B Corps: Companies With a Social Mission in Their DNA

November 12, 2012

DAN BOBKOFF: There are two kinds of businesses, right? For-profitsthey’re in it for the moneyand non-profitsthey have a mission. What if there’s a third way, a way to do both?

ANDREW KASSOY: These are companies that have built into the DNA of the business a social mission.

DAN BOBKOFF: They are called benefit corporations, or B Corpsthink Ben & Jerry’s or Seventh Generationcompanies that want to make a lot of money and try to do good. But is that possible?

NEIL BLUMENTHAL: We can be worth one day a bazillion dollars, but if we haven’t achieved those two aims, then that is a failure in our minds.

DAN BOBKOFF: On this edition of Just Business, we talk with one of the lead proponents of this idea, and we’ll talk to some of the founders of an eyewear company who are trying to take on the entrenched players of that industry, while also making a difference in the world.

We’re on the fifth floor of an office building in New York’s SoHo district. There’s no sign outside. You have to know this place is here. This is the showroom and office of Warby Parker. It’s an insurgent eyewear company, not quite three years old. It makes glasses that are stylish, often hipster-approved, but not too out-there.

NEIL BLUMENTHAL: I’m Neil Blumenthal. I’m the co-founder and co-CEO of Warby Parker.

DAVID GILBOA: I’m Dave Gilboa, co-founder and co-CEO of Warby Parker.

DAN BOBKOFF: The founders of Warby Parker are doing many things at once. First, they’re trying to place a stake in a market that’s increasingly controlled by one big company out of Italy called Luxottica.

DAVID GILBOA:  If you walk into a LensCrafters and you see 50 different brands of glasses, most people don't realize that all those brands are owned by the same company that also owns LensCrafters, that probably also owns the vision insurance plan that you’re using to pay for those glasses.

DAN BOBKOFF: Their strategy: Undercut their competitors by hundreds of dollars. Most of their frames cost 95 bucks, including lenses.

DAVID GILBOA: Most glasses in the U.S. are marked up between 10 and 20 times what they cost to manufacture. That really didn’t make any sense to us. So we said, what if we could create our own brand, cut out the licensing fees, all the middlemen, all the retail markup, and sell the same quality glasses that people are used to paying several hundred dollars for, but offer them for $95 through warbyparker.com.

DAN BOBKOFF: But if taking on Luxottica wasn’t daunting enough, there’s something else noteworthy about Warby Parker. It’s a so-called B Corp. That’s short for benefit corporation. It means that the company wants to do more than just make money.

NEIL BLUMENTHAL: It’s funny. It feels like it’s a lot of sort of disparate initiatives, but to us it’s just exactly what we’re trying to do. It’s actually just one thing, and that is to build the future of business. We think that businesses should be solving problems, not creating them, and we think that they should be thinking about all the different stakeholders: their customers, their employees, the environment, and the community at large. And that’s how we built this company.

DAN BOBKOFF: We’ll get back to Neil Blumenthal and Dave Gilboa in a few minutes. But first let’s drill down on this a bit. B Corps can be a little confusing. Any company can become a certified B Corp. There are 650 so far that meet the criteria for social and environmental performance, transparency, and accountability. In 12 U.S. states so far, companies can actually register as official B Corps. That gives them the legal protection to pursue both profits and social good.

Behind these do-gooding for-profits is a non-profit. It’s called B Lab. Andrew Kassoy is the co-founder. He spent a career in private equity before turning to this new model of what a company can be.

ANDREW KASSOY: I was an investor on Wall Street and sort of watched the way fiduciary duty and the obligation to maximize value creates more and more short-term behavior.

DAN BOBKOFF: Kassoy and some friends from college started B Lab five years ago. They created criteria for B Corps and pushed for legislation around the country to make it possible for companies to become benefit corporations.

What do you have to have to be certified as a B Corp?

ANDREW KASSOY: You have to do two things to be a B Corp. The first one is that you have to meet a high set of social and environmental performance standards in a transparent rating system. We built a rating system that looks at the whole business and then provides that information transparently to consumers on our website, so anybody can know.

The second thing is that you actually have to add language to your corporate articles that says that you will consider the interests of your stakeholders when you make decisions. That’s how a consumer knows that this companynot only is it saying that it’s doing good stuff, but it has actually legally obligated itself to conduct its business in a different way.

DAN BOBKOFF: Is this good business? Obviously it has a higher purpose. It’s trying to do good in the marketplace and not just maximize profits. But is this good for the companies, good for the investors who are putting their money behind this?

ANDREW KASSOY: All the evidence that we have is that these companies did better going through the recession, like lower bankruptcy rates, that they create more value for society than other kinds of businesses, that they are creating value, not just for their shareholders, but also for their workers and for the environment and for the communities in which they do business in a way that most companies don't.

DAN BOBKOFF: That’s interesting to me. I used to have this retirement account that offered one investment called the Social Choice Fund. It always sounded so good in the descriptionall these companies that have this kind of mission. Yet when you look at the returns, it always trailed the more traditional investments.

I wonder, can you both do good and maximize profits at the same time?

ANDREW KASSOY: What you’re talking about is socially responsible investing. It has been a movement that we sort of stand on the shoulders of that has been around for a long time. It’s more about screening out bad stuff. You don't want to invest in tobacco stocks, things like that. I think the jury is out on how effective that is, both as an investment strategy and as a way to have impact.

A lot of what the B Corp community is about is going way beyond avoiding bad and actually using the businesses to do something good. These are companies that have built into the DNA of the business a social mission, not just avoiding tobacco or avoiding firearms, but actually trying to solve big social problems.

DAN BOBKOFF: In that tradition, most people, when they hear that, probably think of non-profits. Traditionally most people have this kind of dichotomy in their heads that there are for-profit companies and there are non-profits. Where does the B Corp model fit in that?

ANDREW KASSOY: Really, this is a new model. It’s a new kind of company. Non-profits are critical to solving big social problems, because they come up with a lot of the intellectual capital that really matters. But non-profits and government are limited in their ability to scale, because they have a hard time attracting capital to scale and they have a hard time attracting talent. The idea of using business to solve social and environmental problems is that you can address those two impediments to scale. If you can build social mission into that, then you’re really able to scale and address problems in a big way.

DAN BOBKOFF: The mission also becomes marketing, in a sense.

ANDREW KASSOY: The mission is marketing, but the only problem with that is that we live in a world that’s all about marketing. If the marketing isn’t authentic, it’s very hard for consumers to tell the difference between a good company and good marketing. The B Corp certification is all about making it easy for them to tell the difference.

DAN BOBKOFF: In my mind, this sounds great when a company is doing well. Say they are a manufacturer and all their competitors start moving their production overseas and use very cheap or slave labor, and they are trying to stay in the U.S.whatever the example is. How do they balance having this mission and surviving in the marketplace?

ANDREW KASSOY: This is business. These are not charitable organizations. We often say: No margin, no mission. These companies have to make money. It’s true that these additional things that they are trying to achieve put extra pressure on them. It drives them to be more innovative, to try to attract greater talent to come work there, to think more creatively. There’s no question that it’s harder. But these are totally driven businesses that want to do it that way. And they are succeeding.

DAN BOBKOFF: If you could look out 10, 20 years, is your dream to have every company be a B Corp or do you see it as just one category that’s right for some businesses and not for others?

ANDREW KASSOY: The end goal is for it to be the norm, that all business is conducted this way. When that happens, we won’t need B Corp certification, because all businesses will be like that. But if we’re being honest and not naïve, we’re a really long way from that. Until then, we need to build community and build a movement of stakeholders who want to support these kinds of businesses, and we need policy incentives that can support these kinds of businesses, because they are truly best for America.

DAN BOBKOFF: Andrew Kassoy is a cofounder of B Lab.

This brings us back to Warby Parker and its co-CEOs Neil Blumenthal and Dave Gilboa. They have sold 300,000 frames since the company’s founding and have the modest goal of becoming the biggest eyewear company around. While they want to do well, they also want to do good. For instance, each pair sold helps someone in the developing world get glasses. They say they prioritize their workers and the environment.

When did you decide to become a B Corp?

NEIL BLUMENTHAL: The ethos of the companyit was all from day one. We started this company because it was about solving the problem that we had experienced walking into an optical shop and getting excited about a pair of glasses and walking out feeling like we got ripped off, and then also just trying to serve the hundreds of millions of people that don't have access to glasses.

It was several months after we launched that we ended up becoming a certified B corporation. To us it was a no-brainer.

One, the nonprofit behind B corporations is trying to set the stage for these new types of socially conscious businesses, and we want to support that effort. Second, as a new company, we thought it was really helpful having third-party validation, to say, “Hey, these guys are doing it right. They’re doing it in a way that’s responsible. They’re not just greenwashing.” I think what you are seeing are a lot of incumbent companies that are trying to say that they’re doing good, when it’s really just a cause-related marketing scheme and it’s not core to how they are as a company and as executives and people.

DAN BOBKOFF: But you can’t deny that being a B Corp and having that mission is also marketing for you, too, right?

NEIL BLUMENTHAL: Absolutely. Again, that was one of our motivations for doing it, to have third-party validation, to say, “Hey, these guys are being thoughtful about this,” and that this isn’t just greenwashing. This is not just slapping a label on it to say, “Hey, you guys should buy it because they’re doing good.” It’s that they actually are doing good and they have gone through a very rigorous assessment to say that they are indeed doing it.

DAN BOBKOFF: Does that actually carry over to your factories? I read that you use some of the same Chinese factories that Luxottica uses.

DAVID GILBOA: We’ve been very thoughtful about the types of suppliers that we do work with and have a pretty rigorous code of conduct that all our suppliers have signed. We work with third party auditing firms that actually visit our suppliers and do secret interviews and report findings back to us. Neil and I have personally visited every supplier that we work with. We want to make sure that our partners are very well aligned with our own philosophy for running a for-profit business that does good in the world.

DAN BOBKOFF: One question I have about B Corps is, they seem like a really good idea when business is doing well, but I wonder, what happens when all of a sudden you have a new competitor on the block or your sales are falling and you have to make some tough decisions? I’m sure at some point profits and doing good are going to be at odds with each other, aren’t they?

NEIL BLUMENTHAL: We think that that’s the rub. That’s the conscious decision that we’re making as managers, as founders, actually as significant shareholders in this business. It’s a commitment that, regardless of what happens, this business is not just about profitability; it’s about doing better in this world.

Thankfully for us, there are strong business rationales for everything that we’re doing. For one thing, even though we design and sell glasses, we’re in a talent war. We’re competing with companies across the spectrum. In order to win the talent war, you need to have a mission-driven organization. We’re finding that more and more people want to be working at mission-driven organizations, especially with this millennial generation. So you will not be able to compete in the future for talent unless you are doing good in the world.

Second, from a branding standpoint, this is integral to our brand. You actually will destroy the brand equity if you try to pull away our social consciousness.

If there ever was a position where Dave and I weren’t running the company day to day, those future leaders wouldn’t be able to separate the social mission from the company without doing irreparable harm.

DAN BOBKOFF: So would you rather almost see the company fail than to give up on the social mission?

DAVID GILBOA: I think we believe that if we abandon the social mission, the natural outcome would be that the company would fail.

NEIL BLUMENTHAL: We fail if we don't achieve our goals. Our goals are to radically transform the optical industry and to demonstrate that you can build a profitable, scalable business while doing good in the world. We could be worth one day a bazillion dollars, but if we haven’t achieved those two aims, then that is a failure, in our minds.

DAN BOBKOFF: If I buy a pair of Warby Parker glasses myself, what then happens on the other side to get glasses in the hands of somebody in another country?

NEIL BLUMENTHAL: At Warby Parker, what we do is, on a monthly basis, we tally up the total number of prescription glasses and sunglasses that we have sold and then we make a cash donation to VisionSpring and a few other select non-profits to cover the cost for them to produce glasses. They in turn take those glasses, they will provide them to the people that they have trained to sell glasses, and they in turn sell those glasses for a few dollars to the people in their community.

It’s often whatever the market can bear. When I was at VisionSpring, what we discovered was that roughly about 10 percent of somebody’s monthly income is what people want to generally spend on a pair of glasses. In places in rural India and Bangladesh, they are $2 to $4, and in places like Guatemala and El Salvador, where the ability to pay is a little greater, they might be $7 to $10.

We did an impact assessment with the University of Michigan, and a pair of glasses increases somebody’s productivity 35 percent and their income by 20 percent. That’s the equivalent of an extra day’s work per week. It’s one of the most effective poverty alleviation tools in the world, and nobody’s talking about it. They are not talking about it because glasses are so ubiquitous here in the U.S. They have been around for over 800 years, and people still don't have access to them. People don't think that people don't have access to glasses because everyone would assume, if humanity made an invention 800 years ago, then everybody should be benefiting from that invention today.

DAN BOBKOFF: It sounds almost like VisionSpring is its own eyewear company. They are designing and producing glasses just like Warby Parker is, except with a very different purpose. Is that right?

NEIL BLUMENTHAL: Exactly. VisionSpring is a 501(3)(c) public charity based in New York and is a non-profit. They are no doubt running it as a business. They’re using the same management tools and marketing techniques that we at Warby Parker are using.

DAN BOBKOFF: That raises an interesting question. B Corp is this new concept in business. VisionSpring is a non-profit. Warby Parker is a for-profit, but it’s a B Corp. Now that you have experience in both, when is it better to be a B Corp and when is it better to be a non-profit? Is there ever a case to be made that you should be a traditional for-profit?

NEIL BLUMENTHAL: Absolutely. I think there’s a spectrum of needs. Within that spectrum of needs there are different business entities and legal entities that are best used to serve them. For example, when Sandy hits New York or Katrina hits the Gulf Coast and you have a relief situation where people have lost everything and they need to quickly be brought back, and you are working on recovery efforts, that is a perfect opportunity for nonprofits to go and actually give stuff away for free.

In development situations, like in most of the developing world, where you need to grow these nascent economies, there are places where you need to subsidize some goods and services, but you can still pay for them. That is a place where VisionSpring and those types of models are still non-profits, because they rely so much on subsidy that it makes sense.

There might be a case in 10 years where VisionSpring has done such a good job that it can now serve these populations profitably, and then at that point, yes, it probably does make sense to become a for-profit entity. And you know what? That’s completely fine, because mission accomplished. People are able to buy the products that they need. People are getting paid fairly for them. Then we can shift more resources towards needs that you can’t address profitably.

DAN BOBKOFF: Dave Gilboa and Neil Blumenthal are two of the co-founders of eyewear company Warby Parker, which is one of the 650 certified benefit corporations.

Let us know what you think of B Corps and of our podcast. Check us out online at carnegiecouncil.org/justbusiness. You can leave us a comment there. While you’re there, you’ll find videos, podcasts, and transcripts from the Carnegie Council’s more than 60 public events it hosts each year. You’ll find many fascinating talks by well-known experts discussing ethics and international affairs.

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That’s all for this edition of Just Business. We had production help from Madeleine Lynn, Terence Hurley, and Anne Hoffman.

You can find more episodes on iTunes and the Stitcher Smart Radio app.

I’m Dan Bobkoff. Download us again next time.

Music credit: Tony Higgins

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