Hello, I'm Katherine Kline, I'm Vice-Dean for Social Impact at Wharton and I'm delighted to be talking today with Bart Houlahan, co-founder of B Lab. Hi Bart. >> Hi Katherine. >> So let's talk about B Lab, B Lab started ten years ago. You co-founded B Lab with a big mission. Tell us about that mission. >> Sure, B Lab just hit its tenth anniversary this year, which we're really excited about. And the mission for the organization has been the same for our entire decade of existence. We're trying to change to role of business in society. We completely recognize that that's a generational play. And we have a long road in front of us, but it is an audacious big vision to fundamentally change what it means to be successful in business. So their business is more engaged in solving our great challenges. >> And so is that what it means to be more successful, or to expand the definition of success? >> Yeah, that we no longer think we should define success exclusively by how much money you make. It should include how you treat your employees, how you're engaged in your community, and your environmental footprint. That we should use different metrics to capture what it means to be a successful business. And the end objective is a more inclusive economy, a shared and durable prosperity for all. >> Shared and durable prosperity for all. >> That is correct. >> It's a good ambition. >> [LAUGH] >> So your major strategy within B Lab, as far as I know, is this certification process. I have sometimes where people refer to this as this may pin the generation on us, but the good housekeeping seal of approval- >> Yeah. >> For business. >> My guess is a lot of our audience won't know the good housekeeping seal of approval anymore. [LAUGH] >> That's true. [CROSSTALK] It goes outside the United States, it's also true, what are they talking about? So what does it mean for a company to be B-Certified? >> Sure, sure, so importantly the certification is a means to an end. So backing up a step about like what we are trying to do. For fundamentally trying to change the role of business in society, we need to begin with an example set. Like best in class companies that are both making money and making a difference, shine a light on them so their easy to find and then encourage legions of companies to follow those businesses and give them the tools to be more like a Certified B Corp. And then at the end of the day, bring in workers, and consumers, and policy makers, all to patronize these high impact businesses. That's the theory of change. Shine a light on the leaders, encourage others to follow and then get billions of consumers and workers to patronize them. The certification is our leadership class. It's kind of a gold star best-in-class certification for whole business. So Katherine one big difference about the certification, the truth is there's hundreds of beautiful certifications out there, what makes this one different is really two really important things. The first, it's not about a product or practice, it's about the whole company. And so we've elevated the conversation from buying an organic apple or a fair trade coffee bag to the whole business. >> So a company can't be, it's not going to get this gold standard, this certification just for producing organic and selling organic- >> That's right, the way that we built the certification is that if you're perfectly green, but you're treating your workers terribly, you're not going to pass. If you are employee owned, but you're dumping the effluents out the back door of the factory, you're not going to pass. It really is about higher standards of social and environmental performance comprehensively. So that's the one significant difference. The second requirement that also makes this certification a little bit different is that once you've demonstrated the highest standards of social and environmental performance, you gotta build them to last. So that this commitment can withstand new money, new management, and even new ownership. And we do that through a legal change, all Certified B Corporations must fundamentally rewrite their governing documents to include the interests of stakeholders. So that you know that this high level performance can last long term. >> So does that mean that all Certified B Corporations are actually legally benefit corporations? >> Directionally yes. >> Directionally? That's the intention but- >> Well, it's complicated. Corporate structure determines how you are going to embed your mission and your governance. The fundamental requirement is embedding you mission in your governance so that the purpose of the business is being changed and you legally are required to consider all the stakeholders, right? So that's the requirement, making sure that inside the DNA of the business is a different fundamental purpose. Now how you do that Katherine depends upon whether you're an LLC or a partnership or a corporation, it even depends where you're incorporated, because corporate laws state by state by state. And so what we figure out is that In some states, you just can't rewrite your articles of incorporation. We had to create a new legally recognized corporate form, which you were just talking about, a benefit corporation. And so all Certified B Corps have met our legal requirement and embedded mission into their governance, but how will they do that depends upon their current corporate structure. >> Great, and so it's look different among different states in the United States. >> That's right. >> It also would look different around the world- >> That's exactly right. >> Because you have B Certified Corporations around the world. >> That's right, so we're currently in 54 countries, and how you make that legal change, embedding mission into your governance depends upon how and where you're incorporated and we've determined that path in those different jurisdictions. >> Yeah. >> All 50 states plus the 54 countries that we're currently in. >> I got it, so we're going to dig in to more of this but did you think ten years ago, did you envision this, did you think, yeah, this is going to take off as it has? How many companies are now B Certified? >> So we have about, a little over 2,300 Certified B Corporations, 150 industries in as I said a little over 50 countries. And the truth, Katherine, is if I go back to the business plan ten years ago, some things we've out performed on and some things we've under performed on. And so the community of Certified B Corps, at this juncture we thought would be larger. We thought there would have been a more of a tipping point and more rapid acceleration around certification. Simultaneously I don't think we anticipated this early in our development passing laws in 35 states, and it's moving forward in 12 countries. And so the legal effort has moved more rapidly. And then finally the use of our our impact assessment, the thing we use for certification, we call it the B impact assessment, okay. It's kind of like a free online do it yourself management tool to figure out your impact on your workers community and environment, right? That's free in a public good. We have about 65,000 users of that and I don't think we anticipated that type of leverage, that speed of adoption of the use of the tool. >> Got it, and that tool is essentially a survey where companies are self reporting their practices, their products, how they treat their employees, their governance structure and so on, we'll talk more about that. And once a company has reached a high bar then passes your standard, that allows them to become B Certified. >> That's right. >> So many more of these companies have, what did you say, 2,500, 2,300? >> Yeah, 2,300. >> 2,300 out of 65,000. >> That's correct. >> So it's hard, this is a class that's hard to get into. >> It's intentionally so, intentionally, so again, coming back to that theory change, we find those best in class, and then try to include all companies to use their business as a force for good, and use our tools to try to start this journey. >> So for people who are just getting exposed to this world and this idea, Can you talk about what does it mean for companies to be good for the world, to be building an inclusive, contributing to an inclusive economy? What might they be doing? What do they look like? What are their business models? Help us see them and maybe give us a typology, a chart for how they break out. >> Sure, and so importantly, we believe, as core to our vision and our mission, that any company can be a force for good. It isn't just those companies with a product that's serving the underserved or saving the tiger or curing cancer. It includes every business, that every business can in fact try to contribute to an inclusive economy. And there's different ways to do that, obviously, Catherine. One of which is in how you operate, and the other is in what you do. And we talk about that in two different ways, the operations of a business and its business model. And divide the world into two different ways you can use your business as a force for good. >> So let's talk about the operations first. >> because everybody can do the operations side, right? And so on the operations side, we're looking at how do you treat your workers? Are you providing fair and a living wage? Do you have benefits that allow for those organizations or those workers to actually have healthcare, retirement plan, support for their families, etc? So we look at, not only wages and benefits, but we look at corporate culture, opportunities for advancement, ongoing training, all of which are about, are you lifting up the lives of your workers? Community, we look at whether you have an inclusive workplace. Whether your management team, your board of directors, your ownership structure, and your workers are made up of a truly inclusive and diverse workforce, where the people on the factory floor are also reflected in management and in the boardroom. Also in community, we look at whether you're engaged in building a local economy, whether you're trying to support local businesses through your supply chain or your banking. We look at your charitable giving practices and direct service practices all in the community. Then you move on to any environmental footprint. How are you working as an organization to try to preserve the environment? And what inputs your using and your manufacturing process? And how are you monitoring your emissions and your waste? We look at your governance practices, whether you're transparent in the way that you operate, that you have accountability to things other than just your bottom line. Whether you have a mission statement you've shared with the entire organization that includes consideration of, not just your shareholders, but also your stakeholders. All of those things are in our governance section. And then finally, we look at the product that you make, whether your product is benefiting the world and you are making it in a responsible way with strong customer service practices. So it looks at everything you do. >> Yep, now we're calling all of that you- >> That's all operations. >> That's all operations. >> Yeah, that's all operations because everybody, any business, can improve its operations to take better care of its workers, to be more engaged in their community, to reduce their environmental footprint, and to be transparent and accountable in how they operate. Anybody can do that. >> Yep, right, the products part wasn't so clear to me. >> Fair, and so on the products side, for operations, we're really talking about, do you look at your consumers as a stakeholder you need to take care of, right? Quality control, safety, customer service, all those type of operations that make sure that the product you're putting out into the market is respecting your consumer set as a stakeholder you care about. >> All right, so you've described the operations side, what do you mean by the business model? >> Well, importantly, before I get into the business models, it's important to at least acknowledge of the 65,000 companies that I've used our impact assessment, less than 10% of them have an impact business model. >> Interesting. >> Okay, and so an impact business model is a fundamental business model that, as the company scales and grows, so does its impact on society and the environment. >> Right. >> And that's a unique business. That's not all businesses, right? >> Right, this is what I was describing as having an embedded impact model. >> I think that's a fair description. >> Right. >> A fair description, and within each of those different impact areas we just talked about, workers, community, environment, governance, and consumers, you can actually have a business model built around trying to lift that particular stakeholder. >> Mm-hm. >> So community, let's use community first. You can have a workforce development model, where through your hiring practices, you're lifting up the most chronically underserved individuals and reintroducing them into the workforce. And so we have dozens of businesses that, through their hiring and training practices, are grabbing the chronically underemployed and providing them opportunities. >> Right. >> In community, you could also have a charitable giving model, where a significant portion of your profits are going to try to help society through a charitable giving approach. You could have a local business model, where you are deeply focused on, through all of your work, lifting up a local economy to try to create a return to thriving local communities. >> Mm-hm. >> We have supply chain in our community impact business model. Let's say you source all of your product through a fair trade supply chain. We have microfranchise and microenterprise, which was really about downstream, choosing to use a business model by lifting people out of poverty through distribution. >> Yep. >> Okay, so all of those reside within community for us. >> So there are a lot of ways to create impact- >> Lots of ways to have a business model focused on community. >> Got it. >> Then workers, it's really focused on ownership. >> Mm-hm. >> An employee cooperative and/or an employee stock ownership plan, an ESOP, both fall in that worker area. In environment, you can think about both products, that's like I'm a manufacturer of solar panels, or a manufacturing process that's creating new innovations on how to create a greener, healthier manufacturing of your particular industry. On the governance side, mission lock. So have you figured out how to create a governance structure that makes sure that your mission, which is focused on something beyond just shareholder value, can be preserved long term? There's lots of ways to accomplish that, one of which is the benefit corps, but that's just one of many. >> Right, that particular legal structure. >> And the one that obviously everybody considers and thinks about first is products. >> Hm, yes. >> And the products are for consumers and think education and healthcare and basic services for the underserved and arts and all of those models that are actually delivering a product that is good for society. >> Got it, and to become B certified and get that gold seal of approval, must the business have this impact business model, or is it enough that, hey, our opreations are fabulous, but we're creating luxury products for luxury consumers? >> So a couple of questions embedded in there. >> Sure. >> So the first is can you certify as a B corporation just on your operational score? And so, quickly, to certify, you gotta get an 80 out of 200 points. >> Mm-hm. >> Okay, and it's intentionally really, really challenging. The average score for all B corporations, is a 95. So less than 50% is the super high bar for all certified B corps and a 40% gets you into the community of certified B corporations. And yes, there are companies that have certified exclusively through their operational excellence. Okay, there are 140 points available on the operational side and to get to an 80 is really challenging, but absolutely. We have a portion of our community that excels in operations and have gotten the points necessary just through their operational strength. Obviously the easiest way to do this, and I shouldn't even call it the easiest way, the most prevalent way is to have both. To have an impact business model that is coupled with very strong operational performance. >> So a couple more questions. Are there models, are there types of businesses, that you've seen. This is a particular common strategy, a common impact strategy, and this is a really unusual impact strategy? Can you give us a sense of what do these companies look like? >> Yeah, a difficult question. Because I think perhaps what we're most proud of, Catherine, is the actual diversity of the community. That there isn't a typical, there are an infinite number of ways, not quite infinite, but an enormous number of ways to get to the 80 points. And as a result, we see enormous diversity in size, industry, ways that they're creating impact, and geography. And that's what we're most excited about, that this community has examples for every industry that allow people to aspire to follow. There are certainly certain impact business models that we've had add over the years that we didn't anticipate. And so one of the things about our assessment is it versions every two years and therefore we get a bit smarter. And as an example, micro franchise, micro enterprise, was not originally in our first version one, two, three, or four. We had that add that as we learned about it from the marketplace. Organizations like Natura Cosmetics, down in Brazil, taught us about a micro enterprise model. Where they're lifting up two million women through their distribution channel. Low income women in Brazil who sell their natural cosmetic products. And so that is an example of something that we've added as we continue to get smarter about our impact assessment. >> Got it, got it. And I'm curious about the, I'm curious I guess how you came up with the strategy that you're going to move the field forward by certifying companies. And I'm curious about who are the companies that go through the certification process. What makes them want to do this? And obviously not so many of them are hitting the 80 or above points, to become certified. >> Yeah, the certification is intentionally a leadership play. So, there's lots of reasons why people join our community. The greatest commonality across all of them is these are folks who have been leading in their industry, often for decades. Who have demonstrated that you can both excel as a business from a profit perspective, and a return to shareholder perspective. And creating demonstrable impact for society in the environment through business. So we see that commonality of leadership. The other reasons people join, Catherine, include, they want to be part of a community, right? They want to share best practices with a set of CEOs and business leaders who share their values. People often join us because they're looking to raise capital, and they view the certification as a way to align board with investors, with management, all around purpose, and mission. Some people join us because they're on top of a liquidity event. And they want to make sure that they have the opportunity to sell their company to somebody who also is values aligned, or mission aligned, or purpose driven, right? So, that's another reason people join us. More and more, people are joining us because of attracting and retaining the next generation of talent. You know better then I do, Catherine, that your students are looking for something different out of their workplace when they graduate. And this certification is a easy way to identify yourself to the next generation of leaders that will really walk the walk. That this is an organisation that believes authentically, that you can use business as a force for good. And then finally, I'd say same some or a growing group of companies are using it for consumer- >> Consumer awareness, consumer attraction. >> Consumer awareness, yeah, consumer authenticity, right? To demonstrate to consumers that they truly are a business that both is concerned about society and the environment and their bottom line. And so those are the reasons people show up, the greatest commonality though is a leadership play. >> Yeah, yeah, interesting. And then we talked a little bit before about impact measurement. And what are impact investors doing, how do you see what you're doing? And you can elude it to a logic model, so, Would you say this B certification is impact measurement or how would you describe it? >> Yeah, so I think the social scientists in the crowd would not say it's impact measurement. That impact measurement is about fundamentally shifting the outcomes for an entire region or an entire economy. What we largely focus on, Catherine, is indicators that we think will lead to impact. Because to truly measure impact you gotta use a control study with a multi year, it's an involved, important process that we don't pretend that our B Impact Assessment is accomplishing. Instead, what we're trying to evaluate is, is a business creating outputs and outcomes that will ultimately, over time, lead to a positive impact on society and the environment? And so when we think about our tool, our first obligation, if you think that it's being used by 65,000 companies, mostly as an internal management system, it's education, right? Ultimately we want to give all companies an easy place to begin to use their business for something other than just the creation of private wealth. So to that end, when we think about building our assessment, we begin with have you written it down? Is there a policy? What are the practices, or inputs that lead from that policy? Are there outputs from those inputs that lead to positive behavior? And then finally, what are the outcomes for the company? We don't get to impact, that would follow after the outcomes. So we're trying to provide that road map for an entrepreneur or a business leader to try to figure out how to begin this journey towards using their business as a force for good. >> So thank you so much for chatting about all of this. But it's fascinating, it's really helpful to have your candor about what this is and what this isn't. And to kind of just understand the lay of the land, and my gosh, it's grown so much over the past decades,it's impressive. >> Thank you, Catherine, it's been my pleasure. >> Great, thank you.
