Jessica Alba and the Impact of Social Enterprise

If social enterprise does change the world, how will we know? At the moment, there isn’t much information to go on. Granted, the sector is relatively new, but there is still a remarkable lack of information about social enterprise impact, given all the hype.

Now that Jessica Alba’s Honest Company, a maker of health and beauty products, is about to go public and worth around $1 billion, according to the Wall Street Journal, it seems that the benefit corporation as a blended organizational model for doing good while doing well is about to really take off. The Honest Company is a registered benefit corporation, which as SSIR readers know well, is a new form of corporate statute that allows companies with a social mission to register separately from standard businesses. The premise is that by encouraging the growth of the social enterprise sector (benefit corporations are one variety of social enterprise), we will see a lot more positive social change. As the Nobel Peace Prize-winning founder of Grameen Bank Mohammed Yunus puts it, “social business” can “create a world without poverty.”

If this seems like rather a tall order, well, you’re not alone. It does seem like a bit of a stretch to think that tweaking private business in a social direction is the final solution to the world’s most intractable problems. On the other hand, there has been a tremendous increase in the sheer number of social enterprises, with Social Enterprise UK estimating 70,000 in Great Britain and possibly many more than that in the United States. Nobody actually knows the real number; the Great Social Enterprise Census only managed to turn up around 200 as last year.

This is a real problem; there is a decided lack of empirical data on social enterprises in the United States. The nonprofit B Lab reports that there are now around 1,121 benefit corporations registered in 27 states, while a sister statute, the L3C, has 1,073 signed up as of September 2014. B Lab has certified 1,104 B Corps in 34 countries that have passed their standards for complying with labor, environmental, and social impact standards. (Note that a certified B-Corp is not the same thing as a registered benefit corporation, although there is overlap between the two groups.)

With all this activity, there must be a lot of social change happening, which should be easy to discover since the law requires that benefit corporations “publish an annual benefit report that assesses [their] overall corporate social and environmental performance against a third party standard” and that they publish this report on a website. In an ideal world, it would be quite easy to obtain this information and add it all up to say something about the social impact benefit corporations are creating.

But this is where things get tricky. Never mind the headaches of trying to define “impact,” which too often degrades into simply counting an easy output, as when Tom’s Shoes announces how many pairs of shoes the company has given away without noting, for example, if the shoes went to people who did not previously have shoes, or if the people were actually wearing them. As it turns out, most of the registered benefit corporations are not publishing any impact data at all, never mind assessing it against a third-party standard. Recent survey work done by a professor at Columbus State Community College for her dissertation found that only 30 percent or so of benefit corporations provide impact information, and my own much shorter survey (I went online and looked at the websites of around 25 companies) finds that most of what is available is similar to the activity-counting done by Tom’s Shoes.

The “impact value chain” developed by Professor Catherine Clark and others evaluates impact as moving from inputs and activities to outputs (measured results) and then to outcomes, defined as the difference between the collected results and what would have happened anyway. Others define impact as a significant and permanent change for an individual, family, or community. By these standards, very few benefit corporations are revealing what impact they have on the world, if indeed any of them are.

The Honest Company, like all certified B Corps, does have a published certification report from B-Labs, but this does not indicate how much social change the company has created, only that it ranks more or less well with respect to social, worker, and environmental standards. This is similar to the LEED standard for efficient buildings or the PETA standard for products that don’t harm animals. It’s a very laudable achievement for the Honest Company to use only organic products, pay its workers well, and avoid harming the environment; every company should follow their example and get certified by B Labs.

However, this is a far cry from an impact assessment, even if it does comply with the benefit corporation legislation. For sure, not every small company can do, for example, what Pepsico does to evaluate efforts to achieve “positive water impact” in communities with bottling plants. But if we expect to see progress on large goals such as ending world poverty and attribute that progress to the efforts of social enterprises, then the sector has a long way to go to document that it is in fact having an impact. And with 28 million small and medium enterprises in America, benefit corporations need to stand out from the crowd on the basis of their added social value.

It would be really nice if in addition to the certification report, every benefit corporation could use a social impact calculator. This way we could answer not only “Are you being a good company?” but also “How much good are you doing?

Read more stories by John Anner.