[Note: This was reprinted at Triple Pundit on 5/12/2011 http://www.triplepundit.com/2011/05/corp-status-protects/]
There is a great editorial from the April 11th edition of the New York Times on the virtues of being a B Corp, especially vis a vis preserving the mission of the organization in the face of takeovers by profit-focused incumbents. However, there is an implication, perhaps unintended, that being a B Corp would protect mission-driven businesses even when dominant industry players want a piece of the responsible, sustainable action that the B Corps are in. There are few examples of B Corps that have avoided takeover bids and were able to continue their responsible business practices in the face of incumbent competition, or of B Corps that were acquired but were able to preserve their missions. Why?
First, the B Corp is a new invention (the first B Corp was certified in 2007) so there are relatively few B Corps to use as examples (there are 407 as of this writing, vs. several million other incorporated entities in the US). But more instructively, B Corps focus on responsibility as a source of differentiation and competitive advantage. This is a huge step forward from the idea that corporate responsibility is something corporations do only to “give back” or comply with laws or reduce risk associated with negative perceptions or stakeholder relations. It aligns responsibility with the business’ means of existence - creating distinct value for customers and employees.
That said, the responsibility and sustainability that qualify organizations for B Corp status is typically manifested in a particular form of innovation. It’s the kind that takes an existing, generic, profit-oriented offering and improves it (often at increased cost) in order to capture a part of the market that has higher standards than the generic, price-conscious customer. Think organic, fair trade, or local. Differentiators like these are known to people who study innovation as ‘sustaining innovations,’ not because of their environmental benefits, but because they help businesses sustain their profits and their relationships with their most profitable and demanding customers. This is in contrast to ‘disruptive innovations’ which allow businesses to serve new markets or serve segments of the existing market much more cheaply.
Incumbent, profit-focused businesses are constantly seeking sustaining innovations: More horsepower at the same fuel economy, more nutritional benefits for the same calories, or more exclusive designs of the same style. These innovations allow them to make a greater profit by selling a superior product to a more demanding, and therefor valuable, segment of their existing customers.
The following paragraph from the editorial illustrates this convergence:
The organic brands Cascadian Farms and Muir Glen are now part of General Mills. The natural toothpaste-maker Tom’s of Maine was bought in 2006 by Colgate-Palmolive. The juice-maker Odwalla’s Web site advertises it as “earth-friendly” and as “a business with a heart” but nowhere on the site will you find the information that it is a wholly-owned subsidiary of Coca-Cola. Stonyfield Farms yogurt company is owned by Dannon. The Body Shop was bought by L’Oreal in 2006. The cereal maker Kashi was bought in 2000 by Kellogg, Naked Juice is owned by Pepsico and granola-maker Back to Nature and Boca Burger are subsidiaries of Kraft.
Big industry leaders and little responsible companies have been looking for the same things. It just took the big corps a while to figure out that responsibility wasn’t just a source of increased costs. For some customers it was a reason to pay more for a product, so much more that responsible products can actually be more profitable than generics. Once they figured this out, they got in the game, and wisely, they chose to buy their way in, garnering the customers, credibility, and culture of the established responsible brands.
But what if Ben & Jerry’s had been successful at fending off the Unilever takeover (say, if it had been a B Corp)? Would they still be in the freezer cases of every grocery store in the US, and many around the world? My guess is that they would not. Unilever would have either acquired and scaled-up another all-natural, responsible ice cream maker, or they could have even created their own. It would have taken them time to build up the brand loyalty and reputation of Ben & Jerry’s, and they might have faced skepticism from careful customers that Unilever could do something as seemingly altruistic as what Ben & Jerry’s was doing, but they would eventually have achieved what they wanted: A differentiated product with higher profit margins, tapping into the willingness of some ice cream eaters to pay a big premium for natural, responsible food.
There are many, many independent, responsible businesses that are still going strong, and there were many that failed, perhaps because their market was dominated by a brand that did get acquired by an industry leader and scaled up faster, or because an industry leader developed their own more profitable, better distributed, responsible offering. The lesson for new businesses that want to grow, remain independent, make a difference, and operate responsibly is not to take on the big companies at their own game. If what a business does is serve a more profitable niche of an incumbent’s market, and it does it in a way that can be replicated at a large scale, the business should plan for the possibility of being acquired or out-competed. Becoming a B Corp will only protect it against the first of those outcomes.