Universität Leipzig International SEPT Program

B CORPORATIONS: EVOLUTION OF CAPITALISM? An approach to the “B Movement” and the impact in Chile

Student: Martin Kempf Matriculation Number: 3639302 Module 103: New Scientific Discourses of SME‘s Promotion Supervisor: Prof. Utz Dornberger

Date of Submission: 15.03.2014

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Index Introduction ………….…….……………………………………………………………………………... 4 Chapter 1: A new type of corporations ……….…….…………………………………………………... 6 -

1.1- What is a B Corporation? ……….…….……………………………………………………... 6

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1.2- Benefit Corporations v/s Certified B Companies ...……….……….………………………… 7

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1.3- B Corps v/s Traditional Companies ……….…....…………………………………………… 8

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1.4- B Corps v/s Non-profit companies ……….……..………………………….………………... 9

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1.5- Inside the B-Lab ……………………………...............…….…………………………………9

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1.6- B Certification v/s Fair Trade ……..……………………………………………………….. 10

Chapter 2: The arrival of B movement in South America ………………..…………………..……… 11 -

2.1- Chile as a key player in South America .…….……….…………………………………….. 11

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2.2- Steps to become a B Company in Chile ……….……..……………………………….……. 12

Chapter 3: Benefits of becoming a Certified B Company ………….……..………………………….. 13 -

3.1- Member of the ―B Club‖ ……….…….…………………………………………………….. 13

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3.2- Innovation ……….……..……………………………………………………………………14

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3.3- Committed Workers ……….…….…………………………………………………………. 15

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3.4 New markets & customers opportunity ……….…….………………………………………. 16

Chapter 4: Challenges for B Corps ……….…….……………………………………………………... 20 -

4.1- Recognition ………..…….………………………………………………………………….. 20

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4.2 Certification for big companies ……….…….………………………………………………. 21

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4.3- Competitiveness ……….…….……………………………………………………………... 21

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Conclusion .................….………………………………………………………………………………... 23 References .................….………………………………………………………………………………..... 26

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Tables Table 1: B Companies in the world……………..…………………………………………………………. 6 Table 2: Economic sector of B Companies in the world ………………………………………………….. 6 Table 3: Review of Chilean B Companies (English website and B Logo included in webpage) …...…… 19

Abbreviations B Movement = B refers to ―Benefit‖, which comes from Benefit Corporations B Corps = Benefit Corporations and Certified B Corps Certified B Corps = Corporations that have acquired the B Certification through B-Lab process U.S.A. = United States of America U.S. = United States CORFO = Corporación de Fomento de la Producción GIIRS = Global Impact Investing Rating System CSR = Corporate Social Responsibility B2B = Business to Business B2C = Business to Customers

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Introduction The ―B Movement‖ (referring to Benefit Corporations and Certified B Corporations) is a global concept that was born in U.S.A. in 2007 with one clear objective: redefine the ―success‖ in business. What will happen if companies start to compete not to be the best company of the world, but to be the best company for the world? B Corps (when I talk about B Corps I mean Benefit Corporations and Certified B Corps; the difference is going to be explained in section 1.2) are companies that, voluntarily, meet rigorous standards of social and environmental performance, transparency and accountability; aspects that will lead them to create benefit not only for shareholders, but also for all stakeholders (community, workers and environment). The main purpose is that business should aspire to do no harm and benefit all (including the decrease of poverty, rebuild of communities, preservation of environment and create proper places to work). Some people say, B Corps might ―turn out to be like civil rights for blacks or voting rights for women eccentric, unpopular ideas that took hold and changed the world‖, (Richardson, J, 2010). Why? The traditional way of doing business today is known by everyone. Basically, a company is created to make profit for their shareholders, and a lot of them don‘t care much about the whole chain of stakeholders that have participation in the every day‘s process of that company. To show this with a practical example, there will be no questioning by a directive board of a certain company if the manager decides to move a factory from U.S.A. to China because the costs are lower and the company can make a higher profit by doing that. In fact, this is a very common strategy. But what about the thousands workers from U.S.A. who will be ―kicked out‖? As Richardson points in his article, ―corporations are legally prevented from being decent and humane‖, because in the same example of moving a factory from U.S.A. to China, if the corporate leader ―decides to make profits secondary to the well-being of his workers and neighbors, his stockholders can sue him (…). Corporate laws are written so that a company‘s fiduciary responsibility is to the stockholders. Nothing else matters. If the choice was between the survival of the corporation and the survival of America itself, the law would compel him to pick the corporation‖, (Richardson, J., 2010). So, we are living in a capitalist world where these types of practices are normal. However, B Movement is advancing relatively fast with a different conception of capitalism; some people say, this is the evolution of capitalism, which uses the power of business as a force of good to solve social and environmental problems.

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But this concept has ‗left it‘s lair‖ and the word have been spreading around the world. And in South America, it arrived in 2012, with Chile as a key player managing the office for the 5 countries that today are involved (Colombia, Argentina, Brazil, Peru and Chile). Therefore, the goal of this essay has different scopes: in the first chapter, the aim is to provide a complete idea regarding the ideology behind the B Movement; how it was born and why it differs from Traditional Companies and Non-profit organizations. In the second chapter, I will talk about the arrival of the B Movement in Chile and which are the steps to become a Certified B Corp. In the third chapter, the discussion will be focused on the benefits of becoming a Certified B Corp (why should a company apply for the certification?). And in the final chapter, the idea is to analyze the difficulties and challenges that Certified B Corporations are facing in Chile and South America, and how can they be faced in the coming years.

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Chapter 1: A new type of corporations 1.1- What is a B Corporation? This idea of B Corporations sounds very idealistic and maybe utopian, isn‘t it? Can this really work in a world where the prevailing capitalism rules the way of making business? Are shareholders truly willing to adopt new policies inside their companies which could harm their wealth and decrease their profit, ―only‖ for the good of the environment, society and the community? Well, it seems that there are companies, shareholders and also investors who are willing to redefine the way of doing business in favor not only for shareholders, but also for stakeholders. In fact, the number of these types of companies (Benefit Corporations and Certified B Corps) ascends to over 900 in 32 countries and in 60 different industries with only 4 years after the beginning of the B Movement. Table 2: Economic sector of B Companies in the world

Table 1: B Companies in the world Country

N° B Corps

% World Average

74,3

Sector Agriculture

N° of B Corps % of total B Corps 12 1,4

U.S.A.

673

Canada

98

11

Building

50

5,5

Chile

38

4,2

Business Products & Services

356

39,4

Afghanistan

1

0,1

Customer Products & Services

250

27,8

Argentina

19

2,1

Education & Training Services

28

3,1

Australia

14

1,5

Energy & Environmental Serv.

22

2,4

Belgium

1

0,1

Financial Services

88

9,7

Brazil

9

1

Health & Human Services

19

2,1

Colombia

11

1,2

Legal Services

21

2,3

Costa Rica

1

0,1

Media

10

1,1

France

1

0,1

Restaurant, Hospitality & Travel

21

2,3

Guatemala

3

0,3

Retail

21

2,3

Hong Kong

1

0,1

Transportation & Logistics

5

0,6

India

3

0,3

Ireland

1

0,1

Israel

1

0,1

Italy

1

0,1

Kenya

2

0,2

Korea (Rep.)

3

0,2

Lebanon

1

0,1

Mexico

7

0,9

Mongolia

1

0,1

Netherlands

1

0,1

New Zealand

2

0,2

Nicaragua

1

0,1

Peru

2

0,2

Puerto Rico

1

0,1

Tanzania

1

0,1

Turkey

1

0,1

U.K.

6

0,8

Viet Nam

1

0,1

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―Government and the nonprofit sector are necessary but insufficient to address society's greatest challenges. Business, the most powerful man-made force on the planet, must create value for society, not just shareholders. Systemic challenges require systemic solutions and the B Corp movement offers a concrete, market-based and scalable solution‖, (Bcorporation.net, 2014). But how can Benefit Corporations differentiate from Traditional Companies and Non-profits? A Benefit Corporation is a new legal status form of corporation created in the United States that voluntarily meets higher standards of corporate purpose, accountability and transparency; a triple bottom line that considers workers benefits, community and environment -along with profits- in every decision process, with the objective of create general public benefit. The major characteristics of Benefit Corporations (Clark, Drinker Biddle & Reath LLP, Vranka and Canonchet Group LLC, 2013) are: 1) A requirement that a benefit corporation must have a corporate purpose to create a material positive impact on society and the environment; 2) An expansion of the duties of directors to require consideration of non-financial stakeholders as well as the financial interests of shareholders; 3) An obligation to report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third-party standard. In several states of U.S.A., legislation of Benefit Corporations has been passed -the first one was Maryland on April 2010, and nowadays there are more than 20 states operating with these new type of corporation- which means that any new company can be created as a Benefit Corporation, and if an existing company wants to become a Benefit Corporation. -in a legal form-, the procedure includes the amending of governing documents. An interesting point of view is given by Noam Noked, co-editor of Harvard Law School Forum on Corporate Governance and Financial Regulation, who states that B Corps are ―a new hybrid type of corporation designed for businesses that want to simultaneously pursue profit and benefit society (…) that it fills a gap between traditional corporations and non-profits by giving social entrepreneurs flexibility to achieve the dual objectives of doing well and doing good‖, (Noked, N., 2013). 1.2- Benefit Corporations v/s Certified B Companies There is usually confusion between Benefit Corporations and Certified B Corps., but the difference is very simple. Certified B Corporations are companies that were certified as ―B Corps‖ through a process determined by the B-Lab; a non-profit organization created in 2007 and dedicated to provide these certifications to companies that are not legally Benefit Corporations (Benefit Corps don‘t need to be certified because they were legally born this way).

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It‘s important to clarify that B-Lab was founded in 2007 to certify companies, and Benefit Corporations, as a legal form, was introduced for the first time in Maryland on April 2010. In other words, both have the same intentions but with different forms of implementation. In this regard, when I talk about B Corps I‘m referring to both of them; Benefit Corporations and Certified B Corps. 1.3- B Corps v/s Traditional Companies To understand the main differences between these two business forms, it is relevant to mention that until recently (before the benefit corporation legal structure was passed in several states of U.S.A.) ―corporate law has not recognized the legitimacy of any corporate purpose other than maximizing profits. That old conception of the role of business in society is at best limiting, and at worst destructive‖ (Gilbert, J. C., Houlahan, B., Kassoy, A., 2013. These authors are the founders of the B Movement). The article ―Today Marks A Tipping Point In The Evolution Of Capitalism‖ was published in several mass media in U.S.A. when Delaware State passed the benefit corporation legal structure on May 17th of 2013. The importance of this fact is that Delaware is ―home of 1 million business, including 50% of all publicity-traded companies and 64% of the Fortune 500, it is the most important state for businesses that seek access to venture capital, private equity, and public capital markets‖ (Gilbert, J. C., Houlahan, B., Kassoy, A., 2013).

Basically, the idea is that corporate law requires only profit maximization, leaving aside any attempt of social responsibility or social impact, which means that entrepreneurs or company owners with a missiondriven business may be ―reluctant to accept outside capital from investors who may not share their long term vision (…). The ability to register as a benefit corporation empowers these entrepreneurs, not only to take their company to scale while maintaining mission, but to clearly identify themselves as purposedriven companies‖, (Gilbert, J. C., Houlahan, B., Kassoy, A., 2013). In other words, and just as the CEO of Mycorporation.com -Deborah Sweeney- states ―Benefit corporations still have a fiduciary responsibility to make money, but profit does not have to be the exclusive goal. In fact they are legally required to show how they created a public benefit in order to stay in compliance (…). The B-Corp structure helps assure those investors that the business won't sacrifice its beliefs to chase down the almighty dollar. There is nothing wrong with making money, but there are lessthan-scrupulous ways to make more of it -- and benefit corporations are founded to help executives and directors resist pressure to follow that path‖, (Sweeney, D, 2013).

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1.4- B Corps v/s Non-profit companies The big difference between non-profits and Benefit Corporations is that the last one is a for-profit corporation and the other not. As Drake Forester -chief legal strategy officer at Northwest Registered Agent Services- explains, B Corporations ―operate and follow corporate formalities like any other big business corporation, except benefit corporations have elected to adhere to additional guidelines: issuing annual transparency reports; committing to operate in a responsible and sustainable manner; and staying accountable to shareholders, those materially affected by the corporation‘s conduct, and the corporation‘s specific benefit purpose. These elections allow benefit corporations to pursue a broader set of objectives than profit alone without worrying about angry shareholders seeking fatter returns on their investment. Like any other business, though, a benefit corporation will fail if it isn‘t profitable, and unlike a non-profit corporation whose selling of a product or service may be incidental, a benefit corporation needs a product or service to sell‖, (Forester, D., 2013). Another interesting difference is that Benefit Corporations doesn‘t have any special tax treatment in U.S.A., but non-profits can apply for a tax-exempt status. 1.5- Inside the B-Lab and Certified B Companies The idea of creating a Certification Laboratory for B Companies emerged because there was no realistic and objective way to know or certify if a company was really working and doing something good for the community and environment, and not only giving ―noisy contributions to charity or clean energy without making any meaningful structural changes‖ (Richardson, J., 2013). Bart Houlahan -one of the Co-founders of B Lab- explained in 2007 in an interview that the laboratory works to create ―a new kind of company for a new sector of the economy (...). We can effect real change for business and for the world by being socially and environmentally responsible. But as you scale, it just gets more and more challenging, and there have been no real standards to go by. B Lab decided to do something about that.‖ (Wharton University of Pennsylvania, 2007). So today, more than 6 years later, ―B Corp (the certification) is to sustainable what Fair Trade certification is to coffee or USDA Organic certification is to milk‖ (Bcorporation.net, 2014). But how was this Laboratory born? In John H. Richardson Article, there is an interview to Jay Coen Gilbert, another of the Co-Founder of B Lab, who stated that ―We wanted to figure out how we could harness the power of markets to solve social and environmental problems (…) Our assumption was government and nonprofits are hugely necessary but insufficient to the task — business is three-quarters of the GDP. So we figured that trying to figure out how to remove some of the impediments that prevent business from being part of the solution would be a pretty useful thing.", (Richardson, J, 2010). 9

So the solution for creating the standards and measure them (you can manage only what you can measure) was the B Lab, and his rating system which includes 180 factors, ―from how green the corporate buildings are to how well the employees are treated and even how much transparency appears in the corporate report‖ (Richardson, J., 2010, citing J.C. Gilbert). And as Houlahan also said: ―If the 20thcentury was a time for shareholder equity, then the 21st century has to be one [for] stakeholder equity ‖ (Wharton University of Pennsylvania, 2007). But isn‘t this just another certification? Andrew Kassoy, another of the Co-Founders of B Corp, explains the difference in an interview made in The Guardian newspaper. "Most certifications are product certifications. They tell you a lot about the bar of soap that you're buying or the bag of coffee… but they don't tell you about the whole company. So big agriculture is increasingly making organic food, but it doesn't tell you that those companies are doing anything useful for the environment or for their employees‖, (Balch, O., 2013). What Kassoy is saying, is that previously, there were no certification that could provide a ―comprehensive understanding of a company‘s performance as a whole‖ (Balch, O., 2013), and that it is very important to have a tool that can show the customers that what the company is saying about sustainability can be proved and measured. 1.6- B Certification v/s Fair Trade The main difference between Fair Trade and B Certification is that the B Movement doesn‘t look only towards product attributes to evaluate the impacts of the value chain process, but the whole company. According to Dirk Sampselle (Sampselle, 2012), a Founding Partner at B Revolution Consulting, a benefit corporation consulting firm that helps social entrepreneurs structure, fund, and market their social enterprises, ―Unlike ‗Organic‘, ‗Fair Trade‘, or ‗LEED‘ certifications, the B Corporation certification does not look narrowly at product attributes to determine their environmental or social impacts; rather, B Corporation certification looks comprehensively at the entire business – its governance, suppliers, employees, and social and environmental impacts – to determine whether the business satisfies objective responsibility requirements. Companies are rated on a scale of 0 to 200, and those that achieve a score of 80 ―pass‖ and become eligible to receive the certification‖.

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Chapter 2: The arrival of B movement in South America 2.1- Chile as a key player in South America When I first started searching for information regarding the arrival of this movement in Chile and South America, I found an article that mentioned something that surprised me. ―According to the Sacramento Bee (a newspaper in California), B Lab will establish partnerships with organizations that have regional presence and expertise and leverage financial and technical support provided by the Inter American Development Bank, the Rockefeller Foundation, Halloran Philanthropies, Prudential Foundation, Linklaters, the Ford Foundation, the Avina Foundation, InnovaChile CORFO and Deloitte LLP‖. (Siegel, RP, 2012). Wait a second… InnovaChile CORFO along with Inter-American Development Bank and the Rockefeller Foundation? Why? The Certified B Corp. webpage in Chile (and for South America) is SistemaB.org, and there anyone can find that InnovaChile CORFO is a ―sponsor to strengthen B System and B Companies in Chile‖ (Sistemab.org, 2014). But first we have to explain the mission of CORFO (―Corporación de Fomento de la Producción‖ which means ―Production‘s Promoting Corporation‖), which is to ―promote the entrepreneurship and innovation to improve the productivity of Chile, and also to reach world leadership positions regarding competitiveness‖ (Corfo.cl). So, we can see that CORFO (a government‘s corporation) is supporting the B Movement in Chile, which means that it is gradually reaching an important position in the country, certifying more companies year after year and enlarging the network. Gonzalo Muñoz (founder of the first Certified B Company in Chile, Triciclos, and also one of the entrepreneurs that decided to bring the B Movement to Chile) explains the connection between CORFO and the B Movement. ―Chile is a country where entrepreneurship is valued, where the Government and different organisms like CORFO and Fundación Chile have been promoting the generation of entrepreneurship ecosystems. Is precisely there (CORFO and Fundación Chile) where de majority of certified companies are coming from‖, (Nuñez, P., 2012). And it seems that these actions did have a positive impact regarding the growth of certified b companies inside the country. As showed in Table 1, Chile is today ranked as the 3rd country with more certified b companies in the world, hoarding the 4,2% of world‘s percentage (after U.S.A. and Canada with 74,3% and 11% respectively).

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Besides, it is important to explain that Sistemab.org is independent from the North-American webpage. The story goes like this: ―In 2011, a group of Chilean entrepreneurs (Gonzalo Muñoz, María Emiliana Correa and Juan Pablo Larenas) decided to bring and impulse this movement in Latin America, establishing contact with the founders of B Lab in U.S.A. to present the idea. They proposed that the impulse of a Sustainable Development in the emergent markets of the South Hemisphere could generate an effective and immediate change, using a different formula: the efficiency of companies and markets at the service of humanity and a sustainable social and environmental world‖ (Silva, R., 2013). So, the concept arrived in Chile in 2012 and 30 different companies from Chile, Argentina and Colombia made the certification in the same year. But the idea was not only to just implement the same NorthAmerican certification model, but to add a complementary proposal which could impulse these new companies as a community for the local environment that could generate a greater impact; for example, through the involvement with governments (like CORFO), knowledge centers, markets, consumers and civil society, creating a new conception of the economy and the work of the companies in it. Today the movement is quiet small in South America, but the growth it has shown since the creation of it (in 2012) is worth of consider: from 30 certified companies in 2012 to 92 in February 2014, which means 300% of growth in 1 year and 2 months. And more countries are joining, like Brazil and Peru. 2.2- Steps to become a B Company in Chile The process of certification includes 6 steps (Silva, E., 2013): 1. The B Evaluation (free and on-line), which measures every dimension of the company; for example policies, labor and environmental practices, supplier‘s relationship and corporate governance. 2. Review of the evaluation with B Lab team. 3. Deliver, digitally, supporting documents to prove the given information was true. 4. Sign the contract to be a Certified B Corp. with the conditions, right and duties established between both entities. 5. Modify the company statutes, incorporating the social turn of it in a legal form (the constant search to generate a social-environmental good / the protection of the company‘s purpose even if the owners change). 6. Pay for the certification, according to the turnover of the company (from US $500 to US $25.000). It is important to mention that every Certified B Company has to re-certificate after 2 years, and the objective is that the results should be better than the previous evaluation, because the idea is to provide incentive to companies to generate a continuous improvement and reach a position as market leaders, 12

validating the thesis that it is possible to be profitable and, at the same time, create benefits for the society and environment.

Chapter 3: Benefits of becoming a Certified B Company 3.1- Member of the “B Club” Network Juan Pablo Larenas is an Executive Director of Sistema B in Chile, and he explains that when a company gets the certification, she starts to belong to a network where collaboration and alliances between each other exists and can benefit them. ―These are commercial alliances that generate learning and knowledge transfer‖ (Salas, M., 2013). Accompanying every B Certification process, each company will receive a document called ―Path of Improvements‖, which is personalized and proposes a route of improvements to incorporate inside the company according to the results of the evaluation. Besides, Sistema B provides the opportunity to participate in several workshops and offer support in areas like Good B Practices, Access to Clients and Markets, Investment and Communication for every B Company. On the other hand, there is also a support platform that provides different kind of services (for free or at a very low price) like software, legal assessment and mentoring. Moreover, several B Companies offers special discount in products and services for their ―B‖ clients. Leadership When a company becomes B, she reaches a position as a leader. Why? Juan Pablo Larenas thinks that ―It‘s like being part of a club of people that is posing a different shape of companies, and you become a reference of that. The quantity of reportages and invitations to seminars and forums to speak about B Corps is incredible‖, (Salas, M., 2013). Attract investors and international funds There are several investors and international fund agencies interested in investing in Certified B Companies, which leads to an important opportunity regarding capital investors. In fact, ―Investors, in turn, increasingly want to use their investments both to make money and to make a difference. The Socially Responsible Investing (SRI) movement has grown over the past 30 years to represent nearly 10% of U.S. assets under management, or roughly $2.3 trillion. A November 2010 report by J.P. Morgan, entitled ―Impact Investments: An emerging asset class,‖ estimates the size of this market opportunity at between $400 billion and $1 trillion‖, (Gilbert, J. C., Houlahan, B., Kassoy, A., 2013).

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Let‘s take a look at some statements from different investors and shareholders of B Corps in the U.S.: -

―Our firm, Equilibrium Capital Group, is a B Corp, and one of a growing number of investors that are seeking to invest in B Corps and companies that explicitly create value for both shareholders and society." - David Chen, Equilibrium Capital Group (Bcorporation.net, 2014).

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"There is so little commonality among social ventures that we have to evaluate investments on an individual basis. But if we know it is a B Corporation, we already know a lot about the company and its values." - Kevin Jones, Good Capital (Bcorporation.net, 2014).

Now let‘s take a look at some entrepreneur‘s statements about this same issue: -

"Our investor saw iContact‘s focus on social and environmental responsibility as a point of differentiation with our competitors and a driver of long-term growth." - Ryan Allis, Founder & CEO, iContact, recently sold for $169 million (Bcorporation.net, 2014).

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"We raised capital and our lead investor was also a Certified B Corporation. The B Corp connection meant access to capital from mission-aligned investors.‖ - David Murphy, Chairman, Better World Books (Bcorporation.net, 2014).

To close this point, another important concept related to investors and funds for Certified B Companies is GIIRS (Global Impact Investing Rating System), which is a ―rating and analytics platform that can facilitate the flow of capital and provide leadership on judging impact performance as a public good (…).The impact investing industry is facilitating investments that are not only socially responsible, but which also actively create positive social and environmental impact. In order to scale the impact investing marketplace, investors require an independent third-party impact ratings product that is comparable, transparent, and easy to use‖, (Giirs.org, 2014). Every Certified B Company has access to use this platform, and the benefit of it, is that they can search for different types of investors and funds, like the Global Impact Investment Network; ―a not-for-profit organization dedicated to increasing the scale and effectiveness of impact investing‖, (Thegiin.org, 2013). 3.2- Innovation If a company gets the certification and becomes a B Corp, innovation starts to play a very important role inside of it, because -for example- for every certification period (after 2 years), the idea is that every company should improve her standards and processes constantly.

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―Every company generates a negative impact, but if they are aware of that and if they are willing to innovate, B Companies is a big center of innovation because it forces you to do things in the right way (…). We only want to show the world that you have to manage your company in a different way, but to do that, you require several commitments, duties and rights, make certain changes and thus improve with the time. When you become a B Corp and sacrifice yourself, you are just beginning to walk an unlimited way of improvement, innovation and commitment‖, explains Juan Pablo Larenas (Salas, M., 2013). The big stamp of innovation, Larenas thinks, is that to become a B Companies, you have to make a real and legal commitment to operate under that form; questioning the profit-making because it really matters how you achieve that profit. ―The citizenship is demanding more responsible companies, there is a change in the paradigm. And this is a change, an evolution in the way of managing a company‖ (Salas, M., 2013). And if a company really wants to be responsible with stakeholders, it requires being constantly innovating and searching for new ways of improvement in all processes where the company is involved. 3.3- Committed Workers Workers as a priority As we know, B Corps are supposed to create quality jobs and also improve life-quality in the communities. Normally, a company worker is also part of the community, so if there are benefits for him as a worker and also as member of the community where the company is involved, the commitment logically increases. Nowadays, it is normal to see that when a traditional company is having financial hard times, the first ones that are going to feel it are the workers and the community; by laying off employees, reducing CSR, remove workers benefits or even moving the entire factory to another country because it‘s cheaper. But in Certified B Companies, this is not the usual way to manage a financial crisis. Leslie Brokaw, contributing editor of MIT Sloan Management Review, explains this difference in her in the words of Foley Hoag Law firm. ―The directors of a traditional corporation faced with financial hard times may opt to build up cash reserves by laying off employees, in order to fulfill their fiduciary duty to prioritize the financial returns to investors. A benefit corporation‘s directors faced with similar economic circumstances could prioritize retaining the corporation‘s workforce through the hard times, and opt to dip into cash reserves to do so, in order to continue to fully pursue the corporation‘s public benefit goals. Boards and officers are required to consider not just the shareholders but the employees; community factors; the local, regional and global environment; and both the short-term and long-term interests of the corporation‖, (Brokaw, L., 2012).

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When workers are aware of that the company is considering them as a priority, the loyalty and commitment increases, which leads also to a rise in efficiency and efficacy. Attract best talents Today a lot of people are interested to work in companies with a purpose that goes beyond making profit for the shareholders, according to Harvard Business Review: ―Millennials, which represent roughly 50% of the global workforce, want work that connects to a larger purpose. Hewitt Associates: Companies with higher levels of employee engagement outperformed the stock market by nearly 20%‖, (Bcorporation.net, 2014). There is a good example of a Chilean company called ―Pegas con Sentido‖ (―Works with sense‖), which is a ―consulting company and headhunting platform that supports public, private and civil institutions in the search of professional workers that can increase their competitiveness in an economic, social and environmental level, decreasing the rotation and accessing to the necessary profiles to reach the success in the new economies‖ (Pegasconsentido.cl, 2012). So, we can see that at least in Chile, there are not only professionals who want to join corporations with a higher purpose; there are also companies that are looking for people with a ―B‖ consciousness. There is another interesting indicator showed in the article ―Today Marks a Tipping Point in the Evolution of Capitalism‖. It says that for two-thirds of employees (69%) in the U.S., social and environmental track record is a deciding point to look for a job and choose a company; statistic that is stronger between MBA graduates, who have expressed that (88%) they would be ―comfortable taking a pay cut to work for a company that has ethical businesses practices versus one that does not‖, (Gilbert, J. C., Houlahan, B., Kassoy, A., 2013). 3.4 New markets & customers opportunity Differentiate form your competence Nowadays, it truly matters for customers and several investors, if a company is doing something or not to be sustainable and respectful with the society and environment. What I mean with this is that if the B concept is worldwide spread and known by a high percentage of the global population, the advantages and opportunities to amplify the market share for Certified B Corps are immense; mostly because the tendency shows that in the future, it would be inconceivable to manage a company with non-sustainable policies.

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Therefore, certifying as a B Company can be an important differentiation with the competence -with traditional companies-, which could lead to catch more clients and, because of that, increase the sales and attract new investors. Here are some interesting examples of some press articles regarding this idea: -

―90% of Americans say that companies must not only say a product or service is beneficial, but they need to prove it." - Cone Communications (Bcorporation.net, 2014).

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―73% of consumers care about the company, not just the product when making a purchasing decision." – BBMG (Bcorporation.net, 2014).

And what customers say when they realize that a certain company became a Certified B Corp is also reaffirming it: -

―You became a certified B corporation in June 2007, and it just makes me love Method even more. This makes me even more proud to support Method‖ – Method customer (Bcorporation.net, 2014).

-

―The fact that Dansko is willingly commiting to seek the benefit of ―all stakeholders‖ instead of just shareholders helps me to have more faith in them. The fact that they have committed to a higher level of environmental standards makes me want to support them‖ – Dansko customer (Bcorporation.net, 2014).

One last and illustrative example to close this point is the one posted by Drake Forester (Forester, D., 2013). To show the differences between B Corps and Traditional Corps, Forester takes the example of the Plum Organics; an organic food and snacks business that focus the target-market on babies and young children. The main reason why Plum was recently listed as one of America‘s Most Promising Companies by Forbes is not only because of the environmentally-friendly packaging they are using, but for the community projects they are leading (an intrinsic objective in a Certified B Company). ―By the end of 2013, Plum will have donated more than half a million of their organic food pouches this year to families in need. Part of their corporate purpose, aside from profit, is to help provide healthy meals for starving children throughout America (…).Of course, the directors at Plum Organics and the company‘s consumers may well argue that one of the main reasons why the company has done so well is because of their benefit purpose, that people are buying because of the company‘s structure and broader corporate goals‖, (Forester, D., 2013). 17

But Certified B Companies should be aware with the customer relationship, because inside B Corporations world, the power of clients is strong. As Juan Pablo Larenas explains, every person in the world can raise a complaint about B Corps through the webpage, questioning that ‗what a company is saying is not consistent with her actions‘. The complaint is send to the company, and if she doesn‘t achieve to prove that the complaint is not consistent, the status of B Corp is removed. ―That‘s the way how the citizenship can exercise his right‖ (Salas, M., 2013). New customer market ―I love Numi teas and I‘m so pleased to learn that their business practices are in line with my values. I‘ve always thought that their teas were beautiful and now I like them even more for all their other efforts‖ – Numi Customer (Bcorporation.net, 2014). This customer‘s statement helps to understand that outside there is an important market looking forward to find and buy products from companies that are respectful with the environment and that contributes to the society. A lot of them (mostly outside U.S.A. and, for this essay‘s case, Chile) still don‘t know about the meaning of being a certify B company or even where to find one, but -as expressed before- when this movement comes to be well known inside a society (let‘s think about Chile), the opportunities are very high to catch a big percentage of the market share, because the company could target two customers groups: the ―environmental supporters‖ and also the traditional customers who will prefer to buy a ―B‖ product instead of a traditional one. One of the big challenges, of course, would be to enter the market with a competitive price. ―Approximately 68 million U.S. consumers have stated a preference for making purchasing decisions based upon their sense of a company‘s social and environmental responsibility. Meanwhile, recent research has also indicated that where price and quality are equal, 86% of consumers would switch from their current brand to a brand that is socially responsible (Point in the evolution of capitalism article, (Gilbert, J. C., Houlahan, B., Kassoy, A., 2013). Internationalization Internationalization can be another benefit if a company decides to apply for the certification. It was showed before that when a company becomes ―B‖, there is an opening to interact with other B Companies in the world, because the company becomes a member of the B network -a worldwide network-. So, what about inserting in the value chain of a big company in the U.S. for example? Let‘s think that an important B company in U.S.A needs a supplier for the manufacturing of reusable bags. It is very likely that this U.S. company will prefer to buy these bags to another B Corp… And as B Corporations are all linked through the B Network (everyone can make a search in the website Bcorporation.net by country 18

and sector), there is a big chance that this U.S. company will get to know the Chilean B company who produces reusable bags (like the company Bolsasreutilizables.com). The following example supports the idea with a real example that occurred in U.S.A.: ―We got one of our best clients because we are a B Corp. Mission Markets was about to sign a check to another web development company, but when they heard we were a B Corp, they decided that they had to hire us instead‖ - Elissa Miller, Founder of Single Brook Technology (Bcorporation.net, 2014). But this is not only an opportunity between B Companies. Let‘s assume that a big international ―traditional‖ company wants to start buying products and inputs only to Certified B Companies because that is one way to show to their customers commitment to the society and environment; maybe a first step to show their customers that they are searching for sustainability… It could be another opportunity for Certified B Corps to be part of a traditional company‘s value chain. However, there are two important factors to consider when a company (and mostly Certified B Companies from Chile) wants to internationalize: Having the option of ―English Webpage‖ and also inserting the Certified B Logo in the website in a visible spot. I made a review of all the Chilean certified B Companies websites that were available through Sistemab.org, and this was the result: Table 3: Review of Chilean B Companies (English website and B Logo included in webpage) Company Advanced Innovation Center Best Energy

English website

No

Bolsas reutilizables.com Britec

Certified B Logo

Company

English website

Certified B Logo

Gulliver

No

Yes

Importa

No

No

No

Impresión Uno

No

Yes

No

Yes

Insamar

Yes

No

No

Yes

Karün

Yes

Yes

La Bicicleta

No

Yes Yes Yes

Yes

Yes

broota

No

No

Canvis

No

No

Casa estudio

Out of service

Out of service

Late

Yes (but not working)

Cerco

Yes

Yes

Latitud 90

Yes

Claneco

No

Yes

LD

No

No

Comparte

Yes

No

Lumni

Yes

Yes

Cubiertosdemadera.com

No

Yes

Müsuc

Yes

Yes

Cultiva

No

No

Needo

No

Yes

Cumplo

No

Yes

Pegas con Sentido

No

Yes

Degraf

Yes

No

Route green

No

Yes

Ematris

Yes

Yes

Rupestre

No

No

Emprende joven

No

No

Sanosnack

No

No

EmpreDiem

No

Yes

SSC Wood

No

No

Epullen

No

No

Tools 4 Change

No

Yes Yes

Focus

No

Yes

Triciclos

No

FonoEmpleo

No

No

Trum

No

No

Gentexpresa

No

No

VeOmás

No

Yes

Greenlibros

Yes (but not working)

No

VOZ

Yes

Yes

19

The results from this exercise were that 74% of Chilean B Companies doesn‘t have an English version website, and 42% of them don‘t include the B Logo in the webpage. And that is something basic that must be improved to think about getting international.

Chapter 4: Challenges for B Corps 4.1- Recognition One important challenge for the B movement (in Chile but also in U.S.A.) is the recognition of the consumers and, mostly, of the society in general, because they are relatively new in the market. When I contacted the B Office in Chile, I asked them about this issue, and they told me that they are known in specific niches, but in the Chilean market in general, they are at a very small scale. They have had several press appearances, they have participated in seminars with the Ministry of Economy and they also had meetings with the presidential candidates in 2013 (Chile elected his new President in 2013). In fact, they will present the project to the new president of Chile, Michele Bachelet, but one problem that they are facing is that Sistema B is, for example, still not as recognized as Fair Trade. And that‘s why they want (and need) to massify the concept in Chile and Latin-America; to reach the objective of becoming an important player in the definition of Chilean and Latin-American Economy. And to accomplish that, they traced several objectives for 2014, which are related to generate a robust and strong B Community in Latin-America -which improves with the time in terms of impact in their industries and towards their consumers and customers-; and also related to the development of a Politic Public Agenda, which could end in a law for Fourth Sector Companies, like in 20 states of U.S.A. Finally, in terms of a Positioning Strategy, there are two focus to follow: One is B2B (towards supplier companies and customers of B Companies); and the second is B2C, toward the final consumer, strengthening the B concept (a company which is responsible with society, community, workers and environment). They totally believe that consumer‘s decisions have an immeasurable power that can define the offer and, in some minute, open the market for B Companies to gain a position in supermarkets or in retail enterprises to get bigger. If a B product becomes popular, supermarkets and retailers will want to have it and sell it… But the challenge is to make this ―B‖ product popular and competitive with traditional company‘s products. -

―Of course, as more people discover benefit corporations and figure out what they are there for, the numbers should go up. Education in this area will be critical to increased adoption. 20

Nevertheless, as it currently stands, B-Corps represent a tiny minority of all corporations‖. (D. Sweeney, 2013). -

"Having a well-established company that people know become a B-Corp will lend credibility to this very real movement," said Katie Kerr, B-Lab spokeswoman. "Consumers want sustainable and responsible businesses, but they don't always know how to find them. Having such a big name will help people recognize this field and know they can look here". (Van Brussel, J., 2012).

4.2 Certification for big companies When anyone takes a look at the companies that are certified in Chile, one can figure it out easily that most of them are SME‘s (and principally, small or micro size companies. No big companies are included in the list showed in Table 3 and 4). And in the United States it seems to be similar, but there are also some of significant size like Dansko, Patagonia, Ben & Jerry‘s, Warby Parker, Etsy.com and Method. In this sense, one important challenge for the B Movement in Chile (and South America) would be to ―connect‖ with big companies and certify them, because that could give an impulse to more and more companies (big and smalls) to ask for the certification. Mostly, because if a big company becomes ―B‖, their suppliers should also be -preferentially- ―B‖, which rises an opportunity for new ―B‖ SME‘s to pop up and start business in the market. And if the competence of that big company figures out that she is now a ―B‖ Corp, there is a huge possibility that they will also want to get the certification. If a big company becomes ―B‖ (let‘s think in a retailer company), she is supposed -because of the B Network- to give the opportunity to other B Companies to sell their products, despite they are SME‘s. 4.3- Competitiveness What about the competitiveness of the Certified B Companies? When I first came up with this question, I thought that of course it was impossible for them to be competitive because of the expenses they have to incur for achieving their ―social and environmental‖ purpose… But maybe I was wrong, because one thing is having more expenses but other is be willing to have less profit than a traditional company (like the example of Plum Organics). One of my main misunderstandings regarding B Corps was to think that maybe a company will choose to become certified just to increase the sales. Maybe that could also happen, but when I asked this question to the B Corp office in Chile, they told me that the objective of acquiring the certification is not to increase sales, but to improve your sales for a bigger purpose and through other paths, like internationalization or opening new markets. It is clear that the challenge for a Certified B Company is much higher than the one of a traditional company in terms of competitiveness, because they (B Corps) need to have competitive prices to enter the 21

market, but respecting the environment, community and workers, which could increase the costs of production (that‘s why innovation plays an important role in B Corporations). But they choose to play this game, and they know that they need to be competitive to survive in the market. Otherwise, they will be kicked out or, even worse, go bankruptcy. According to Bart Houlahan, ―B Lab aims to prove that socially responsible brands can succeed in all types of markets while using a variety of strategies. The method brand of soap products, for example, wants to become competitive with Procter & Gamble and other major players in the sector. To do that, it is not enough to just have customers who will buy the products because they are environmentally friendly, Houlahan noted. The company also has to present goods with bright, attractive packaging and a competitive price, and get those products on the shelves at major stores such as Walmart and Target, where the average consumer can find them easily‖, (Wharton University of Pennsylvania, 2007). There are no excuses for B Companies to grow slow ‗because they have to worry not only about shareholders, but also about stakeholders‘. B Corporations are profitable business that committed themselves to generate also a public benefit. So the challenge is double, but the rules are the same for both traditional companies and benefit corporations… they can‘t afford a slow growth or losing money in their road to generate public benefit; they need and must also be competitive to survive in the market.

22

Conclusion Is this the evolution of capitalism? Is this really a movement that can change the traditional way of making business, leaving aside the obsession of profit-making and focusing in a social mission? Personally, I think the answer to those questions is yes; it could be. I believe some business people (from now, still a minority group) are having these change of paradigm inside their heads, willingly to make a difference in the way of making business. And the reason why I think this is possible is because the ideology of B Corporations still haves a capitalist base; still cares about profit; and still operates as a business (I mean, they need to be competitive in the market, they need to improve constantly because they still can fail or go bankruptcy if they perform badly), but in a logical way. Why in logical way? Because at least for me, sounds logical that a company may have other purposes than only maximizing profits for shareholders. Business, as one of the most powerful man-made force on the planet, can contribute to create value for society and for the environment. It also sounds logic that a company should worry about the community where she is inserted; to put the workers as a priority; and to take care about the environment. But with legal and real commitment; not just with a handful of CSR activities at the end of the year. ―Capitalism is becoming less obsessed with revenue and more focused on creating social value (…). If 20th century was obsessed with maximizing financial returns, then the 21st century will be all about creating social value‖, (Balch, O., 2012, citing Andrew Kassoy). However, the challenges are big, and principally for Chile and South America, where the movement started recently in 2012. And for them to grow, Sistema B needs to pass laws (they know it, and they are working on it) and improve in people‘s recognition… people must know about them to start being an important player in the local economy. It is also necessary to generate more impact in large and medium companies, and not only small and micro size ones, because this impact could create a massive interest for enterprises to acquire the certification. Let‘s suppose that a big retail company becomes ―B‖… This means that the companies inserted in the supply value chain would also need to be ―B‖, and if the competence notices that ―being a B corp is attracting more customers and new clients‖, they would also decide to apply for the certification. I think that time is what it takes for this movement to grow… Time and a bigger network. In fact, the network is growing fast; today there are 29 different organizations supporting Sistema B in Chile, where CORFO is one of them. And recently Brazil and Peru joined the B Community. 23

Of course there are opinions saying that the impact of B corps will not be big for the worlds or America‘s economy, but I think every big idea requires some time to mature. Forbes Magazine published an article on 12th April of 2010, written by Susan Adams, called ―Capitalist Monkey Wrench‖, where one of the topics discussed was that the Rockefeller Foundation gave US$ 1 million to develop a new rating system for social and environmental effect. ―Wealth advisors and private banks are hungry for such a standard, says Antony Bugg-Levine, a managing director at Rockefeller: ‗Credible ratings unlock a whole new source of capital‘. But can it unlock wealth? So far all the B corps are privately held, and none has revenues exceeding $200 million. David Vogel, a business ethics professor at the Haas School at UC, Berkeley, who has written extensively about corporate responsibility, doubts the potential is that great. "It's a moderately nice thing," he says, "but it won't be transforming American business‖, (Adams, 2010). But is really ―unlocking wealth‖ the main purpose of the B Movement? I don‘t think so, and the article Today marks a Today Marks A Tipping Point In The Evolution Of Capitalism‖ provides an overview about why. ―(…) And for investors, it mitigates risk, reduces transaction costs, creates additional rights to hold management accountable, and accelerates the growth of a big market opportunity to meet the needs of people who want to invest to both make money and make a difference.‖ Make money and make a difference… that‘s the key. They are not talking only about profit maximization; here one must understand that the proposal of B Corporations includes a change of paradigm in the way ok making business. The main objective (unlike the traditional capitalist way) is to contribute with social benefit, and a Benefit Corporation or a Certified B Corp must have that purpose clear in their statutes. I will take one last example of a company called CERCO from Chile. The country‘s problem that they want to contribute to solve is delinquency, because it increases every day and the actions that the government is implementing are always guided in the same direction, generating insufficient results. CERCO wants to change the perspective of this problem by implementing training and reintegration plans for law-offenders… and they are achieving it as one of the leader Chilean companies in employment and reintegration of law-offenders; making profit for shareholders but also using the power of business as a force of good to solve social and environmental problems, creating a public benefit… and making a difference. To close the discussion, I will cite for the last time, to Juan Pablo Larenas, who provides a clarifying view about this and contributes to understand why the main objective of B Corps is not to unlock wealth, but to invest and make business in a non-traditional way. 24

―To truly live in a more egalitarian society, with less poverty and with a healthier environment, we don‘t need only companies that put people in the center of it; we need investors to start investing in a different way. We need public policies that are friendlier; we need universities teaching this issue so that new entrepreneurs come out with this ‗chip‘ in their heads. We need every single actor of the economy in this, and that‘s why we have ally with more organizations‖, (M.P. Salas, 2013).

25

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