From Shareholder to Stakeholder

Paddy Le Flufy argues that by protecting the interests of all their stakeholders, not just their shareholders, businesses can be a driving force in creating a sustainable society.

Although many people recognise the need for companies to become more sustainable and socially responsible, so far improvements have been incremental at best. A major issue is a systemic bias towards profit: most companies are legally beholden to their owners or shareholders to increase profits, so efforts to improve impact in other areas are inevitably co-opted into the quest for an improved bottom line. Those companies that do have a genuine impact find it hard to prove that they are not simply ‘green-washing’ like so many others.

But there is a new movement made up of businesses that recognise that they should seek to have a positive impact on all their stakeholders, not just their shareholders, and are creating mechanisms to ensure they do. One organisation pioneering this approach is B Lab. A non-profit organisation started in the USA in 2006, B Lab certifies companies as ‘Benefit Corporations’ (B Corps) if they complete a stringent assessment of their impact on their stakeholders, defined as: workers, suppliers, the environment, the community, and shareholders.

Companies are for likely to score well in the B Impact Assessment if they, for example: offer a living wage to all employees; consider fair trade or environmental standards when making procurement decisions;use energy-efficient systems or have onsite renewable-energy generation; have a formal partnership to support a local charity; or are at least 40% owned by employees. There are a huge range of other ways to score on the assessment, which is designed to accommodate all types of businesses, from sole traders to multinationals, and from social enterprises to service companies.

Being open to all does not mean being easy for all; the assessment is designed so that achieving accreditation is only for the best in class. But it is freely available and also designed to help and encourage companies to improve their benefits to the various stakeholders, so B Lab is having a much wider effect than simply accrediting good companies.

There are now over 1,700 accredited B Corps, while the assessment has been used by around 40,000 organisations. There are satellite B Labs around the world, including B Lab UK, which launched last September, and a range of teams and programs to help spread the B Lab ethos across the business world.

There are also good examples of how this system magnifies effects. For example, Greyston Bakery is a social enterprise in New York that uses open-hiring to employ people regardless of background – they say “we don’t hire people to bake brownies, we bake brownies to hire people” – and became a B Corp in 2012. They are a supplier to Ben & Jerry’s, and introduced them to B Corps, which also fits with their philosophy, albeit as a larger, profit-driven organisation. Ben & Jerry’s, in turn, was bought by Unilever, but under an agreement that Ben & Jerry’s could continue to be run as a B Corp, while also a subsidiary of Unilever. This introduced Unilever, a large multinational with an interest in sustainability and social responsibility, to B Lab, and they are now a founding member of B Lab’s Multinationals and Public Markets (MPM) Advisory Council.

As well as passing the assessment, there is another key hurdle to becoming a B Corp: companies must include a commitment to consider their mission and stakeholders in their governing documents. This ensures these wider interests will be considered by the company in future, even after changes in management or ownership.

There are many ways to build stakeholder interests into governance, but a particularly interesting and promising one is being pioneered by Riversimple, a hydrogen fuel cell car company based in Wales. Riversimple is jointly managed by two boards: an Operating Board, responsible for everyday business decisions, and a Stewards Board, which represents the interests of each of the stakeholder groups. Riversimple recognises six stakeholder groups: employees, commercial partners, investors, customers, community, and the environment. Each of these stakeholder groups is represented on the Stewards Board by a custodian. The Stewards Board is chaired by the Head Steward, who also sits on the Operating Board, and is responsible for balancing and aligning the interests of the custodians and representing them on the Operating Board.

As well as setting strategy, the Stewards Board is responsible for ensuring there is an audit of the impact on the stakeholders, which should not be restricted to purely financial measures. The voting structure is such that no one group can control the company – decisions must be agreed among the custodians – so that whoever may buy the company in future, cannot override Riversimple’s mission or ignore the interests of the other stakeholders.

Although this structure means the investors cede control of the company, Riversimple believes that delivering social and environmental returns enhances profit rather than competing with it. Balancing the needs of the stakeholders leads to competitive advantage through a healthier balance between the short and long-term views, better decision-making and greater goodwill; it also means paths to profitability are considered which may not have been without this structure. For example, Riversimple sells mobility as a service rather than cars as products, which aligns the company’s interests with those of the customers and the environment, and enables them to lease their cars at a price-point comparable to a petrol hatchback, something no other hydrogen car company has managed.

These examples show that, using the right mechanisms, companies can rigorously ensure they act in the interests of their stakeholders without forgoing profitability: a promising path to the tidal change that is needed in business if we are to create a sustainable society.

A qualified accountant, Paddy Le Flufy is now looking to build a career helping the transition to a sustainable society in which businesses create value for everyone, not just for their shareholders.