When B Corp Met Wall Street

When B Corp Met Wall Street

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If Unilever follows up its B Corp flirtation with a real commitment, it will become the third, and by far most prominent, public corporation to join the movement. Will Wall Street allow it?

CYAM - B Corp-ULVR-Wall St image copyIf a corporation really is a person, then becoming a B Corp was a peak moment in our company’s “life.” Clean Yield proudly wears the B Corp logo on our sleeve and our home page. Our commitment to serving more than just the bottom line had been literally certified by an outside body whose standards were designed to weed out the greenwashers. (We’re also thrilled that several of our high-impact investments, including SunCommon and Iroquois Valley Farms, are B Corps, and Vermont Smoke & Cure is on its way.)

Benefit corporations and their first certifying body, B Lab, have been around for a decade. The B Corp phenomenon gradually picked up steam and now encompasses a growing list of large names, such as Kickstarter, Green Mountain Power, Seventh Generation, actress Jessica Alba’s Honest Company, and Jelly, the new venture from Biz Stone (that’s Mr. Twitter to you). Two among the 1,200-plus B Corps in 33 countries are publicly traded corporations — Natura, a Brazilian cosmetics manufacturer with 7,000 employees and $2.65 billion in revenues; and Etsy, an online marketplace for crafts that just went public with a $100-million initial public offering. Plum Organics, New Chapter Vitamins, and Ben & Jerry’s are three B Corps operating under the umbrella of public companies (Campbell’s, Procter & Gamble and Unilever, respectively).

Now, a new milestone: B Corp and Unilever are talking. Let that sink in. The world’s third- largest consumer products manufacturer, with nearly $59 billion in 2014 revenues, may change its by-laws to allow itself to consider more than just the financial bottom line. Somewhere a robber baron is rolling over in his grave.

A Note on Terminology “B Corp” and “benefit corporation” are not perfect synonyms. A benefit corporation is a legal status conferred by a state, comparable to a C Corp or a partnership. Twenty-seven states have passed benefit corporation statutes. A B Corp is certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency. As B Lab puts it, “B Corp is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk.” To become a B Corp, companies must score at least 80 out of 200 points on the B Impact Assessment tool, meet their state’s legal requirements for benefit corporations, and make it official by signing the B Corp “Declaration of Independence” and term sheet.

To some extent, this shouldn’t be entirely unexpected. Unilever is well-positioned to become a B Corp, especially with the strong leadership CEO Paul Polman has demonstrated within the sustainable-business movement. In 2010 the company launched the Unilever Sustainable Living Plan as a blueprint for sustainable growth. The plan sets out to decouple growth from environmental impact, while increasing positive social impacts. Its goal is that by 2020, 100% of the company’s products will be sourced sustainably, as it halves the environmental footprint of its products. The results are impressive. Unilever is on its way — as of 2013, 48% of the agricultural raw materials the company used were sourced sustainably. And in order to focus shareholder attention on its long-term strategy, Unilever stopped delivering quarterly guidance reports to investors.

These steps alone wouldn’t earn Unilever the B Corp label since most sizable corporations now eagerly tout their environmental awareness and contributions to society. Benefit corporations must go further. Benefit corporations are not only required to have the purpose of creating “general public benefit,” but they can be held accountable by shareholders should they become derelict in that duty. In turn, the directors and officers of benefit corporations are legally protected when they consider decisions based on the interests beyond those of just their shareholders. Voluntarily undertaking these duties and obligations by becoming a benefit corporation truly embeds them in the institution, acting as a safeguard against any potential slackening of commitment over time.

To become a benefit corporation in the 27 states that now permit it, board and shareholder approval are required, and the company’s bylaws must be amended and re-registered. While there is no federal benefit corporation law, a milestone was reached when Delaware passed its benefit corporation law in 2013. Half of all publicly traded companies, including 64% of the Fortune 500, are incorporated in Delaware. B Corp co-founder Andrew Kassoy explained its significance in an interview with Fast Company: “It was a seminal moment for corporate law…Delaware is where venture and institutional investors look for companies to incorporate, so if we wanted to offer mainstream business the opportunity to change, Delaware was the place that matters most.”

With consumers eager to buy from trustworthy and civic-minded companies and a new generation of social entrepreneurs eager to use business as a platform to make the world better, it’s perhaps not so surprising that benefit corporations are catching on like wildfire. If Unilever becomes a B Corp, though, it would forever raise the bar for global corporations. It would be a powerful blow to the prevailing ethos that creating shareholder value in the form of profits is the only obligation of publicly traded businesses.

Jeffrey Hollender is the founder and former CEO of Seventh Generation and Sustain Condoms, both B Corps. He told us in an email,“Getting a public company to become a B Corporation had been a Holy Grail — and Natura’s decision is hugely important. It’s the beginning of a new relationship between shareholders and companies that, from my point of view, is both essential and inevitable. Should Unilever decide to also become a B Corporation, that would be far more significant, but a decision that is consistent with their values and commitment to sustainability.”

Can Unilever Pull It Off?

Unilever, like most public corporations, is broadly owned by thousands of shareholders who are constantly trading their positions in search of maximum returns. Many do not ride out short-term dips in profit or stock price, regardless of whether those drops reflect investments in more ecologically or socially sustainable lines of business. “If Unilever falters,” the Harvard Business Review wrote in 2012, “the critics will call for [Polman’s] head.”

We asked B Corp and others whether Unilever could sell its conversion to a B Corp to its shareholders.

B Corp image - 2B Corp co-founder Jay Coen Gilbert told The Clean Yield by email, “There is no question that it will take real time and effort to socialize this issue with the investors of any public company.” However, he said, several recent developments “may mean this is less of a heavy lift than we had originally thought.” First, he said, “large institutional investors are becoming more comfortable with this,” noting the California state pension fund managers recently affirmed that managing their portfolio for long-term shareholder value requires them to look for investment vehicles that consider a company’s environmental, social and financial performance.

Second, Gilbert said, international regulators and policymakers are increasingly interested in encouraging a triple bottom line approach. Third, Gilbert pointed to Natura’s breakthrough B Corp certification. “Natura has not received any pushback [from its board],” he said. “When leadership engaged important shareholders early in the process, they affirmed that this was simply business as usual for Natura.” Several more public corporations have inquired about B Corp status, Gilbert noted.

Finally, Gilbert pointed out that a growing number of mainstream venture capitalists had invested in B Corps, including the Omidyar Network, Union Square Ventures, Google Ventures, and others.

On investor pushback, Jeffrey Hollender was also sanguine. “There may be shareholder concerns, but I doubt they would be substantial,” he said in an email. “Becoming a B Corporation is, in my opinion, in the best long-term interest of shareholders.” Judy Kuszewski, who advises clients on sustainability and corporate responsibility with the Shine Consultancy (U.K.), said, “I’m sure there will be companies who get endless shareholder grief because of this, but I think Unilever is somewhat insulated from this, and is therefore an excellent test bed for the concept at a big scale.”

Unilever had not responded to our interview request in time for publication, but a Harvard Business Review interview with Paul Polman anticipated our line of inquiry. In it, Polman allows that Unilever has spent a “disproportionate” amount of time educating shareholders about the company’s long-term strategy.

You need to attract a shareholder base that supports your strategy — not the other way around. So we actively seek one that is aligned with our longer-term strategy.

We tell hedge funds and short-term speculators, “You don’t belong in this company. The sheer fact that you buy a few shares doesn’t give you the right to mess up our strategy.” We don’t condemn them, but they can go somewhere else.

Given Polman’s cultivation of his shareholders, their response to a formal proposal to become a B Corp “would really be a seminal moment that will test how deeply sustainability is embedded in [the company’s] governance,” said Allen White, a co-founder of the Global Reporting Initiative, the foremost global standard for voluntary environmental and social corporate reporting. “It’ll be fascinating to watch. The investor reaction will be very telling.”

Unilever is not a perfect company; there are no perfect companies. But champagne corks will pop worldwide should they become a certified benefit corporation.

One other thing. We asked B Lab whether shareholders had a role to play in encouraging public companies to consider B Corp certification. “Of course,” replied Gilbert. “Shareholders could introduce resolutions asking their company to explore B Corp certification or benefit corporation legislation.” Hmm.

Related Articles on our site

Confessions of a B Corp,” by Elizabeth Glenshaw, December 12, 2014

Sources

Benefit Corp Information Center

Will Unilever Become the World’s Largest Publicly Traded B Corp?The Guardian, January 23, 2105

Supercharging the B Corp Movement,” Stanford Social Innovation Review, February 2, 2015

World-Changing Ideas: A Q&A With Andrew Kassoy, Cofounder Of B Lab,” Fast Company, March 4, 2014

Natura Joins B Corps: Will Other Big Business Embrace Sustainability Certification?” by Bruce Watson, The Guardian, December 12, 2014

The Need and Rationale for the Benefit Corporation: Why it is the Legal Form That Best Addresses the Needs of Social Entrepreneurs, Investors, and Ultimately, the Public,” by William H. Clark, Jr., et al., January 2013

Captain Planet,” interview with Unilever CEO Paul Polman, Harvard Business Review, June 2012

The Remedies for Capitalism,” by Paul Polman (no date)

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