Recent trends in the United States, including the coronavirus pandemic and renewed focus on racial injustices, highlight that there are significant inequities in today’s economy and society. Many have responded that corporations need to more rigorously work to meet the needs of not just shareholders, but all stakeholders, such as employees, consumers and communities.
Yesterday, global nonprofit B Lab announced an important step in the transition to stakeholder capitalism. As part of a new program, six publicly-traded global multinational companies are committing to work together to more deeply embed stakeholder governance and accountability into their businesses. A telling aspect of this set of firms however is that they are all from Europe and South America. In addition to espousing a greater focus on stakeholders, U.S. firms should also look to these regions for inspiration on how to create more sustainable and equitable businesses.
B Corps are companies that are certified for their environmental and social performance. While there are about 3500 B Corps in over 70 countries and 150 industries, mostly they are small- to medium-sized firms such as well known B Corps Patagonia, Seventh Generation and Ben & Jerry’s. While B Lab recently created a certification process for large companies, the organizational and financial complexity of large publicly-traded multinationals makes certification a particularly challenge for these businesses.
The B Movement Builder program provides a pathway for large companies to step-by-step introduce more social and environmental programs into their businesses. These firms are making a public commitment to begin assessing parts of their organization, increase the scope of their assessments over time, and share the results publicly. They will also identify company-specific goals that are connected to the UN Sustainable Development Goals (SDGs). Importantly, this program creates a network of peers that are collectively working toward these common goals. Not only will each company learn how to be better, but the program will also provide a set of rich examples for other large companies to follow in the future.
The first cohort of firms include France-based vegetable processing company Bonduelle; Switzerland-based flavors and fragrance company Givaudan and from Brazil are retailer Magalu and steelmaker Gerdau. Joining the program as mentors are French food products company Danone, who already has over 30% of it global revenue from B Corp subsidiaries, and has committed to become a B Corp by 2025, and beauty company Natura, itself already a publically traded B Corp. Collectively this first cohort has revenues of $60bn USD and 250,000 employees.
To understand why large companies in countries such as France, Swizerland and Brazil are particularly receptive to such innovative corporate models, I recently talked to Marcello Palazzi, Cofounder and Global Ambassador of B Lab Eurpoe, and Francine Lemos, Executive Dircetor Sistema B Brazil. Below are edited excerpts of our conversations.
Christopher Marquis: It is striking with this recent announcement of large multinationals signing onto the B Corp movement that none are from the USA. How does capitalism differ in Europe and South America such that companies are more receptive to these ideas?
Marcello Palazzi: Clearly, there are different kinds of capitalism in the world. And in many countries in Europe, we talk about Rhineland Capitalism. In Germany, the social market economy is about 120 years old. And it is also in the Nordic countries, and the Netherlands and Switzerland. It combines a regulated free market with a progressive welfare state. I wouldn’t necessarily call it stakeholder capitalism. I would call it regenerative capitalism or inclusive capitalism. Or long-term capitalism. This is much more consistent with the philosophy of the B Corp movement. And the results are clear. If you look at all the various rankings, in terms of well being, it’s always Finland, Sweden, Norway, Denmark.
In the US, Wall Street and the financial interest of absentee owners is more dominant than it is in most other countries. This results in more aggressive shareholder capitalism whereby companies just pursue profits and someone else may pay the price. Whether it’s the planet or whether it is poor people, whether it is the long term. Companies are basically absorbing, in terms of resources, natural and people’s resources from the future.
And Silicon Valley and Seattle, they are a special breed. It’s a world apart, in a way. The ultra-libertarian Peter Thiel type of culture doesn’t really fit well with the idea of the common good, the idea that if you’re successful in business you can share what you have produced, in terms of profits, or reinvest it back in society. Given that the American economy is now the tech economy, it makes it difficult to focus on common good.
And in all the developing countries, it’s family capitalism. You go to Brazil, India, most of the companies are family businesses. Family businesses think long term. It’s their name on the door. South American is another place where B Corps are thriving, and so 2 of the recently announced B Movement Builder companies are from Brazil. Family business is the opposite of the U.S. when a CEO comes in for four years, he does what he wants and then he leaves. That is not the way that these long-term businesses are run.
Francine Lemos: The family business legacy in Brazil does play a role. Very often, the main concerns of family businesses are how to develop the next generation of young leaders, how to professionalize the administration and most of all, how to reassure the company it will be sustainable for the generations to come.
What I often experience through my interactions with some of these young and active intrapreneurs who are at the Boards of such businesses are reflections around “how can we build a fair society to ensure the continuity and legacy of our business and family values”.
“Is the business good enough to attend to the needs and expectations of the generations to come?”
“I want to be a BCorp because I believe in the movement and want to see it grow”.
Once you start connecting with these families and their successors, then you can really tell how serious and committed they are about the long term vision for their businesses.
Movida, a car renting service and the 2nd publicly traded company to be certified in the country, serves also as a great example of it. One of it’s young family members – Fernando Simões (3rd generation) – is the Head of the Group Board of Sustainability and also a BCorp Entrepreneur. He played a vital role to inspire Movida’s CEO to become a BCorp. He is currently enduring a huge change in all the businesses of the group, implementing a long term vision and embedding more sustainable practices, bringing also peer collaboration to other family businesses to join the movement recently.
Marquis: Can you say more specifically how the B Corp movement is growing in your regions, particularly among larger companies?
Palazzi: Europe, with its Rhineland capitalism model, is today the most fertile ground for progressive businesses and that’s why I deeply knew that MNCs the likes of Danone can be the leaders of the B Corp movement.
These kinds of social-market economic actors are very different from US MNCs. Danone has actually been a B Corp before the term was invented, from the 1970s. And there are other such businesses like Bosch, Unilever, Novo Nordisk and others. Bosch, in Germany, is still owned by a foundation. And some of them, like IKEA, are super profitable. We have a lot of these companies in Europe that have always been set up as say, more inclusive businesses.
Lombard Odier, the Swiss private bank, is also a B Corp. The largest European B Corp currently is Chiesi, is a pharmaceutical company owned by the Chiesi Family. They are based in Parma, in Emilia-Romagna. They are a 2 billion Euros company I think in 29 countries. What’s fascinating is to see that in the last few years, the greatest MNC interest in the B Corp movement has come from Europe and it’s likely to stay so.
It has been a journey, to show the American leaders of the B Corp movement that not all MNCs are rapacious, destructive businesses. Multinationals deservedly have had a bad name. There are examples of many powerful and unaccountable companies pursuing race to the bottom strategies in developing countries like Indonesia and Thailand.
When I first introduced Danone to B Lab, the leaders were a little skeptical. In a way, Danone showed, with CEO Emmanuel Faber, year after year, that they were really super serious. Now everyone loves them. And we’re looking for more leaders like Danone and multinationals. I am optimistic that B Lab’s leadership is evolving to becoming more global. It’s been very Anglo-focused and some of us Continental Europeans would like to see French, German, Dutch, the Nordics and others also represented. And eventually, Chinese and Indians. It needs to happen.
Lemos: Brazilian companies have been improving their sustainability practices and embedding ESG standards into their governance since the mid 2000’s. The São Paulo Stock Exchange (B3) created its first sustainability index (Índice de Sustentabilidade Empresarial – ISE) 15 years ago, the 4th sustainability index in the world. Last year, the B3 sustainability index (ISE) incorporated some elements of the B Impact Assessment which has drawncalled the attention of larger companies to our movement. This year B3 (together with S&P Dow Jones partnership) has launched another ESG index, in line with new ESG standards.
I also believe that there is a big push to transform the financial sector in the country. We have seen an increase in the number of banks, impact funds, assets and VCs that are interested to connect with our team, locally. Today, among the 175 B Corps in Brazil, 18 (>10%) are from this sector and our pipeline for certification among financial institutions has increased substantially since the beginning of the Covid crisis. We have two banks in the certification process right now. There is definitely new momentum for this sector and I am confident it will shape a very positive time for our economy.
Such practices are also accompanied by a greater need for big companies to start a less traditional and more human dialogue with their stakeholders, especially in relation to their communication strategies. The Brazilian consumer values brands, products and services that are innovative and that incorporate sustainability improvements across their value chains. Today it is important for a brand to showcase the source of their products and services and how it works with their suppliers and other stakeholders. Natura has been a pioneer in promoting awareness in these areas.The company played a key role at least since the early 2000s and is a great inspiration for other companies in Brazil.
Being family controlled can be easier sometimes, regarding the choice of becoming a B Corp and somehow “challenging” to the market, but is not mandatory. This is not the case for Natura – that became a B Corp after the IPO.
Marquis: What can you say about these new companies that have signed up?
Palazzi: One thing that struck me about Givaudan is that they are a fragrance company headquartered in Switzerland, which is becoming a real hot spot of B Corp activity. For instance, Firmenich is another Swiss fragrance company that is pursuing certification.
It’s a small world and they knew of Lombard Odier’s experience. People see, oh, wow, this B Corp, structure it’s working. It’s mutually reinforcing trust building. People start trusting that this is a valuable qualification to have. In Switzerland, we have a strong network, and people who share values and see that you can take action, becoming a better business, and at the same, be ready for the next generation and the future. The question then becomes not “why do it?”, but “why not do it?” because it is clear this is the way the world is heading.
Lemos: Gerdau is one of the most prestigious companies in the steel industry in the Americas, with a major footprint in Brazil and the U.S., and the largest ferrous scrap recycler in Latin America. Led by CEO Gustavo Werneck since 2018, Gerdau has been on a journey to redefine its purpose and modernize the culture and in the path to reinforce its commitment to sustainability. With Werneck, Gerdau has recovered its market value, expanded its revenue and profitability, advanced in the debts control and reached, in 2019, its best Ebitda since 2008.
Gerdau went through the B Impact Assessment with Global Partner Sistema B, implementing the Programa Caminho +B (B Journey – a local program). It was a 3 month journey in 2019, as part of the first steps to engage with the B Corp Movement. The Company engaged the main C-suite levels, directors and executives on this agenda and drew a strategy for this management.
Gerdau also contributes to sustainable development with the following commitments: Global compact, UN Women, Diversity program, Conscious Capitalism, Circular Economy initiatives and they are publicly committed to become a B Corp.
Regarding Magalu, throughout its 60-plus years, it has always been a company concerned with generating positive impact in the communities in which it operates, improving the well-being of its stakeholders. Nevertheless, three years ago, they started to think that it was about time that the company had some guidelines, some guidance to help along this sustainability journey. The company is governed by a very strict code of ethics and is considered a diverse and inclusive work environment by its thousands of employees, is known for treating suppliers with respect and fairness and for maintaining high levels of customer satisfaction —- we say that our customers run through our veins.
According to the group CEO, Frederico Trajano, the B Movement and particularly the B Impact Assessment (BIA) has helped Magalu to raise the bar internally and formulate their next business moves. By using the BIA they learned many improvements to make on the environmental front. For the past three years, the company has increased its use of renewable energy sources, announcing recently that they will have 214 stores powered by solar energy and by the beginning of next year there will be 300 more. But there’s still lots of work to be done when it comes to managing the waste we generate, post-consumer waste management — which is an even more complex issue — and packaging. Therefore they joined the B Movement Builders to learn with B Lab and companies that are ahead of us in dealing with these issues.