By Dermot Hikisch, Head of Community Development, B Lab
What increases the chances company will stand the test of time? – That’s a core question for any business leader. Facing an uncertain economy and competitive marketplace, this question remains high on executives’ minds.
While there is no sure way to guarantee success, one group of values-based companies, may be onto something.
B Lab, the non-profit behind B Corp certification recently crunched the numbers and identified an interesting trend.
Over the past five years, Certified B Corps had a survival rate of 90-99% (per annum), compared to a 69% annual survival rate for the US Small business category.
This level of resilience is impressive in any economic climate, nevertheless one as challenging as we’ve experienced recently.
B Corps are required to consider the whole stakeholder ecosystem in their business decisions. With a broader agenda on their plate, it may sound surprising that they are demonstrating superior financial resilience when compared to the national average. In fact, perhaps it is these characteristics that position B Corps to succeed.
With stakeholders top of mind, B Corporations must think holistically, this approach to decision-making may require more time to consider more variables for the company, but it gives them a broader lens to make strategic choices. Whole-system decision-making provides companies with the long view, leading to improved risk avoidance, and ultimately, a future prepared company.
CSR performance is linked to financial success.
Recent studies are proving companies operating as top performers on social and environmental initiatives are outperforming the market. As the old saying goes, what gets measured gets managed.
A 2011 Harvard Business Review study found that public companies with high performing CSR programs significantly out perform their counterparts over the long-term, both financially and in share price performance (footnote 1). Similarly, the many smaller private companies aspiring to become certified as B Corporations, must prove the implementation of high performing CSR programs.
Consumers and Employees are taking notice
Organizations like the Sierra Club have recognized B Corp Certification as one of the most trust-worthy eco-logos. This validation creates helps ethical consumers find and support the companies with values similar to their own. Consumers increasingly want to support companies they can trust, and research suggests that 59% of Americans are more likely to buy a product associated with a good cause than one that lacks this association (footnote 2).
For Dharma Merchant Services, an online transaction provider, consumer trust was a critical factor for merchants operating e-commerce sites. Adopting a radical approach to transparency, Dharma tackled the trust barrier head-on by fully disclosing their pricing, a first for the industry.
Employees, a critical stakeholder for any company, want to work for a values-led, purpose driven company. In a 2012 Rutgers and Net Impact study on employee satisfaction, almost twice as many employees with careers that made a social and environmental contribution were more satisfied with their jobs.
If satisfied employees are more likely to stay around, human capital is more secure. This leads to higher productivity, higher retention – which means reduced recruiting costs – and more time freed up for executives to focus on long-term success in areas like customer satisfaction.
Enabling access to mission-aligned capital
Financial service providers are increasingly on the hunt for values-based companies. Organizations like Mission Markets, Watershed Capital and SOCAP are creating avenues to connect mission-aligned investors with like-minded companies. Local community banks such as One Pacific Coast are approving commercial loans using a filter to consider the company’s social and environmental impact and over 30 financial institutions now use B Corp impact assessment, as a pre-screening tool for access to capital.
Like attracts like
Similar to the efforts of Green America, and the Social Venture Network, the B Corp community is developing into a business constituency who try to do business together, collaborate on sustainability issues, and share knowledge from one like-minded entrepreneur to another.
“As an early adopter B Corporation, we’ve seen a very strong network effect taking hold. The value of the certification has increased for us as more companies become B corps and want to support each other-which positively effects top line revenues. I’ve seen more prospective corporate partners recognize the value of our mission to them personally in initial meetings and it makes the sale that much easier.” -Jonathan Harrison, CEO Emerge Financial Wellness
Where do values-based companies tend to be failing?
Market leadership often means having a higher propensity for risk taking and in social enterprise world this may be especially true. Social enterprises focus on solving a specific societal need, often before knowing whether their business model will succeed at scale. This group was the source of the majority of B Corps we saw experience bankruptcy over the past 5 years.
“Companies operating at the tip of the spear, can receive big payouts, but they have a higher potential for failure,” says Jay Coen Gilbert, co-founder of B Lab, and former Chair of Investors Circle, “but the ones that made it like Emerge Financial Wellness and D.Light are producing large scale impacts.”
Built to last, designed to do good, there’s a lot to admire about values-based businesses like B Corporations. In an economic climate that continues to look unstable, it’s reassuring to see companies who are bucking the trend.
Footnote 1 Eccles, Robert G. Ioannis Ioannou and George Serafeim. “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance” a Harvard Business School Working Paper, 2011.
Footnote 2 Cone, Inc, (double-check title), March 2012, Trend Tracker
Footnote 3 Net Impact and Rutgers University, Talent Report: What Workers Want in 2012, May 2012