Business and Markets

What is the Role of Business in Society?

November 10, 2015  • Jay Coen Gilbert, Bart Houlahan & Andrew Kassoy

Key Points

  • There is a shift in business - from focusing on the bottom line to having a positive impact on society.
  • There still is a long way to go to achieve the scale required to allow all people to use business as a force for good.

Below, the co-founders of B Lab explain the shift in business from focusing on the bottom line to having a positive impact on society.

Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy, are 2015 John P. McNulty Prize winners. The $100,000 prize recognizes the spirit of innovation and excellence of private sector leaders who use entrepreneurship to address important global social issues.

Capitalism is the most powerful man-made force on the planet. It has played a central role in improving the quality of life for billions of people by constantly evolving through a delicate balancing act with government and civil society. When this relationship is in balance, capitalism is able to meet the needs of diverse communities, provide purpose and dignity to peoples’ lives, and create a shared and durable prosperity for all.

During the late 20th century, that relationship fell out of balance. Even as capitalism’s by-products — technological innovation and economic growth — have accelerated and benefited many, we are experiencing increasing inequality, environmental degradation, and a loss in trust in one of our most important institutions.

Capitalism is failing to live up to its unique promise.

By practice or by law, the operating system and the culture of business and capital markets became Milton Friedman’s maxim that the social responsibility of business is to maximize wealth for stockholders. That operating system functions too often at the expense of the interests of society and even the long-term interests of stockholders.

Fortunately, we are in the early stages of a great re-balancing.

Business has become a source of identity, purpose, and power.

We are beginning to see an evolution in capitalism, from a 20th century view that the purpose of business is to maximize value for shareholders to a shared view that the purpose of business is to maximize value for society. Significantly, this transition is being driven, not by government regulation, institutional blame, or partisanship, but by market-based activism and personal responsibility. We are witnessing an historical moment when, rather than simply debating the role of government in the economy or the role of business in society, people are taking action to harness the power of business to solve society’s greatest challenges.

This reflects a major culture shift. Business — what we create, where we work, where we shop, what we buy, who we invest in — has become a source of identity, purpose, and power.

The most innovative entrepreneurs and venture capitalists, both in the US and abroad, want to start and fund businesses with a transformational purpose. In emerging markets around the world, thousands of businesses are working to lift billions of people out of poverty. Millennials – who represent 50 percent of the world’s workforce and will inherit $30 trillion in the coming decades — want to work with purpose, to buy products from companies they can trust, and to make investments that make money and make a measurable positive impact. And policymakers on both sides of the aisle want to support market forces to solve social problems.

When the CEO of Walmart, one of the world’s largest corporations, says that business exists to serve society, and the CEO of Blackrock, the world’s largest asset manager, says that long-term value is created only through long-term investing and stakeholder-centric management, they are acknowledging a shift in the debate about the role of business. But a shift in the debate is just an opportunity; it doesn’t change the rules of the game or guarantee different outcomes for society.

B Lab was started eight years ago because normative and institutional changes are needed for capitalism to fulfill its promise and continue this evolution. Concrete, scalable, systemic solutions are needed to restore trust in business, create the legal and capital markets’ infrastructure to drive capital to high-impact investments, and enable consumers, employees, and investors to differentiate good companies from just good marketing. We need both a clear vision for what capitalism can offer for society and a clear path to get there.

The B Corp Movement is putting theory into action by setting an objective standard for social and environmental performance, accountability, and transparency. This has moved the conversation beyond declaration of purpose to verification of performance, beyond framed mission statements on conference room walls to signed benefit corporation laws passed in the legislative halls in the majority of states in the country.

This movement is equipping businesses and investors with a platform for benchmarking, measuring, and reporting on impact; providing a sustainable operating system for business by allowing companies to expand their fiduciary duties to include the consideration of their stakeholders; and enabling millions of consumers, workers, entrepreneurs, and investors to join the movement all over the world. Led by a community of over 1,400 Certified B Corporations in 42 countries and 160 industries, and joined by over 3,000 benefit corporations, and 35,000 businesses using the B Impact Assessment as the road map to impact, the B Corp Movement is the model for what it means to use business as a force for good.

And it’s now having an impact on mainstream capital markets. Etsy, a handmade goods marketplace, went public in the US this year as a B Corp, and companies such as Natura in Brazil, Australian Ethical in Australia and Snakk Media in New Zealand are traded on other international exchanges. Large multinationals are getting involved by acquiring subsidiaries that are B Corps, including Ben & Jerry’s at Unilever and Plum Organics at Campbell Soup Company, and they are exploring ways to use the B Impact Assessment to improve their supply chain.

The evolution of capitalism to a model that serves society requires a cultural shift.

However, this movement requires broader buy-in, collaboration, and support from businesses, investors, consumers, workers, and policymakers. If we seek a shared and durable prosperity, mainstream markets must come to expect higher standards of fiduciary duty and corporate leadership to measure and manage impact with the same rigor as they do profit today. With increasing interest from large corporations like Unilever, B Lab has recently announced the formation of a Multinationals and Public Market Advisory Council to explore how companies of this size and scope can engage with the B Corp movement.

There still is a long way to go to achieve the scale required to allow all people to use business as a force for good. In a globalized, technology-driven society, systemic change no longer comes from one organization, one government, or one charismatic individual. The evolution of capitalism from last century’s model that served shareholders to this century’s model that serves society, requires a cultural shift. That shift is already happening. The B Corp Movement is playing a leadership role by inspiring and empowering millions of people to change their buying behavior and creating advocates who can build new institutions, demand more for their money, and create the necessary policy changes to accelerate this shift. We hope you will join us.

You can learn more about the B Corp Movement at bcorporation.net or take the first step towards using business as a force for good by taking the free B Impact Assessment at bimpactassessment.net

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