Attendees in the Malouf Home showroom at Las Vegas Market. Photo appears courtesy of Malouf Companies.
Heading into the 1970s, the idea that for-profit businesses are bound by a social contract to benefit society began to take hold. This attitude was encapsulated by the term “corporate social responsibility” (CSR).
In response, economist Milton Friedman published an essay in the New York Times, asserting that the sole social responsibility of the corporate CEO is to maximize shareholder value. The Friedman doctrine, as it came to be known, claims that CEOs who dedicate company resources to CSR initiatives—if they don’t increase shareholder value—are stealing from those same shareholders and should be fired. As investors are enriched by the CEO’s leadership, Friedman argued, they can spend their money as they wish, including on the pro-social causes of their choice.
While the Friedman doctrine lost some of its luster in the wake of the Great Recession of 2007-2009, it remains highly influential and a source of conflict in the boardroom as CEOs attempt to reconcile public expectations of corporate citizenship with shareholder expectations of quarterly earnings.
Perhaps coincidentally (and perhaps not, given the profit-seeking excesses that led to the financial crisis), something else happened in 2007: The first Benefit Corporations—commonly referred to as B Corps—were certified through an extremely rigorous audit process administered by the nonprofit B Lab.
Certified B Corps are related to but different from companies registered as Benefit Corporations, the latter being a legal designation attainable by any for-profit business willing to submit the required application. The purpose of a Benefit Corporation is to facilitate the development of a corporate entity dedicated to keeping positive impact on society and the environment as part of its core business mission. A certified B Corp, on the other hand, is a Benefit Corporation rigorously proven to be effectively executing on that mission.
Eva Witesman, academic director of Brigham Young University (BYU)’s Ballard Center for Social Impact explains that certified B Corps are for-profit businesses organized upon a foundation of providing societal benefit.
“A certified B Corp really starts with the classic mission, vision, values, culture and accountability inside the organization, Witesman says. “By doing that, you can align your pro-social mission with your business mission. You don’t end up with that tension in the boardroom that comes from adding CSR or pro-social philanthropic initiatives on top of and separate from your core business mission.”
Photo credit: Cotopaxi
The process of becoming a certified B Corp is very difficult and typically requires years of work reorganizing and reforming a corporate entity in five areas: governance, workers, community, environment and customers. There are over 2,500 certified B Corps in the United States and another 4,000 globally. Only a handful of Utah companies are currently certified as B Corps, including the outdoor gear company Cotopaxi, the publisher Gibbs Smith, the furniture retailer Malouf Companies and its subsidiary Downeast.
Beyond surface-level sustainability
Cotopaxi is Utah’s most long-standing certified B Corp, having earned the distinction in 2015 and re-earning it each year since. Annie Agle, Cotopaxi’s VP of impact and sustainability, echoes Witesman in saying that the challenge of gaining that initial assessment is in making CSR efforts more foundational than supplemental.
“The first time you go through the B Impact Assessment (BIA), it’s very challenging,” Agle says. “A lot of companies realize they might have informal practices around sustainability but they haven’t documented them or ingrained them into the company, so it’s a lot of work.”
Cotopaxi offers a very visual example of how good business ideas and benefits to society can be the same thing. Central to the Cotopaxi product aesthetic is the vibrant and random patchwork color scheme of the bags they manufacture. This powerful brand identifier is, at its heart, an important pro-sustainability strategy.
“Our super colorful backpacks are made from scrap materials left over from other companies’ production runs,” Agle says. “This keeps textile waste out of landfills and incinerators and means these products are carbon-neutral up to the point of shipping. Our ‘Sustainable by Design’ ethos means we aspire to design products in ways that eliminate waste rather than generate waste.”
Passing the test
Taking the BIA, which determines a company’s baseline score in each of the five impact areas, is the first step toward B Corp certification. The highest possible score is 250 and certification requires a score of 80 or higher. Currently, the median assessment score comes in at a failing 50.9.
“We took test assessments for years to see where we scored until we had our ducks in a row enough to get the certification and were ready to officially submit ours,” says Lareen Strong, director of operations and services at Gibbs Smith, one of Utah’s newest certified B Corps.
Strong says these assessments challenged many assumptions held by company leadership, particularly when it came to Gibbs Smith’s environmental impact. Despite running carbon neutral for years, the BIA revealed that the company also needed to adopt more eco-friendly sources of paper and ink.
Photographer Lindsay Thacker for Gibbs Smith
By the time Gibbs Smith submitted a successful application, the company scored 105. Despite the challenges of getting to that point, it was always a matter of when, not if.
“Some look at the numbers first and decide if these improvements are ones they can afford. We did it in reverse,” Strong says. “We determined to do it and then figured out what it was going to take to make the numbers work.”
Successfully merging commercial and social missions brings benefits beyond satisfying the ethical demands that certified B Corps leaders feel. There are knock-on effects proving key to attracting both customers and talent.
“We know that millennials and Gen Z want to buy from businesses that are having a positive impact on society, but any company can claim that they do. These young consumers want to see a third party assessment that proves it,” says Beth Thompson, head of corporate communications at Malouf Companies. “It’s not easy to become a [certified] B Corp, but we took the assessment and realized we were doing a lot of it already. We decided to do what was needed to even more transparently show our customers and employees our commitment to do good.”
Employee reviews consistently reveal that Malouf’s and Downeast’s B Corp certifications factor prominently in younger workers’ decisions to join those companies, Thompson claims.
Generation-defining philosophies
It’s likely that one of Utah’s next certified B Corps will be PoolTables.com, a company launched by Cotopaxi founder Davis Smith, who recently stepped away from both companies to do missionary work in Brazil.
“When we first took the assessment last year, we were brutally honest and scored a 16,” says PoolTables.com CFO Dustin Hanson. “A lot of it was about whether we were actively measuring ourselves in certain areas. The thinking is that, unless you’re measuring these things, you won’t have a reason to consistently do them.”
Recognizing that the company had much to accomplish to reach that elusive score of 80, Hanson decided to bring in some outside help, which came in the form of a group of MBA and MPA candidates at BYU working under the direction of Professor Witesman.
These students assist with improving water and energy use practices at PoolTables.com warehouses and demonstrating, through certification by the Forest Stewardship Council, that their pool tables use wood harvested from forests managed in ways that ensure positive environmental, social and economic benefits. Thanks in part to this work, PoolTables.com has raised its BIA score to 65.
Witesman says these young students are well-suited for the job—what they lack in experience they make up for in philosophical zeal. This attitude, which is typical of their cohort nationwide, is going to have a lasting impact on companies’ willingness to make the foundational, pro-social commitment that attends B Corp certification.
“There’s a hunger for meaning in the kids these days. Especially as we see boomers retire and the ongoing effect of labor shortages, these recent graduates have tremendous power in both commerce and the labor market,” Witesman says. “They can demand to work with companies with more meaning, and this will continue reshaping the face of business. The effect will be a continued shift back toward an awareness that the purpose of markets and the core of trade, truly, is to make all people better off.”
Employees celebrate the Malouf Foundation anniversary. Photo appears courtesy of the Malouf Foundation.