In 1970, renowned economist Milton Friedman pronounced, “The social responsibility of business is to increase profits.” And business operated this way for over half a century. Looking to maximize shareholder returns, executives prioritized profit above all else. They bypassed programs that did not result in immediate gains. They cut corners. They laid off employees. They polluted our environment.
It would be logical to assume such ruthless pursuit of profit would bring measurably greater wealth to shareholders. But the data shows the opposite is true. As Forbes reporter Steve Denning pointed out in 2011, rates of return on invested capital are now only a quarter of what they were in 1965.
After years of growth-at-all-costs — with little to show for it in the long haul — the business environment is beginning to shift. A yen for social consciousness, authenticity and mutual benefit is creeping into the zeitgeist. Consumers are demanding not only great products, but also companies with values that match their own. As we move into the 21st century, indeed we are witnessing the “evolution of capitalism,” Jay Coen Gilbert said at the 2016 Net Impact conference in Philadelphia.
Gilbert is the co-founder of B Lab, the nonprofit behind B Corp certification. As B Corporations, firms commit to a rigorous set of standards with the aim of mobilizing business as a force for good. Nearly 2,000 companies (including TriplePundit) are now B Corp certified. An additional 50,000 used the B Impact Assessment, a free tool provided by B Lab, to measure their impact and make improvements.
Compare these numbers to 2014 — when only 900 companies could call themselves B Corps — and it’s clear an incremental shift is under way.
“The tectonic plates are shifting beneath our feet,” Gilbert said in Philadelphia on Friday. “Sometimes they move so slowly that it’s hard to feel it. But they can shake the earth and transform the landscape nevertheless. We are beginning this change from one form of capitalism to another.”
Rather than maximize profit at all costs, some of today’s most successful companies look to bring benefit to all of their stakeholders — from customers and employees to the communities in which they do business.
Gilbert called this transition from shareholder value to stakeholder value “the biggest trend of our lifetimes.” And he may very well be right.
“If we can harness the latent power of markets — the latent power of business, of capitalism — to a higher purpose than maximizing shareholder value, we can unleash one of the most powerful manmade forces ever created,” Gilbert said. “[That force can] create jobs with dignity and purpose, restore the environment, create pathways out of poverty, reduce inequality.
That’s all within our path because we have this incredible tool. We just need to recognize that we can use it to build a house and not just beat people over the head.”
So, how can we accelerate this change and mobilize businesses as a positive force in society? The first steps have already happened, Gilbert insisted, but we just need to keep the journey going.
“There is a populist movement around the world in response to this realization that the [economic] system does not work. But that is insufficient,” he asserted. “That is a cry to the wilderness that will not be answered. That is hope — and hope is not a good strategy for social change.
“The bending of history has to come from the creation of viable alternatives and making them visible and easier … One way that’s happening is through business.”
Gilbert went on to suggest two actionable steps for businesses to take in order to participate in the economic sea change under way — what Fortune dubbed acting “like a B Corp.”
“You need to align the interests of your business with the interests of society, and you’ve got to manage your business differently,” Gilbert said. “You have to manage your business so that you’re managing your impact with as much rigor as your financials.
“We know not every company is going to be a certified B Corporation … But everybody can be like a B Corp. And if you want to attract and retain the best talent around the world or the best long-term capital, then you better start thinking like a B Corp and acting like a B Corp.”
TriplePundit will be at Net Impact 2016 all weekend. Check back to the homepage for our coverage.
Image courtesy of Net Impact