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'Post-modern capitalism': The rise of B Corporations

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Presidential candidate Bernie Sanders showed up at the Walmart (WMT) shareholder meeting last week, urging the world’s largest retailer to pay its workers more. An accompanying proposal from Walmart employee Cat Davis suggested Walmart add a company worker to its board, “[which] could lead to long-term financial returns and profitability for all stakeholders.”

The explicit and overriding goal at Walmart — like the vast majority of corporations in the U.S. and around the world — is to maximize shareholder value. But Sanders and Davis aren’t alone in suggesting another business model — one that maximizes stakeholder value.

Meet the B Corporation.

In fact, you probably have already. Allbirds, Patagonia, Laureate Education and Brazil’s Natura Cosmeticos (which owns the Body Shop and is in the process of buying Avon Products) are all certified B Corps.

The mandate of the B Corp is to consider not only shareholders, but also employees, the broader community and the environment. Basically, B Corps use profit and growth to try to make the world a better place.

It’s “post-modern capitalism,” said investor Jeffrey Tannenbaum of Titan Grove.

“Think Moody's or S&P ratings, but for the impact of a business on society, not just on its shareholders,” said Andrew Kassoy, co-founder of the certifying organization, B Lab, in a recent interview with Yahoo Finance’s On the Move.

B Lab uses a system called B Impact Assessment to determine whether a company can be B certified. Kassoy outlined what the assessment might entail, including paying workers a living wage and providing flexible scheduling. On the environmental side, a firm would be required to defend the impact of its business on the climate, for example. There’s a legal aspect as well: B Corps must alter their fiduciary duties so they are accountable to stakeholders, not just shareholders.

Nearly 3,000 companies have gone through the process and are now B Corps.

Now, investors like Tannenbaum are taking note. A veteran money manager whose mentor was leveraged-buyout legend Jerry Kohlberg and who went on to found private equity-hedge fund hybrid Fir Tree in 1994, Tannenbaum has now turned his attention to B Corps.

B Corps as an asset class

This photo shows the Patagonia logo on items in the brand section of a retail department store Wednesday, Nov. 28, 2018, in New York. Patagonia, an outdoor gear company, is passing along the $10 million it saved from tax cuts to non-profit environmental groups. (AP Photo/Bebeto Matthews)
This photo shows the Patagonia logo on items in the brand section of a retail department store in New York. Patagonia, an outdoor gear company, is a B Corp. (AP Photo/Bebeto Matthews)

Tannenbaum said B Corps’ appeal as an institutional asset class is on the rise. “What the B Corp does is it allows directors and executives to focus on a long-term approach, and maximizing value, building very profitable businesses, solving problems, but also representing multiple stakeholders beyond just shareholders,” he said in an interview with Yahoo Finance On the Move.

[See also: Why B corps will be an institutional asset class in five years].

His investments include the Higg Index, initially developed by the Sustainable Apparel Coalition, which includes, coincidentally, Walmart and Patagonia. It’s a suite of tools that allows companies to assess and improve their sustainability practices.

The idea that companies should prioritize broader stakeholders or sustainability isn’t exclusive to B Corps: terms like “ESG” (environmental, social and governance) are frequently applied to evaluate corporations and investments.

But the proponents of the B Corp model argue that past attempts to qualify and quantify these ideas weren’t rigorous enough.

“In terms of native brands, companies that really live and walk it, there are very few,” Tannenbaum said.

‘B Corps are responses to greenwashing’

C Corporations — the traditional shareholder-driven model — are increasingly touting their diversity and sustainability practices. Some management experts say rigor isn’t consistently applied to evaluating them.

“In my writing, I argue that B Corps are responses to greenwashing,” said Suntae Kim, an assistant professor of management and organization at the Carroll School of Management at Boston College who has written about B Corps. “Any C Corps can claim that they’re doing good things for the environment and society, but there’s no way to actually evaluate it.”

In addition to standalone businesses, a number of public companies have units that are B Corps, including Unilever-owned (UN) Ben & Jerry’s and parts of French dairy giant Danone.

Julie Hyman is the co-host of On the Move on Yahoo Finance.

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