The Old Way of Doing Business is Dead. Its Time for the Socially Conscious to Rise
Mounting pressure from social media, consumer organizations, online petitions, and high-profile activists are causing longstanding brands to bow to customer outcry. Ringling Bros. and Barnum & Bailey circus, after 145 years featuring elephants in its circus acts, will retire its elephant herd by 2018. This brings up an interesting question; can an organization turn a profit and do good concurrently?
To put it simply, yes. However, the old way of doing business must be pushed aside for a model that incentivizes the pursuit of good.
Traditionally, U.S. businesses have been driven by the belief that the role for business is the pursuit of profits, and the guiding hand of free markets would naturally lead to the best outcomes for society. Of course, this didn’t fully factor in considerations such as the cost of externalities or that major parts of society can be harmed over the short to medium term as markets take time to adjust. Corporations were mostly unconcerned – they could buy influence to prevent embarrassing revelations and/or steamroll most objections that threatened their power.
Today, the game is changing. If a company is not good to its customers or the environment, those revelations are likely to get shared on social media, and online petitions can quickly attract unwanted media coverage and consumer backlash. It’s no wonder that businesses are stepping up to act more responsibly, simply because it is too risky to their brands and profit margins to do otherwise. That’s progress, but it’s just the start.
Benefit Corporation models (B-Corporations) are an important next step to help make responsible practices ubiquitous. Three of the most important benefits of the B-Corporation model are, (1) it establishes a standard for “being responsible”, (2) it serves as a simple, yet powerful, signal to consumers, and (3) it paves the way for a more sensible tax policy where companies are rewarded for actually doing good.
“We’re responsible” can’t just be a marketing slogan. To truly be responsible, a B-Corporation needs to conduct business in a way that treats its employees well, honors the world’s natural resources, etc. How does a company know if it’s on a “responsible” track? There are clear criteria B-Corporations must meet in order to earn the valuable B-Corp designation. These criteria provide a framework for company operations, set a clear standard for what it means to be “responsible”, and are subject to verification audits.
The trend toward responsible corporate citizenship is not just about avoiding painful revelations of wrong doing. Consumers, more than ever before, are spending money with brands that reflect their values, and are essentially pulling corporations in the direction of authenticity and responsibility. The B-Corporation designation is a signal to consumers that a company legitimately cares about people and the environment – not just profits. Thus, B-Corp status can help boost consumer demand for a company’s products.
Furthermore, B-Corporations offer an important third option to the traditional nonprofit vs. for-profit dyad. Traditionally, most people see the role of nonprofits as “doing good” and the role of for-profits as making money (often at the expense of doing good). But the reality is that not all nonprofits do good and many for-profits do significant good. The B-Corporation model offers entrepreneurs and business owners a standard for doing well and doing good at the same time.
While B-Corporations are likely to flourish due to the reasons stated above, I believe the greatest potential will come with tax reform. In the U.S., corporations are taxed, and nonprofits are not. While this may sound reasonable at first, it doesn’t make a lot of sense from the societal good perspective. Under our current tax policy, taxpayers subsidize nonprofits – many of which provide invaluable service to society – but not all. Other nonprofits use the tax shelter to support for-profits or even directly lobby against the rights of the very citizens who are subsidizing them.
A more sensible approach would be to provide tax incentives based on the amount of good an organization provides society. The B-Corporation model provides a way to objectively evaluate important contributions to society in terms of how a company sources its raw materials, how it treats its employees, the environment, and more.
Some forward thinking elected officials, such as those in Philadelphia, have already provided tax incentives to B-Corporations. When tax incentives are aligned with “doing good”, corporate responsibility and B-Corporations will become the standard.
Additionally, the rise of the B-Corporation is important for job seekers who balance looking for an organization that pays well and one that cares for the health of the company, employees, community and environment. When employees work for a company that ties its values into everything it does, they feel more engaged and loyal to the organization.
Society has benefited greatly from corporate ingenuity and the pursuit of profits, but imagine the good that could come if corporations were similarly incentivized to make the world a better place. Now is the time for the rise of the socially conscious business model. If you‘re looking to start your own B-Corporation or join one, a valuable resource is the B-Corporation website.
Randy Paynter is the Founder & CEO of Care2, a social network of more than 30 million citizen activists standing together for good, and helped pioneer online citizen advocacy with the launch of the PetitionSite.com. Care2 helps individuals start petitions and make a difference in their community while helping over 1500 nonprofit clients recruit more than 40 million prospective donors worldwide. Care2 is a fast growing, profitable B-Corporation, or social enterprise, using the power of business as a force for good. Randy holds an AB from Harvard University and an MBA from Stanford’s Graduate School of Business.