Organizational Governance Circular Economy Organizational Governance

B Lab Outlines How, Why to Adopt Public Benefit Governance with New Playbook

More and more businesses are embracing the idea of stakeholder capitalism, but many are likely at a loss as to how to actually adapt their business models. B Lab’s new playbook is designed to help purpose-driven companies do just that.

Published 3 years ago | About a 4 minute read

Image: Joshua Welch/Pexels

The business world has been abuzz with the need for an end to the shareholder primacy as a default approach to business for years; and in 2019, when the Business Roundtable redefined the purpose of business as creating an economy that serves the needs of all stakeholders, it felt like a landmark moment. Heavyweights including Salesforce CEO Marc Benioff and financial services giant Morningstar acknowledged and validated the trend; and even more “conservative” figures such as Republican Senator Marco Rubio have apparently recognized shareholder primacy as the root cause of the short-termism plaguing our capital markets, crowding out investments in innovation and undervaluing workers).

Since then, walk behind that talk has mostly come in the form of proclamations from individual companies in the same vein — until late last month, when a quick succession of big business and finance moves signaled what just might be the dawning of the age of stakeholder capitalism: The World Economic Forum launched two major initiatives in which over 100 global companies have committed to new standards for doing business that are reflective of this ethos — in one, over 60 business leaders have committed to report on a new set of Stakeholder Capitalism Metrics; the other sees 48 companies committing to building more equitable workplaces. And that same week, BlackRock CEO Larry Fink’s annual, highly influential CEO letter expounded on the need to see both of these priorities and more from its clients.

While enthusiasm has been growing around these ideas in the business community, many companies are likely at a loss as to how to actually embrace them into their business models. So, last week, B Lab — certifier of B Corporations — released a playbook designed to help purpose-driven companies do just that.

With an introduction by Allbirds co-founder Joey Zwillinger, the playbook uses companies including Allbirds, Change.org, Danone and Ripple — all examples of both certified B Corps and public benefit corporations (a status that is now a requirement of B Corp certification) – as cases to illustrate how the budding corporate structure sets companies up to not only fulfill their purpose-related promises, but to excel in this new era of stakeholder capitalism.

Through the legal structure of a benefit corporation, businesses expand their focus beyond shareholder primacy — corporate actions are then viewed through the lens of their impact on a broader range of stakeholders including workers, customers, community, environment and shareholders. Of course, the bottom line remains important; but the business also must deliver value to this broader group and take responsibility for any negative impacts it creates.

As B Lab explains in a post:

“As the gap between haves and have-nots grows and the climate crisis accelerates, business leaders can seize the opportunity to address economic disparity and take climate action by adopting a model for a new economy — stakeholder capitalism — and pursuing benefit corporation status to embed their company’s purpose and ensure a positive legacy. …

“Our belief is that waiting for voluntary change simply will not get us where we need to go fast enough to solve the challenges we face. To restore trust in capitalism — and for capitalism to be worthy of our trust — we must pull policy and regulatory levers to ensure that all companies and investors are responsible for the impact of their decisions on all stakeholders and the economic system as a whole.”

“Only when stakeholder governance becomes normative and institutional will this be accessible for the companies with limited resources but unlimited passion to serve their communities and their workers,” says Andy Fyfe, Growth Catalyst at B Lab US & Canada. “This playbook levels the playing field as the most practical guide to date for companies to adopt the highest form of stakeholder governance.”

In his introductory letter, Zwillinger shares why Allbirds pursued benefit corporation status and how that decision shaped and drives the business:

“Adopting this governance framework has legal tradeoffs. On one hand, it provides broader latitude to executives to act on behalf of public beneficiaries in addition to shareholders. On the other hand, it also creates liabilities for companies and its executives, such that investors can hold the company accountable to achieving the public benefits it has chartered in its governance documents. This is flexibility and accountability. Great leaders should have both, but it takes courage and a sense of responsibility for what the executive’s role is in the world.”

Read more insights from public benefit corporations, and the pathway to getting there, in B Lab’s Board Playbook.