Can corporations produce social good while operating within the bounds of market-based capitalism? Recent headlines would indicate yes—at least on the face of it.
Corporate giants Amazon, Berkshire Hathaway, and J.P. Morgan announced a new, independent health care company in late January that will remain “free from profit-making incentives and constraints”—a move that leverages their corporate reach to ensure long-term economic and social equality by offering low cost medical care for millions of people. Separately, BlackRock CEO Larry Fink recently sent his annual letter to thousands of BlackRock’s portfolio CEOs, saying that “to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” As the world’s largest investment management firm with $6.3 trillion in assets under management, BlackRock certainly draws attention when it suggests how a company can deliver better financial performance. But why would an investment firm or Fortune 100 company care about producing social good?
Corporations can improve societies and the environment without neglecting their bottom line, according to the model developed by Jay Coen Gilbert’s nonprofit, B Lab. Gilbert’s team created the B Impact Assessment, a scorecard that measures a company’s social good on a 200-point scale. To date, B Lab has certified nearly 2,500 B Corporations, or B Corps, and has advocated for a new corporate entity called the benefit corporation, now legally recognized in 33 US states. B Corps are obliged to create measurable positive impact in addition to maintaining financial return. In an article for Forbes, Gilbert opines that if Amazon and its newfound partners form their health care entity as a certified B Corp, they can “build trust with a skeptical public through radical transparency, ensure that the [new health care] company remains purpose-driven over the long term, and demonstrate that we can use the power of the markets to solve our most challenging problems.”
While I agree that a B Corp is a valuable template for moving beyond shareholder priorities, I argue that creating true social good requires deeper business and cultural transformations to help organizations effectively navigate market constraints.
From Shareholder to Multi-Stakeholder Capitalism
In 1919, Ford Motor Company founder Henry Ford advocated for repurposing his company’s revenue into investments that would benefit employees and fund business production, rather than provide returns for shareholders. However, Ford’s largest shareholders, John Francis Dodge and Horace Elgin Dodge, sued him for neglecting to make dividend payments.
The ensuing Dodge v. Ford Motor Co. court case marks a historical moment, as the judge ruled that “a business corporation is organized and carried on primarily for the profit of the stockholders.” Ever since, the concept of “shareholder supremacy” has dominated US capitalism, driving a culture of public investments in corporate stocks and fashioning what some have called a “shareholder nation.” Untouched and unregulated, this model of ownership breeds inequality, as seen today when the richest 1 percent of Americans now own a staggering 45 percent of the country’s wealth. As Gilbert says, unless a legal mandate shifts corporate responsibility to “benefit for all stakeholders, not just shareholders,” capitalism will continue to emphasize profit over public good.
Deeper Business and Cultural Transformations
I believe “multi-stakeholder” capitalism requires even further organizational renovation. A legal delegation and B Certification may serve as critical starting points for companies like Amazon and Blackrock to catalyze change. But becoming a B Corp on paper is not enough. Companies must craft a socially impactful culture to shape the everyday practices of the employees, managers, and consumers involved in fulfilling an organization’s purpose. The following business strategies can help:
1. Develop a business model that binds revenue to social or environmental benefits.
As seen with the Gap’s child-labor scandal or Unilever’s handling of mercury exposure in its Indian factories, it is detrimental to companies if they maintain business models that reap billions of dollars from damaging production methods or non-sustainable goods. No wonder that one of the popular critiques of corporate social responsibility (CSR), which I define as a company’s programmatic effort to create sustainable business practices, is that these programs often operate in silos or serve as a proxy to offset profit-maximizing operational strategies. Instead, analysts should focus their white-boarding exercises on developing business models that correlate every dollar made with a measurable unit of social or environmental improvement.
One relevant example is Guayaki Brands. Guayaki produces organic Yerba Mate teas and energy drinks harvested natively from rainforests in Central and South America. Systematically, Guayaki claims that every one pound of yerba mate purchased decreases atmospheric carbon dioxide by 573 grams. Its “market driven restoration business model” also provides farming communities with a renewable income stream based on regenerative, soil-enriching, and carbon-reducing planting techniques.
As a consumer, Guayaki’s business model helps me associate my positive environmental impact to every ounce of yerba mate I purchase. It also provides what co-founder David Karr calls “trickle up economics, whereby a company invests in healthy people, healthy land, and healthy communities” that ensure long-term environmental and economic sustainability.
2. Inspire socially good consciousness.
Is a brand recognized for its positive social or environmental impact? Is a company invoking what I call a “socially good conscience”? Meaning, a brand not only is recognized for doing good, but also motivates others to act and think in a socially or environmentally responsible manner. If not, the future of that business could be in danger.
Because in this evermore connected society, we are all looking for companies that can help guide us toward long-term global sustainability. Millennials—the generation that makes up the largest percentage of the US (and global) workforce and drives trillions of dollars in consumer spending—actively invest in, work for, and purchase from companies that prioritize social purpose along with financial growth.
Most of all, millennials want a brand to be inspirational.
Take, for example, the outdoor clothing company Patagonia, a brand that inspires activism with its vocal and timely environmental conservation campaigns. This includes viral Internet campaigns such as the recent “The President Stole Your Land” response to Donald Trump’s elimination of nearly two million acres of protected land. This week, Patagonia took its advocacy one step further: It launched the Patagonia Action Works platform. This tool provides people with an easy way to find local events, volunteer opportunities, causes, and petitions for relevant conservation and community issues. Patagonia also implements best-in-class workforce and gender-equality standards, which have become a model for other companies and have created a highly sought-after culture that attracts millennials to both its products and its workforce.
Amazon and Blackrock are planting a seed. But correcting capitalism requires that companies go beyond shareholder return, beyond multi-stakeholder engagement, and beyond changing legal structure. It requires that companies create a business model and culture that drives our conscious desire to do good. Consumers will embrace companies that set forth actionable policies, products, and tools. To quote former President Barack Obama: “The single most important thing I could do would be to help prepare the next generation of leaders to take their own crack at changing the world.” Indeed, if an organization can inspire us to do good, we will in turn inspire others to do the same.