business, often better for people’s bottom lines but always better for ordinary people and the communities that we care about. That’s ultimately what’s more important. Certainly we think that’s more important. The thousands of business leaders that are part of the B Economy think that’s more important, and bipartisan legislators, policymakers think that’s most important.

Jay:                09:21          I think there’ll end up being a pretty robust debate about whether or not the more market-based solution that the states have adopted should have voluntary opt-in statutes, or the more regulatory approach that Senator Warren is advocating, that would require large companies to adopt that form of governance. I think that’s a really important public policy debate for citizens and policymakers to have.

Jon:                09:47          Are we at a tipping point with capitalism?

Jay:                09:49          I think there’s an awfully long way to go.

Jon:                09:52          Right.

Jay:                09:53          You can look at different social movements throughout history around the world and certainly in the US, and those things take decades, not quarters. I do think that we’re at an inflection point. I’m not sure I’d say we’re at tipping point, yet.

Jon:                10:10          Right, right.

Jay:                10:11          I do think we’re at an inflection point where this idea of Accountable Capitalism, Conscious Capitalism, whatever people want to call is, Business for Good, that’s an inflection point where that is now … there’s consensus that that’s what we’re looking for. That’s what we’re all seeking. Then I think over the next years and decade, we’ll align on the how. B Corps and Benefit Corps Governance are one manifestation of that. There’ll be others and hopefully they’ll be better versions.

Jay:                10:43          The only other thing I’d sort of mention there Jon, is if we want Capitalism that works for everybody, then adopting a longer-term approach is going to be much healthier than a short term approach. As Larry Fink and lots of others have said, healthier not only for society but for the economy and company’s bottom lines.

Jay:                11:02          What’s interesting about the B Corp movement is it’s actually having a much more … It’s asking a much more fundamental question, which is not about short term … not only, I should say, about short term versus long term, but about ends versus means, and ultimately what is the purpose of business. Within Larry Fink‘s framing of the issue and most other capital markets leaders’ focus of the issue, the frame is still about long term shareholder value. What B Corps is saying, is that our objective is long term stakeholder value. Long term value for society. Business exist to serve society, society does not exist to serve shareholders. Whether it’s over the long term or not.

Jay:                11:50          The fundamental shift in mindset is a fundamental shift in the purpose of the corporation and the purpose of business, which is, we should use profits to fuel our purpose. Not exist to generate profits. That culture shift, we think is why B Corps have been incredibly attractive to people around the world, of all generations, but particularly to millennial who say in study after study after study, that they don’t trust business and particularly big business, because they don’t believe that it has their interests at heart.

Jon:                12:30          Do you have some thoughts on how CEO Activism plays into this movement of improving Capitalism?

Jay:                12:36          Yeah. I think that there are companies like Ben & Jerry’s or Patagonia or New Belgium Brewing, Seventh Generation, that have for years and years, or in some cases decades, been lifting their voices and saying, “We care about justice and so we’re using our business as a platform to talk to people about that.” Or, “We care about the environment or public lands, and we’re using our business as a platform to talk about that.” That’s incredibly powerful.

Jay:                13:09          It’s sort of like, it’s a nice, perhaps even necessary first step, but insufficient to create the kind of change that we really want to see in the world. It’s not just about changing a travel policy to not go places that feel inhospitable, but it may also be about what are our internal practices about parental leave or flex time or pay equity. It’s about how the company … what the company’s practices are overall, and ultimately how those practices align with the underlying governance.

Jay:                13:44          If the governance of the corporation is misaligned with those CEO Activist pronouncements, or even those one-off business practices, they’re not going to last long. In a down cycle or in a tough market or whatever it might be, or when there’s a change of leadership or a change in the public attention span around that issue, the focus may move elsewhere. If it’s baked into the governing DNA of the company, then it becomes a legal obligation of the company, and so I think the CEO Activism is absolutely welcome, because often what you say publicly becomes a form of accountability. That’s a great thing. We think of that as, “We’re so psyched you’re here, and let’s take the next step together.”

Jon:                14:32          I was reading through your Declaration of Interdependence, and one of the points is that businesses should aspire to do no harm and benefit all. Google had something similar in their early days, and that’s been modified through time. How do you view that ideal of do no harm?

Jay:                14:49          Yeah, it’s funny. Think of it like the Hippocratic Oath of business. The first thing that a doctor’s supposed to do is just make sure they don’t hurt the patient.

Jon:                15:00          Right.

Jay:                15:01          In some ways, that starting point seems like a good place to start for business, is let’s make sure we don’t hurt the people that we work with or the communities that we’re a part of, or the natural environment on which our life depends. Obviously no business does no harm. Even Patagonia would tell you that. They’d say, “There is no sustainable business. We’re just trying to be as responsible as we can.” I think that, like that level of honesty and candor is much more powerful than sort of empty platitudes about win-win situations for everybody. There are times when it’s appropriate to make a decision that says, “You know what, this wouldn’t maximize my quarterly or my annual returns, but this is the right decision for the people who work here.” Or in the company that I used to be a part of, And One, the basketball footwear company, we paid more in costs of goods sold, our FOB landing cost for our shoes is higher because we had audited factory code of conducts to make sure that the ten thousand young women that were working in our factories were paid fairly for their work, and they were working in safe, well-ventilated, well-lit conditions. When they were working extra hours, they were getting paid time and a half or double time, whatever it was.

Jay:                16:19          All of those things cost real money and we could have sold shoes for the same price and made a little bit more margin, but we did just fine. We ran a profitable business, it was successful enough that we could sell it and have a great success story that set up us and lots of others with beautiful windfall profits that made a huge difference in our lives and the lives of other people. That meant the people that worked at And One were really proud and loyal. The people that worked with us had deep relationships with us. They weren’t just transactions, which meant that if we got into trouble or a hiccup, they were willing to stand by us.

Jay:                16:57          There’s plenty of business case for doing this, but the core reason was we wanted to look ourselves in the mirror and feel proud of the place we worked. That meant proud of the way we treated people.

Jon:                17:07          What’s the biggest problem facing Capitalism?

Jay:                17:09          The capital markets.

Jon:                17:11          Okay, so the investing side of things?

Jay:                17:14          Where there’s the biggest misalignment is between the core interests of people and the interests of capital. Right now, there is so much weight given to the needs of capital, that their needs are overwhelming the needs of everyone else. At the core of what we’re trying to do is to overturn this concept of shareholder primacy, this idea that the most important person in the room is the shareholder. They’re important, but they ought to be one of the people whose needs are being met, not the only person whose needs are being met.

Jon:                17:53          Right. The next question is, what’s the biggest challenge facing B Corp?

Jay:                17:56          Arguably the same answer. Slightly differently would be, we’ve gotten so much interest from large multinationals because of the traction that B Corp has gotten around the world with small disruptive innovative businesses in hundreds of industries. We’re starting to get the attention of large multinationals and we’ve got to evolve our standards so that they are appropriate for measuring the impact of huge sprawling multinationals. We’re in the middle of a multi-year process to do that, so that as those companies want to get involved with us, we’re enabling them to rise to the B Corp standard and not lowering the B Corp standard to meet their needs and to make it easier for big companies to be B Corps.

Jay:                18:48          We want to make it easier for them to be a part of the B Economy, but that means creating pathways for them to, like you said, continuously improve. That process of evolving our standards is hard work. I think that’s one of the big challenges confronting the B Corp community right now.

Jon:                19:07          Okay. The last question, what’s your personal most enduring leadership lesson?

Jay:                19:12          The thing that I’m struggling with the most and probably always have, is knowing when to let go and when to lead. Right now, at this particular inflection point in our culture, and the growth of the B Corp movement, the B Corp movement is both becoming more global and so sharing authority, decision-making authority, power, etc. with all of our global partners, and not having this be such a US-led movement is a challenge. That’s hard work.

Jay:                19:45          The other thing is creating space for leaders who don’t look like me. Like, I’m a privileged white male in a world that’s increasingly people of color and women. We’ve got to create pathways to leadership and authorship of this movement and this community for folks who don’t look like me. That is also hard work. If we’re trying to build an inclusive economy we need to build inclusive organizations. That takes real intention and effort, and willingness to fail and to get back up and to keep on moving. I think those are … That area of trying to let go of leadership and create the right conditions for others to carry this to the next level is, I think, currently sort of our biggest challenge.

Jon:                20:35          Jay, thank you so much. More than anything, thank you for challenging us as business leaders and challenging businesses themselves to step up and join this B Movement, this B Economy, and create a better Capitalism for more than just shareholders.

Jay:                20:49          Thank you Jon, it’s been a pleasure.

Jon:                20:53          Listeners, we’d love to hear from you. Are you more likely to give your business to a B Corp? What do you think the future of the Accountable Capitalism Act is? Send your perspective to me at Jon @ ActivateWorld.com. That’s Jon without an “H”, J-O-N at ActivateWorld.com. Write it out or record it. Send it my way. We want to hear and share your thoughts.

Jon:                21:14          Be sure to tell your friends and colleagues about the Activate World Podcast. Encourage them to subscribe, listen, and share from their favorite podcast platform … AppleGoogleSpotify , and others. Let us know how we’re doing by leaving a review. Your reviews mean a lot to us.

Watch for bonus episodes coming soon, and be sure to tune into season two, where we will explore the media, journalism, and freedom of speech. Topics covered will include social media polarization, journalism in democracy, and free speech on campuses. Stay tuned by signing up for our weekly Activators news sheet, by going to ActivateWorld.com/subscribe.

Jon:                21:54          Activate World is a team endeavor. Special thanks to Kaela Waldstein and Kent Nutt. Music by Jason Goodyear. As we wrap up season one, a special thanks to the University of New Mexico students, Sierra and Noah. Thank you so much for your help through the summer. For Activate World, I’m Jon Mertz.