With calls for better regulation of business ethics, particularly in the tech industry, and the rise of ‘for good’ startups, B Lab – a UK-based charity rolling out the US-born ‘B Corp’ certification – is blossoming. And where the mist closes in on what it means to be an ‘ethical business’, it’s a certification that promotes transparency, certainty and regulation in a largely unregulated world.
Amongst the certified, big brands Ben & Jerry, Hootsuite and Patagonia mingle with early-stage startups, bonding over their collective drive to balance profit with purpose.
To become a B Corp companies must first take the free-to-use B Impact Assessment and then make a legal commitment that ensures their company’s values align with an independently verified ethical framework that focuses on both social and environmental impact.
In working closely with a mix of startups with strong value led goals such as OLIO and Giki, along with startups with goals led more by personal or ‘gap-in-the-market’ interest, we’ve mused over the ways in which businesses can be better held accountable for the social and environmental implications of their trade or product, and whether regulation or certification is truly the way forward.
To find out what it really means to be an ‘ethical’ business, how businesses can get started with their own ethical framework and the kind of impact this certification is having on businesses and society, we caught up with Katie Hill (pictured left) B Lab UK’s Executive Director to pick her brains for more on the matter.
Simpleweb: At what point should startups, and those building tech in particular, start thinking about ethics?
Katie Hill: In a broad sense there are three stages of company growth and development we see looking to certify as B Corps. Each of them offer the opportunity to reengineer but it gets harder as you go on. At the startup stage you would hope the company has a fairly clear idea on what its purpose is, what it wants to be achieving and how it’s going to measure its success – so that’s a super convenient time to think about the impact it could create – writing ethics in at the start.
This is best done by lodging it in the company articles and defining clearly what your purpose is.
Once the company is developed and is beyond early-stage, perhaps as B Lab in the UK is – three and a bit years old – where you’ve got a measure of the business, you see where it’s going, you’re getting a bit of a feel about how it’s actually going to work out in practice. That’s then another opportunity to take stock, re-think and perhaps build the sense of impact and ethics into your DNA and into all the company job descriptions and and KPIs.
If you go past those two stages and you haven’t had that opportunity, then you can start to think about if you need to transform it or re-shape it. But it is harder then as you’ve possibly built a culture which is not necessarily compatible with what you now want to be and you’ve got to take people with you.
As we’ve seen with the really big giants in public markets, it’s extremely difficult to transform business. So if you don’t built it in before it gets big, it certainly is harder.
SW: Yeah, and of course there are key examples in the tech industry like Google and Facebook who’ve got themselves into trouble because they’ve not thought about ethics from the beginning…
KH: Yes – in fact, one of the things I think is so important now, and actually is a focus for us in B Lab is working out which of the businesses are going to hugely shape our future life and tech. AI and the digital world is clearly doing that. So, do we have them in the room? Are they considering the ethical implications of everything they’re doing? Are they part of the debate as the industry is growing and changing?
For us, when we think about AI or machine learning, it feels absolutely essential that as that debate is getting going and the industry is still young, that there are people in the room who are really pushing the ethical debate right at the start of that growth – at a sector level, rather than just at a company level. And that we decide what those ethical remits should be and support the companies that mirror those.
Spreading the word: Katie pictured speaking on
BBC Radio Four about the ‘Ethics of Business’
SW: Is cost something businesses, particularly startups, would need to factor in when implementing either their own ethical framework or becoming a B Corp?
KH: Yes, but there’s some false economies here I think, because if you have to re-engineer your business to meet ethical standards – re-recruit, lose people, bring in new people, change the platform you’re built on, change some of the company structures – then that’s extremely costly to do at a later stage.
Clearly you do have to think about the cost of building a business that’s as ethical as possible, and we can’t deny there may well be some trade-offs in the short-term. I don’t think anyone would deny that sometimes you may have to make some investments into more expensive technology or have different considerations. But, longer term, we’ve proven the case again and again in different ways with different studies, that those businesses tend to be more robust, attract better staff, hold onto them, and therefore produce price and cost benefits that you just have to wait to receive.
It’s not called patient capital for nothing!
SW: Can you tell us a bit more about some of the research that’s been done on this?
KH: There’s all sorts but one that comes to mind was from Harvard Business Review about the implications of considering environmental and social agendas.
They took a sample of around 90 businesses who did consider Environmental Social and Governance (ESG) issues and a comparable 90 businesses who didn’t – then tracked them over 15-20 years. The difference was about 4% growth year-on-year for those who considered ESG impacts compared to those who didn’t. So it was quite compelling… and although the businesses didn’t all come in at beginning of the survey, you did start to see these benefits coming along in the longer term.
It’s not just about the intention to do well, it’s also about being transparent about how well it’s going and what your plans are to improve
We’ve also done our own research around the revenue growth of B Corps that have been certified for two years and have then re-certified. The average turnover grew by 28% over two years. And that includes early-stage startups, but also more established businesses as well, who have already been in the market.
SW: So when and how would a very early-stage, so a startup at seed or pre-seed investment stage, start the process of becoming a B Corp?
KH: In the UK we have a process called ‘Pending Bs’ which are for companies that are less than 12 months old, pre-revenue. The thing they do have to do is to make the legal commitment through the company articles. But they can basically go through our assessment process with a kind of aspirational view.
They don’t have to score any particular amount because they won’t always have everything they need in place anyway – but they’re obliged to go through the questionnaire and the assessment in order to think about the things that they’re going to want to put into place as they grow.
Right now we’ve got 23 Pending B Corps in the UK who get together quite a bit. Hopefully most of them will go on to certify as full B Corps once they’re mature and older.
But what they’re doing is signalling to impact investors, and even to employees who they might be recruiting, that this is the focus of the business and what they’re about. So it’s quite a powerful signalling tool, but it’s also an all encompassing handrail for them to think about the things they want to embed into the business as they grow.
SW: I imagine it’s probably really helpful to have that guidance from an organisation as well…
KH: Yes, and then you become part of a community of businesses who are running that way, some are big, some are small, some are early-stage, some are just ahead of you and then you’ve got a feeling of not being completely marooned or alone in this wilderness.
SW: Yeah and there really is this growing trend for impactful startups and investors who are actively trying to solve societal and environmental problems with their business. But what about your average business or startup? Can they become a B corp and be just as ethical?
KH: What the B Corp movement is trying to do is to create an environment where this becomes ‘business as usual’ – where businesses are all focussed on three things – social impact, environmental impact and financial sustainability.
In order to get to that point we’ve got to make distinctions between them all so that people can clearly see what’s different from one to another – and that’s why the B Corp branding is quite important because it identifies those who’re already covering these three things and aren’t just sticking with the obvious one that has driven our system out of whack, i.e. profit.
There are of course companies who, to all intents and purposes, look as if they’re only worried about the financial returns but underneath the bonnet they’re doing an enormous amount that leads to better outcomes for people and their community So whether you trust the reports they write, you might actually wrongly assess them because you don’t know how to judge them.
The B Corps value is in identifying those who are putting their head up above the parapet. And that’s actually quite important, it’s not just about the intention to do well, but it’s also about them being transparent about how well it’s going and what their plans are to improve. And of course B Corps are not perfect but they are committed and have reached a threshold level and are continuously seeking to improve on that.
If we’re going to convert 5.2 million businesses in the UK to think like this, we’ve got to have a cohort of leaders and champions that show it can be done, done well and is profitable as well as ethical.
SW: I like the idea of businesses being transparent, of them telling people what they’re doing and being able to actually see that they’re doing it…
KH: Yeah, and a good example of this is Triodos bank. If you go onto their website you can click on the investment image and see everything about their investments. The level of transparency is incredible.
Most banks can’t begin to give that level of detail and so don’t – and so we have that lack of trust because we don’t know what’s going on. It’s this that breeds an atmosphere of uncertainty and self-interest. So there’s a lot that rests behind this commitment to sharing what they’re doing.
SW: So what, if anything, sets apart a large corporate B Corp like Triodos from a startup B Corp?
KH: The differences isn’t in intention or purpose or principal, it might be that the difference is in how that plays out. It might be that as you get bigger you have more complexities in following this ambition to be as impact-focussed as you can – because inevitably you bring in new players, more relationships, different investors, new customers and a bigger employee workforce.
So the art of this seems to be to ensure that you bring everybody in that journey along with you. It’s not about someone at the top telling everyone to do it, it’s about making everybody empowered to be the driver for that.
The difference then is, when you’ve got say 100 people all working to create that company, you’ve also got a sense of combined vision. It needs planning and organising, collaboration, coordination and organisation – but it’s ever so much more powerful because of all the networks that it has.
In the future I see us making [the B Corp certification] redundant because this is what all businesses should need to do
For instance, one or two of our big B Corps – like Ella’s Kitchen for example – has worked with all its suppliers and encouraged them to take the B impact assessment for them to be as focussed as possible on their impact too. So they’ve created a virtuous chain or cycle almost – which is obviously much more powerful when you’re a larger company when you’re very small because you reach more companies and people.
So scale plays a big part, combined with the specifics of the industry that you’re in – but broadly we have an awful lot of gatherings with people coming from across the spectrum of size, geography and sector – and they find they have a lot of common ground to learn from each other.
And actually one of the most enjoyable bits is seeing how companies from very different sectors, geographies and size, can share and learn how to communicate with each other to pick off and create best practice.
SW: Is certification the only solution to making ethical business practice mainstream?
KH: I think the B Corp movement has a role to play right here right now in offering certification because there hasn’t, up til now, been a really clear way of identifying those companies who do really good things from those who market and brand really well.
In the future I see us making ourselves redundant because this is what all businesses should need to do.
You do have to have some other factors of course. You need to have a legal base that can support this and that gives people confidence that they’re not at risk of breaking their own fiduciary duties as they concentrate on all the other aspects of their business like stakeholders, employees, community and suppliers. We also need investors to be absolutely demanding and focussed on investing their money to do more than just make financial returns.
We need business and secondary schools to teach about this and to ensure that the responsibility requirements are clear for those who want to set up a business. And there’s loads of other things that fill into that space but certification has a role to play in identifying the leaders for others to get behind and for the community to build momentum.
SW: So the certification itself is more like a movement then…
The days of the ‘build it first, ask for forgiveness later’ culture are really done
KH: Yes, so if you look at things like the civil rights movement, you had to do an awful lot of leg work and have really good coordination between the people who wanted to see that change happen before it became what is now – absolutely business as usual. And now you can’t imagine it not being there. But you have to do an awful lot of work beforehand to create that new generation of power in our lives.
So it’s an exciting time, it really is.
SW: What do you think the UK would look like if the majority of businesses made a legal commitment to the B Corp model and had ethics at the core of their business?
KH: What we’d have is a society and a business agenda which would completely intertwine to work to where they are mutually supporting which would be incredibly powerful.
In fact we’re currently running a project across the whole of Scotland called Scotland Can B which is asking companies anywhere there to go online take the B Corp assessment, after which we’ll work with them to see if they can lift their impact. The Scottish government has provided the support for us to do this, so you can take really specific issues within the workplace, or generic issues across the whole country and look at how businesses can help address these. It has real potential to demonstrate what a country could look like if you have this rolled out this approach towards impact and purpose with profit more broadly.
#ScotlandCanB prepares the ground for its nationwide campaign for businesses to measure what matters. Thanks to @scotgov for its support, @delfizagarzazu Scotland Can B Project Manager and @ImpactReady Tim Hartley for the co-designed B Leadership programme @EdinburghNapier pic.twitter.com/jPPuj6XF2u
— BCorpUK (@BCorpUK) June 30, 2018
SW: Although the ethical movement is growing, there are still values out there that counter this. Silicon Valley’s ethos for example, has come under fire recently as ‘Build it first and ask for forgiveness later’. What are your thoughts on that and what do you think it should be instead?
KH: This sort of thing really fits with that ‘unicorn culture’ is a private company that grows at a rate of knots with a view to being bought out.
But there is another concept called the ‘zebra’ which is a much more blended nuanced creature which has all these different interests at stake but it has to be really conscious of itself at the start. Its real (unlike unicorns) and it is not focused on a single output (profit). It’s not looking to necessarily create some huge investment opportunity for a buy-out, but it’s looking for a real social opportunity that produces profits over the long term. These are the sort of Winnows and hopefully OLIOs of the future – these businesses that are focussed and geared in a totally different way.
So I think the days of the ‘build it first, ask for forgiveness later’ culture are really done. Businesses ultimately need a social license to operate or they are driven out.
When you think of businesses as an engine to do good and do well – it’s hugely powerful – but if you just focus on short term fast growth for a sale, you lose so much of the benefit it could generate.
SW: So investors looking for the future of tech should be aspiring to find the next zebra rather than unicorn then?
KH: Yes. It’s not as simple as we’d like of course, because these businesses must be financially sustainable too. But a lot of entrepreneurs, they like rubix cubes, they like complexity, they want to play in more than one dimension, balancing many factors simultaneously. And actually, the human ability to do that is strong – but they do need frameworks and support to do it.
It’s also important to note that approximately 87% of the entire business community in the UK is made up of small and medium size businesses. So although the bigger companies take up all the air time, have all the people and determine how investment markets flow, the majority of businesses are actually much more local, smaller and really manageable sizes where the potential to pivot quickly to ensure it is doing good and doing well is very strong.
In time the world will be full of zebras, you watch!
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