B Corps and Fixing the Broken System of Shareholder Capitalism

Is shareholder capitalism broken?

Few would argue that it's working well. Business as usual has us on a path to climate catastrophe. The housing/banking industry collapse threw the world into recession. We've seen Fukushima, the BP oil spill, the Massey coal mine deaths. Growing income inequality has become a persistent worry.

The conventional response to all that -- indeed, the one that I share -- is that smarter (though not more) regulation is needed. But a growing number of business people say the problems go deeper. They say a new kind of corporate legal structure is needed to require companies to operate for the good of society, not just for their shareholders. These new corporations -- they're called B Corporations -- are growing in number, and their structure has been enshrined into law in four states -- Vermont, Maryland, New Jersey and Virginia.

Here's what B Lab, the nonprofit behind B Corp, says on its website:

Our vision is simple yet ambitious: to create a new sector of the economy which uses the power of business to solve social and environmental problems. This sector will be comprised of a new type of corporation -- the B Corporation -- that meets rigorous and independent standards of social and environmental performance, accountability, and transparency.

And in its annual report:

After the latest round of economic and environmental crises, it's clear we need systemic solutions to the systemic problem that places the interests of shareholders over the interests of workers, community and the environment.

Interesting, no? A couple of months ago, I heard Jay Coen Gilbert, a founder of B Lab along with Bart Houlahan and Andrew Kassoy, talk about B Corp (it stands for Benefit Corp.) at a GreenBiz conference; afterwards, we caught up by phone to talk some more.

"We can't have a new economy unless we have a new type of corporation," Jay told me. "Corporate law actually works against sustainability." Current law, he argues, require company executives to put shareholder's interests ahead of everyone else's.

Jay is himself a business guy. After graduating from Stanford grad, he joined McKinsey & Co., then spent a couple of years working on child welfare issues for the government of New York City, and in 1993 founded with a shoe and apparel company for basketball players called And1. "We were very much the upstart, street ball brand," he says. The company, which grew sales to $250 million, was sold in 2005, giving Jay the freedom to think about what to do next. He'd been inspired by socially responsible companies like Patagonia, Body Shop and Newsman's Own, each of which, he said, was "very cool and inspiring in its own way, but all of the power and energy was diffused."

How, he wondered, could the power of responsible business be harnessed?

"There was a clear need for a unifying brand that could help project the voice of this very compelling marketplace, from fair trade to clean tech, from microfinance to organic and local," he says.

B Lab is the result, and he explains that the nonprofit is trying to do several things at once.