Aldo Musacchio:
It is my pleasure to introduce Chris Marquis. Let me just tell you a little bit about Chris. And I'm going to sound like I'm exaggerating, but I am not exaggerating. Chris is one of the most prolific management scholars. I'm just going to say of my generation, if not the most prolific, I haven't been really counting papers and stuff. Every time you try to research a topic he has in a top journal. And it's not easy to accomplish that while also spending time in China, talking to the Chinese Premier and writing I don't know, 20, 30 cases on social innovation and social entrepreneurship.
Aldo Musacchio:
He teaches mostly social entrepreneurship and social innovation. But he has a long career teaching all sorts of things. And he's originally from the University of Michigan. He got a Ph.D. in sociology and Business Administration with pretty interesting people there. If you read his bio, his dissertation won one of the possible awards. He's been nominated a runner-up for the Aspen Institute, Faculty Pioneer Award a couple of times. I mean he's as much an innovator as an amazing scholar. His book, the book that he's going to be talking about today, Better Business, is definitely an interesting introspection into capitalism as it is today. I thought it was going to be more popular and trying to connect, but it's also a very serious scholar examination of capitalism and some of what is wrong with capitalism.
Aldo Musacchio:
I'm looking forward to the presentation, Chris. I hope I'm not missing anything. Let me just say that he's SC Johnson professor in Sustainable Global Enterprise at Cornell University. And it's a pleasure to have him here today. He wants 30 or so minutes uninterrupted so that he can present the argument. He allows clarification questions, but he wants to have a more broader discussion at the end. Thank you, Chris.
Chris Marquis:
Wow, thank you Aldo, that was I think, maybe the kindest and truly most exaggerated introduction I've ever had. But it was nice. I'm here, I'm visiting the UK as some of you might have heard. It's like the days that got me fired up. Thank you. Thank you very much. It's wonderful to be with all of you. I wish I was there in person, and we can go out in the evening for a beer or something like that. I lived in Boston for about 10 years and can't believe I've never been to Brandeis. And I lay that on Aldo's feet, because you never invited me. So as all the mentioned, I've written this book recently, it's called Better Business: How the B Corp Movement Is Remaking Capitalism. And a couple, I guess high-level points.
Chris Marquis:
So one, this book is actually written for a more general interest audience. I have a couple of slides in there trying to connect it to teaching and research, just because I heard this was going to be a faculty, a lot of faculty. But the argument will be relatively general. And you can feel free to ask me any questions as we go. It's sometimes hard in Zoom to see people raising their hands if you're sharing the screen. So you can yell, you can say, "Hey, Chris, stop," if you want, I mean, I'm happy to entertain them.
Chris Marquis:
The general argument of the book, you might think from the title that I'm saying there should be more B Corps in the world. And some of you might know what that is, some of you might not. At the end of this talk, I hope you know what it is. But regardless, if you don't know what it is, that's fine at this point. You may think I want more of those kinds of companies. And it's not that I don't want more of the B Corps. The argument of the book is much more that the tools and processes that have been developed by a community of entrepreneurs, social entrepreneurs, lawmakers, investors, is really useful to help business transition from more of a shareholder primacy model to more of a stakeholder capitalism type of model.
Chris Marquis:
There's a lot of talk about that these days. How to do it, who knows? Is it just greenwashing? Probably a lot of it is. And so these tools and processes that I'm going to talk about, I feel are really helpful and essential to help all businesses, not just B Corps but all businesses transition to more of stakeholder orientation. Okay. I think the timing of this book, I got very lucky in some ways. It's not a New York Times bestseller, but it got a little bit more attention than I think it would have been. I got a couple op-eds and opinion pieces that probably would not have, were we not undergoing this fundamental reexamination of our system brought about as a result of COVID-19. All of the horrible examples of racial injustice. And continuing me-too type effects.
Chris Marquis:
I wrote the book before COVID believe. And then, actually, I had the page proofs, I think they were due like March 20th, 2020. And the book was going to be published in I think June or July. And I said, "Hold the presses, I mean, I have to add some text on COVID because it's going to be totally weird." And then they got delayed to the Fall. It was published in September of 2020. I'd be totally strange to have a book out without anything about COVID. I was able to weave that in the argument a bit. But again, I think it's relatively good timing because there is all this discussion now that we need to Build Black Better. Part of that is having a more resilient, sustainable economic system. I think that the argument I'm going to put forth cuts right to the core of that.
Chris Marquis:
Yeah, so you guys are an academic audience. I'm sure you know Milton Friedman, he is famous. The social response of business is to increase profits. Essay in the New York Times Magazine in 1970, just celebrate the 50th anniversary of this. Actually, my book was published on the 50th anniversary of this, to the day. When the publication was delayed to September, I was complaining about it to a friend. And he said, "That's actually when Milton Friedman's article was published. You should have them publish it on the exact day." And so I figured yeah, may as well. Didn't help me. I really wanted to get... The New York Times actually had all these famous economists, business leaders like Marc Benioff, whatever.
Chris Marquis:
They had actually a section in the paper, that on the 50th anniversary of this essay. So huge impact on the laws that we have on people's ideas of what it means to be a firm. If you look, actually, he very much was reacting to the ideas of managerial capitalism. Which certainly was not an ideal system. But employees had pensions, companies took care of their communities. I think that they thought a little bit more long-term about maybe broader sets of issues. And the thing that when we transition to a much more stakeholder focus. And this all throughout the '80s and '90s, the rise of agency theory as a guiding ideology of corporate governance. The idea of stock options, I think is tremendously key to this issue. How this idea focused primarily on shareholders really distorts the decision-making of corporate leaders. Rake's a much more short-term oriented, as opposed to being thinking about more long-term issues.
Chris Marquis:
Part of the argument I make, and this is not my argument. I mean, this is something that other folks make as well. The short-term focus has created a number of systemic issues. The mechanisms around short-term focus have created a number of systemic issues. One of which is economic inequality. This is a simple graph which in a general-interest audience maybe it's more shocking than to you guys. But the level of CEO to worker compensation has just skyrocketed as the stock option prevalence has increased. And you can see what Milton Friedman was writing in 1970. The average CEO to worker pay was around 20:1. Some years, it's upwards of 350, 360 I also and there's some evidence to this as well, that the short-term oriented...
Chris Marquis:
Some years, it's upwards of 350, 360 I also... And there's some evidence to this as well, that the short-term orientation, really limits the investments in pollution abatement. And makes it more likely that companies are exploiting the externalities, a tragedy, comments-type problem in some ways. When I was invited and you asked me to speak about this book, you said it was climate change week. I think that this connects a little bit to the issues of climate change with pollution, greenhouse, gases. And I think that this focus on shareholders and short-term orientation is a really big reason why we're in the situation we're in. I'm not some crazy left-wing academic saying this. I mean, other people, I think, that are much more sort of mainstream and surprising in some ways, have recognized this focus on shareholders has created a myopia in corporate leadership. That is an issue.
Chris Marquis:
The Business Roundtable, which I'm sure you probably know about this group trade group of CEOs of the 200 largest companies in the United States. They issued the statement got a lot of press... They're changing their definition of what the purpose of a company is. And the purpose of company is to benefit all stakeholders, such as employees, communities, the environment, et cetera. Prior to this, it was actually explicitly focused on shareholders. This is I think impressive. Impressive is not the right word. This is evidence that this is increasingly widespread idea. The World Economic Forum in 2020, the focus of the meeting was transitioning to stakeholder capitalism. Larry Fink is talking a lot in his letters about focus on ESG, which is part of this whole story. There's a lot of momentum around these ideas. Even Elizabeth Warren and Marco Rubio agree. I mean, there's a few things, I mean, maybe China might be another thing they cast.
Chris Marquis:
There's some overlap nowadays. But a little bit ago, this was really I think unique situation. Elizabeth Warren, the senator that represents you folks in Massachusetts, had as part of her presidential campaign platform something called the accountable capitalism act. And this accountable capitalism act was actually recommended national charters for companies. And the corporate governance provisions actually were based on some of the B Corp ideas that I'll be talking about in a bit. But it's the idea that making the corporate governance of firms focus much more on stakeholders. Marco Rubio, he in his office issued a report American investment, 21st century called Shareholder Primacy is the Cancer that's killing American Competitiveness.
Chris Marquis:
In that, we need to focus much more on long-term and more stakeholder ideas. But this is something that's easier said than done. I mean, I mentioned greenwashing on the first slide, this is something that it's really easy to talk about the game of like transition to stakeholder capitalism. But it's actually much harder to actually, walk the talk. Some of the Business Roundtable companies have been outed for not really following through. The pandemic hit, they lay off all their employees, which is understandable. I mean, I think in many cases, obviously business goes to nothing. You can't expect the companies to necessarily continue paying their workers forever. However, what they did still do then, is in many cases still paid sometimes increased their dividends and paid their executives. Sometimes increase their pay-in or gave their executives raises. They're still not really focused on broader sets of stakeholders but actually very much on shareholders.
Chris Marquis:
And part of the thing is that, the corporate law, securities law, we can go into a lot of this, is really focused on the idea of shareholder primacy. Even norms and culture in our world are focused on that. This is something where to actually make this transition, you need actually tools and processes. You can't just talk about it. This is where I think that the B Corp model really comes in it to be very useful. And this is something that is used by many other companies than just B Corps, these things I'm going to talk about. The Y axis, they have developed a ESG, measurement benchmarking tracking reporting transparency tool, called the B Impact Assessment. This is now integrated with the UN SDGs so companies can actually see how they can work to address the Sustainable Development Goals. This is something that's used by hundreds of 1000s of companies not just B corporations, this ESG management tool. And along the bottom here, X axis is a new type of company that has been pioneered.
Chris Marquis:
Legal changes in US states and many countries have now been made over the last 10 years to develop a united C Corp which is more of a shareholder primacy focus or investor primacy focus. But a company that embeds stakeholder accountability and purpose into the legal foundation of the company, the articles of incorporation. Okay. When you do both of these, and there's 10s of 1000s of these Benefit Corporation.s. And there's 100s of 1000s of people who use this uses ESG. And when you get above a certain standard on the ESG assessment, you can become a B Corp, if you want. Here's some of the well-known companies that have gone through this. From Roshan, which is an Afghanistan telecommunications company, largest employer in Afghanistan. To Patagonia which everyone knows, too many others.
Stephen Cecchetti:
Do you have any really big companies? I love King Arthur Flour, but-
Chris Marquis:
Yeah. So I'll talk a little bit more about that toward the end. It has actually been spreading to big companies within the last year. I would say when I first started studying this, it was small, medium companies. But in the last couple years, it has been... and I'll mention this, I'll add a couple of slides on this. It has been increasingly embraced by large companies like Danone is an example. There's a number of... Natura, I don't know. I'll talk a little bit about more of that, but I think that's a good point. I think investors is also another sort of key constituency that has come along and had some change in the recent years.
Daniel Bergstresser:
I can imagine if let's say that you have something that has been a publicly-traded company, I purchased shares and then you have the company attempt to convert right? I can imagine objecting, saying, "Look, I purchased my shares with a good faith understanding." Have you had any lawsuits about the permissibility of transit?
Chris Marquis:
We are like, right on, I think the cutting edge of this right now. The majority of B Corps are companies that trend. And there's only a handful of them that are public. Most of them are B Corps before they are IPO. They're in the last, actually literally two months, there have been two publicly traded companies that have changed their articles of incorporation through shareholder vote. Both got over it and I have a slide on that too which I... But both got over 99% support. The CEO of one of them actually just came to my class. I'll talk about that in a second, because those are good questions.
Daniel Bergstresser:
Have you had investment managers get sued by their investors for holding shares? Like I can imagine if I'm investing in a mutual fund, and the mutual-
Chris Marquis:
Like I said, the public company aspect of this, is relatively new. It's been untested yet. But I'll say a little bit more. Every single major BC firm is investing in these companies, and so they're wanting an exit. I anticipate that over the next five, 10 years there's going to be many of these companies going public just because that's the natural BC model. These things will be tested. And the thing is, is that you look at the S-One of companies. Like there's company Lemonade, which is an online insurance company, which is a B Corp went public. You read their disclosures and they say this. They disclose this as a potential risk. They are a company that maximizes stakeholder value, not shareholder value, and that this could lead to lower returns.
Ben Gomes-Casseres:
Very quick question, is there a benefit tax benefits or something like that?
Chris Marquis:
There's no tax benefit.
Ben Gomes-Casseres:
No?
Chris Marquis:
I'll we'll talk about that-
Ben Gomes-Casseres:
Yeah, good ahead.
Chris Marquis:
I appreciate you guys asking these questions. I'm going to not skip this, I have a slide on how you can teach with the book. I have a teaching... Many people here worked at HBS, I had to write a teaching note for this, so I have a teaching note which is online. Go to my website and get it, it goes over all this. This is something where there's a ton of interesting research ideas. And since this is a more academic probably just listing a couple of things. This legislation, which I'll talk about, so keep this in the back of your mind. This has now spread to at least 10 to 15 countries. I'll tell you the story of it, how it started in the US. Greenwashing issues, ESG reporting. One of the things that I'm surprised, finance might study it more, but the different ownership structures that exist in the world, there's employee-owned, Co-Ops, mutually owned, family-owned, these typical VC/PE, and public companies.
Chris Marquis:
This is an interesting laboratory because there's all these types of companies something that someone could... There's a geographic clustering of this phenomenon. Interesting to think about why. Okay, so let me dive into, suggest some quick ideas about research that could be done in this context. More deep and systematic research. The data actually of these companies is publicly available. You can download the database, it's on... What is the data? It's called data.world. I don't know if you're familiar with that website, data.world. It's a database of, lets just say, a site that you can download a bunch of data, it's actually a B Corp itself, the company data in that world.
Aldo Musacchio:
Chris, I don't know if you said it or, to get the B Corp logo, to get like the stamp of approval, is it B Labs that gives you that?
Chris Marquis:
Correct.
Aldo Musacchio:
The way to certify yourself?
Chris Marquis:
Yes. So there is an independent third-party nonprofit that does the certification. They've now actually, the certification standards are actually done by a separate organization because there could be potential conflict of interest there. So there is this nonprofit that... If a company let's say, wants to become a B Corp, they fill out this B Impact Assessment. If they score above an 80, it's scored across these different governance, workers, consumers, community environment. They submit it to B Lab, there is a checking process of a certain random percentage of the answers. And I think it's 3%, they actually do an on-site audit, randomly selected. But so this is the process by the certification body. Thank you. Oh, that's good. Thanks.
Chris Marquis:
Here's an example. Patagonia, very high-scoring and two things I want to illustrate. One, you can imagine Patagonia, well known does very well in environment, does very well community. But also, one of the things, I've interviewed now, probably about 100 of these companies, and what they tell me is it how it's a spur for continuous improvement because you're just going through this rigorous basically management toolbox process helps identify gaps. Actually, within the tool, there's a variety of benchmarking, you can see what other companies are doing. So it's a real management learning process. And this is interestingly... What Larry thinks rationale for why companies should report on ESG, it's about the long-term risk management, better management systems, and quality. With Patagonia, you can see here, there, get to 2011. And the standards actually are getting a little bit progressively harder over time.
Chris Marquis:
They're renewed every two to three years. 107, and then they're up to 151 which they're still at, which is an incredibly high score. I mean, there's maybe 1% of the companies that are higher than that. Even those at the top is 200. Okay, so the reason why I titled the book Better Business is that so many of the companies I talked to said, "We got into this because we were passionate about the social and environmental mission. We wanted to actually hold ourselves accountable. We wanted to be part of a group of like-minded peers." They said, "What we came out of it, and the biggest conclusion is that we just were a better business." And the reason why is that here's just some quotes. Making tangible things more tangible. A way to continuously improve and deeper engage in your business, you can compare and learn, et cetera.
Chris Marquis:
This is a big reason then why a lot of these companies do it, because now there's a much more understanding. There's a way to actually help make the management of your company more systematic and as a result save money and last longer.
Ben Gomes-Casseres:
Not the shift from Six Sigma in that sense, basically it's a Hawthorne effect.
Chris Marquis:
What, say that?
Ben Gomes-Casseres:
Not much different than the Six Sigma policy. And also, just basically got you to pay attention to what you were doing.
Chris Marquis:
Yeah. And if you measure it and it's a way that you can say, "Okay, I see, I see how I can improve." That's actually the global reporting initiative, which you're probably familiar with, more well known, but used by larger companies. That actually got its start from series, which is a Boston-based NGO, then the GRI moved to the Netherlands. And talking to some of the early people, they said, "This is our change strategy.". That of companies actually measure something, then the next year want to get better, it's natural to not want to fall. And so just in actually measuring something is a natural, approved continuous improvement.
Chris Marquis:
So this is a select list of investors and someone asked earlier about large companies. When I first started studying this, the first HBS case I wrote on B Lab, which is the nonprofit that I already mentioned, was in 2010. There founded in 2006, and I've done a bunch of case studies in a variety B Corps wanted to teach this.
Sandra Cha:
Question.
Chris Marquis:
Sure yeah, great.
Sandra Cha:
So Better Business, but how good a business? Do you have to be, to begin with, to be able to take this on? I mean, like startups, given the huge failure rate for startups, how good do you have to be able to move to this maybe next level of good business?
Chris Marquis:
Yeah, I would say that, I mean the people that go through Become B Corps, it's a big stretch. If you actually are not very well run and you try to become a B Corp, there are some folks that have told me they've really increased their management and social responsibility capacity over a number of years working through this. But these tools like I said, 100,000 plus companies are using this. Any company can use this to become more systematic and manage their company better. One of the messages of the book is that you don't have to be a B Corps, it's actually really hard. Maybe it's not the right thing for many, many companies. It does take time. If you're a startup, maybe you don't want it. There is a certification cost, it's not large. But you can still use these tools to actually help you manage your company better.
Hamza Abdurezak:
Quick question, Chris. Where does this SASB measure falls into the social accounting? The JetBlue is using, and I use that case for school.
Chris Marquis:
Yeah. I mean, it's a very consistent type of system. I think the couple differences, SASB is frequently used by larger companies, it's more of designed for larger companies. This got it start more for smaller entrepreneurial companies. Another difference is that this can result in a certification process. There's more of a valuation of what is right and what is wrong in this system, or what is more valued and what is not. Whereas I think, SASB is more of a neutral thing that you report on, if that makes sense.
Chris Marquis:
I'm talking about this Better Business idea and I think, one of the things, as I've taught on this, and researched this over the years, there has really been a huge change, is the embrace of these companies by mainstream and even the growth of the impact investing world. Like I said, when I started teaching people said, "This is great for Patagonia. Patagonia is owned by four people, they can do whatever the hell they want." Mainstream investors, lead on public companies. Now, there's a lot of public companies that are this. But I started this idea of investing for impact or impact investing. Is only a relatively recent phenomenon, actually B Lab was involved in these early discussions.
Chris Marquis:
The Rockefeller foundation 2007, with a report coined The Title, coined that name. There's a lot of specialized investment firms that are doing this impact investing. And all of those, there are B Corps themselves. This is one of the benefits that companies find. Also, Ben, is that it actually enters you into this network of impact investors. And many of them like for instance, Bridges. I don't know if you know Bridges, Brian L. Trelstad, I don't know if you him. He teaches at HBS now maybe still the managing partner in the Bridge's New York office. They require all their companies to go through this. All the companies that they are investing in, are required to go through this tool. There's been this rise and impact investing where B Corps can be part of this, ecosystem. But in addition, this has spread to mainstream BC firms too.
Chris Marquis:
I think the next slide says, there's been over two billion in the last couple of years into these B Corps and 150 venture investors. You can see here, I'm sure you recognize those names of some of the most high-status well known BC companies in the world are investing in these companies.
Chris Marquis:
Starting to go public, so just since COVID had a number of these companies have gone public. Most recently Coursera had a blockbuster $6 billion IPO, just a number of days ago. Lemonade, I think was the highest performing IPO of 2020. Online insurance company, it was an amazing... Dan, you had a very skeptical look when I said that. You can fact check that. I know it was up like 60% or so. Maybe it wasn't but it was very, it's up there. Lemonade, I don't know if you guys know this company, it is a totally revolutionary model. I've interviewed their CEO as well. But I'll just tell you because you might be interested. So there is an inherent conflict of interest in the insurance business, where insurance company wants to pay lower premium or the insurance company wants to pay payout less for claims. People know this, they exaggerate things. The company spends a lot of money investigating things, and there's this really negative spiral.
Chris Marquis:
So Lemonade, and there's a variety of people like Dan Ariely that have helped them understand getting to use behavioral economics and finance to help create better incentives for people. What they do is you pay your insurance premiums; it goes into a big pot. Lemonade takes 25% off the top, that is their fee. Everything else goes to pay claims. If they pay out more or less claims, the money goes to nonprofits that you as a policyholder choose. And they also buy reinsurance for times, like hurricanes, et cetera. So taking this conflict of interest. There's a new model of insurance that's taking the inherent conflict of interest out of it. AppHarvest has a 60-acre indoor farm in Kentucky just finished. Martha Stewart is actually an advisor on the board an investor because the stuff they produce tastes so good, by doing it in an ecological way.
Chris Marquis:
Vital Farms is another example of a company that does pasteurized eggs and dairy. So, like I mentioned to Daniel's question, there have been two companies in the last number of months that have taken shareholder votes and passed and changed into this new type of company. Benefit corporation. I think one of the most, interesting one is this Veeva Systems, its market cap, I think of about 40, 50 billion Cloud computing company for the healthcare and Life Sciences industry. Peter Gassner came to my class on Wednesday to tell the students about this. And I'm teaching right now at Cornell Tech, which is our technology-focused program. And so this is why the reason I had him because it's a tech company. And so the students were... They think that if you have a good idea and could write some software that your life is taken care of. But he is so focused on the leadership and management of the firm.
Chris Marquis:
The first company do this, he said, it took them about a year to. They had to meet with the SEC, they had to do a variety of different things. They had to have a public comment period, where they announced they may do this. They had to obviously socialize it with their investors. But I think it's a big deal and step and we'll see would more companies follow. What does this mean to be a Benefit Corporation.? The company in its transition to articles of Corporation, in a way that it has a vowed purpose beyond just providing profits to shareholders since it creates a material positive impact on society and the environment. And importantly, and this is one of the most essential things in my mind, is then accountable.
Chris Marquis:
It has to report and track, but via some third-party standard, it could be B Lab, it could be SASB, it could be GRI, on these impacts that it says it's going to be responsible for. And this is something where a lot of people criticize stakeholder ideas. Because they say basically accountability, everyone has accountability to no one, which I think is true. But I think that these different tools are ways for the public and for others to hold people accountable. So I think that that businesses can be accountable to the broader set of stakeholders.
Philippe Wells:
Chris, a question about reporting and reporting standards, what they've done. What happens, do we know something about B Corps that actually let their certification lapse? And what happens afterwards? I think, Etsy and Warby Parker were two where, when the IPO came close, or discussions about an IPO, they both let it slide. They just... Their behavior...
Chris Marquis:
Good question. Yeah, so it's interesting. I don't know. So I actually when I wrote the book really tried to get to talk to these folks to understand. When Warby Parker was a 30-person company, I wrote an HBS case about them. So I know the CEO, I wish I'd asked him if I could invest in them. I'd be probably wouldn't be working anymore. And actually the Etsy founder, Chad Dickerson actually is on the faculty of Cornell Tech. Chad Dickerson refuses to talk about it. Neil Blumenthal and his team, the CEO of Warby Parker won't go on the record. When it happened, actually, I mean, it's interesting, because this Benefit Corporation. phenomenon, this is a newer phenomenon. So the first state in the US, Maryland, passed this type of law in 2010. And then it spread throughout the US. Delaware, obviously, the home of US corporate law was the most important. I think it passed in around 2015, 2016.
Chris Marquis:
And then it has spread to a couple few countries in Europe, Canada as a whole. It has been I understand, considering it. And then a number of countries in Latin America, and in Africa. Rwanda just passed it and other Latin American countries are also considering it. So to your question, who asked that question, that's a good question.
Philippe Wells:
I did. Philippe Wells.
Chris Marquis:
Okay, great. So the issue and the reason why Etsy and Warby Parker ended up deciding not to continue their certification is that the standards before this idea of Benefit Corporation came into being, we're just based on the B Impact Assessment. They're just based on that ESG measurement tool basically. But when they started passing these laws, the certifying body said, “Your practices need to be aligned with your governance." You can't just actually say you're doing it. So they inserted requirement that if you're incorporated in a jurisdiction that has Benefit Corporation. legislation, you have to convert to a Benefit Corporation.. And I think the Daniels question, that's like many investors may balk at that.
Chris Marquis:
And so there's a cohort of B Corps, Etsy and Warby Parker being two of them, where they decided to actually not... Their investors were not in their boards, would not and said, “We were not going to change the type of company,” this is some new potentially crazy thing. I think now, I mean, Warby Parker, people that I talked to, said, now that this company is going IPO, we probably would do it, but back then, it was so untested. So there's a number of companies in that cohort. This is something that… So I wrote the second HBS case, B Lab in 2015, about this Etsy decision. What should B Lab do? They're going to lose all the Poster Child companies that get them so much press and attention.
Chris Marquis:
Should they actually, maybe grandfathered people in? Should they weaken the standards? And I gave B Lab a lot of credit for saying, “We are going to stick by our standards.” And we think that if you are actually saying you're doing these in getting tracked and measured on these ESG purpose, you should actually have that in your governance as well. And if we lose a bunch of companies, I mean, our certification has to mean something. That's the story behind that. Some companies converted, like Kickstarter, for instance as an example, was an early in Poster Child B Corp, and they ended up converting to a Benefit Corporation..
Chris Marquis:
I just got to say just very quickly, I think from your questions, this is clear. But sometimes people get confused, because the name sort of sounds similar. So the Certified B Corporation is certification for achieving a certain performance threshold, given by B Lab nonprofit. Benefit Corporation is a type of company that exists in 30 plus US states and all these countries. You don't have to be certified. You do have to have some accountability for the purpose that you articulate, though.
Aldo Musacchio:
Chris, I don't know if this is the right moment to ask you this.
Chris Marquis:
Sure.
Aldo Musacchio:
It does seem to me that the type of firms that are getting certification are maybe using this as a marketing sort of strategy that they are a lot of consumer products or products were having the B Corp certificate that actually gets you traction with the kind of customers you have. I haven't been paying attention before, whether some of the companies that you have on your list, and all of that are, let's say B2B companies, either are not consumer products or the insurance company you talked about, something where it's really not about marketing to the customer, but it's really about the company adopting these standards, because this is the right thing to do.
Chris Marquis:
Good question. Part of the reason why you think that, is that that's sort of, and some ways the Poster Child that everyone trots out to say, “Oh, this is a B Corp.” Actually, from what I understand, I was just told by one of the B Corp, B Lab founders that there's more B2B B Corps than B2C. Some of these, sort of interesting company called Cascade which is a plastic injection molding company. Your recycling bins very well made by them, trash cans. They are one of the company that I've interviewed. And they do it, this kicked off all. They're actually very into social justice issues but also kicked off all kinds of sustainability programs. And they went Zero Waste as a result of starting this, which ends up saving them they calculate 280,000, 7000 a year just from some from saving waste. So the consumer point I'll get to in a little bit. I think that's actually a potential weakness.
Aldo Musacchio:
And I did read about Cascade in your book, so I should have known.
Chris Marquis:
No, no problem. I think it's a good question because, I do think the examples that people throw out are the ones you want people to know them. Another one that's really interesting, someone asked about big companies like Givaudan, which is a Swiss fragrance maker. So everything from all the smells that underlie all this sort of food and other health and beauty products, no one knows if it is in the process of becoming B Corp. I think it's the largest fragrance company in the world, very large company in Switzerland.
Chris Marquis:
Great. So another benefit that people really articulate, someone said to be there in sort of an unusual industry for a big corporate. So our competitor say, why do this B Corp thing? And they say, "The main reason why? I never have to think about HR." Many of the companies report to me that since going through this, their retention is through the roof compared to what it was before, and their competitors, attraction of talent. Athleta, which is a B Corp told me that, now people come to work for them, because they're a B Corp. So you think about the war for talent nowadays, getting sort of smart and motivated Millennials, Gen Z, purpose, social responsibility, something's very important.
Chris Marquis:
And a number of B Corps from Athleta, and New Belgium brewery is another one, Cabot Cheese, all of these told me that, 25 plus percent of the people that apply to them, that says, “Why do you want to work for us?” And people have some variation of, “Because you're a B Corp.” The HR, attraction retention benefits in this are likely large, has not been systematically studied. But there has been a lot of studies on how purpose helps attraction and retention more broadly. So this is very consistent with this anecdotal information.
Philippe Wells:
Chris, on that note, on the Athleta note, can you talk about what happens when a B Corp gets acquired? So I'm assuming that Athleta was a B Corp before they were bought by Gap?
Chris Marquis:
Yes. So I'll say a little bit about subsidiaries. So if you're a legally separate subsidiary, you can be a B Corp. If you're owned by a bunch of VCs, it's not actually... I mean, it's different in some ways, but it's sort of, you have an investor, just you're wholly owned by another company. So if you're a legally separate subsidiary, and the transparency guidelines are different, actually they require if you are a subsidiary, you have to be much more transparent about what you actually report to the B Lab. But there's a number of companies and I'll slide on that in a bit that are subsidiaries of larger ongoing concerns. Good question. Thank you.
Chris Marquis:
One of the things I learned with this, and I think I want to do some more systematic research on. But something that at least in the management, literature, there's not a lot of work on employee ownership. And this is something where this guy, Jeffrey Hollender, I don't know if you've, you've heard of him, he's pretty, pretty well known in the sustainability space. He's co-founder of Seventh Generation. I interviewed him a couple times for this book. And he said to me, he tried to get part of the reason actually, many of the reasons why he ended up exiting not his choice for Seventh Generation as he was pushing employee ownership in a big way that he actually started with his daughter. After that a sustainable sex Products Company that's employee-owned.
Chris Marquis:
But he said to me, “You can't be a responsible business without being committed to employee ownership because otherwise your business acts in a way to concentrate well,” which is totally true. I mean, if you're owned by VC/PE, even families as the company grows, I mean, the owners are the ones that are really gaining for that and not the employee. That actually had a big influence on my thinking. And one of the things I learned through this project, and I think that I've got to do some more work on this. But another thing in today's day and age that is just so incredibly salient and important is issues of diversity, inclusion, justice, equity. This actually companies measuring, tracking these issues is so vital.
Chris Marquis:
And I think that a lot of the interventions talk about policy, even sort of individual bias issues, I think the corporate level piece of discrimination is not as fleshed out. And I think even if you look at the SEC is now talking about ESG, reporting, mandatory. It's about climate change, which is certainly important. But it should also be about diversity, equity issues as well. Many of the companies that I talked to told me, because this is actually an area that I dove into in a lot of the interviews that when they went through this assessment they thought they were socially committed, focused on the environment, they thought they would do great, but actually it turns out they identified a number of, for instance, pay inequities between men and women. Many companies too, and I give them a lot of credit for telling me that, and they were like, “We are shocked that we have this.”
Chris Marquis:
And this is what issues of systemic discrimination are about because they happen through this. It's not you mean, they're people that are none of them are discriminatory probably, but some of the research has shown about sort of negotiating salaries, actually men typically negotiate more aggressively than women. The way that salaries grow over time is usually percentage of base. And so you can see over time, there are systemic inequities that are created within organizations and these companies. So just the process of measuring and tracking these things really highlighted that. Obviously, there's social justice reasons for diversity, equity inclusion, but the thing is, and this again PowerPoint is for more general interest audience, but all kinds of economic, psychology, sociology, political, whatever. I mean, there's probably 1000s of studies that show the variety of different ways from innovative thinking, team work, productivity, how diverse teams are better.
Chris Marquis:
It's an international movement. So started in the US, but is now global. Actually, there's more B Corporations outside of the US and there are inside the US. Here's a few. Natura, which to the question about large companies is the $10 billion now traded on the New York Stock Exchange, also traded San Paolo, Brazilian cosmetics company, natural cosmetics company. Sells through an Avon model whereby they're trying to create economic development entrepreneurship opportunities for their women sales force. They have purchased The Body Shop, which you might be more familiar with. And they also recently purchased Avon. So they now own and Avon will become a B Corp.
Chris Marquis:
BDC, Business Development Bank of Canada, I just want to highlight this, they actually do a lot of lending to small businesses as part of their lending process. They require their prospective lendees to actually go through the B Impact Assessment because they feel it's a valuable tool. Tony's Chocolonely, I don't know if you know, there were just in this last issue of Fortune Magazine, a really great article about this company. I've interviewed the founders of this, and that sort of the leaders of this company, too. It's a company where it was started by a journalist. He was doing some reporting and learned that there was slavery, and I was shocked, slavery, child labor and child slavery in the chocolate supply chain. So if you're eating chocolate, you're eating products produced by slaves. And that is just astounding to think of in today's day and age.
Chris Marquis:
And so he started this company to create and develop a traceable, and fair supply chain system for the chocolate industry. So all the chocolate that or the Cacau that they buy is traceable to non-slave and fairly produced product, fairly produced chocolate. And yeah, really good article about it, and fortunately this last week.
Chris Marquis:
Okay, so someone asked about large companies. So it's a challenge for large companies to do this both. Many times they're public already and as we talked, it's hard, although companies are starting to do it to actually convince your investors to change to Benefit Corporation, it might be a challenge. But there's a large lot of other companies too, that are... They're large, and they're private and they may be interested in doing this. And there's a lot in Latin America, family-owned firms. I think that's why there's a huge concentration in Latin America of B Corps. So an issue is that because the certification is relatively rigorous, and you have to do it for all of the legal subsidiaries in your company, it's very complex.
Chris Marquis:
So I wrote a case study, actually, when I was an HKS for a year and a half published through HKS, on Danone's North American operation. So Danone North America is a B Corp. It's a $6 billion company. Probably if you look in your refrigerator, if you have Oikos yogurt or Horizon organic milk or Silk soy milk, or Dannon yogurts. Probably you'll see the B Corp logo on the back. So they had five or six legal subsidiaries. And so they had to do separate certifications for all of them, it was a hugely complex process. So as large companies have become increasingly interested in this model, B Lab has created a new program to help companies collaborate and learn and have a slower on ramp to the system.
Chris Marquis:
So it's the B Movement Builders. This is the first six companies. They work as a cohort share information. Bonduelle, which is a French vegetable producer, Gerdau, which is a Brazilian steel maker. Givaudan, which I mentioned a Swiss fragrance maker. Magalu, which is a retailer in Brazil, Danone, which probably know $30 billion company and Natura which I already mentioned.
Aldo Musacchio:
Chris, can I-
Chris Marquis:
Yeah.
Aldo Musacchio:
Just to say two things. Some people have to leave because there's an important faculty meeting.
Chris Marquis:
Yeah, got it.
Aldo Musacchio:
And I know that you also have a sort of a hard stop in about 15 minutes.
Chris Marquis:
Yes. I'll end in one minute.
Aldo Musacchio:
Oh, excellent.
Chris Marquis:
Okay. So I mentioned subsidiaries, lots of subsidiaries. Maybe 10 minutes. So one of the things that I think is really important is that they have integrated this with the UN SDGs so that companies can learn what SDGs are, they can focus on and then track progress towards it. The SDGs are built mainly for societies and governments, and I think they operationalize them for a company level is hugely important. One of the SDGs is this SDG 12, is responsible consumption production. And I must say that there is a real interest in people consuming from socially responsible companies. But there's a gap and actually being able to identify them, I think that this B Corp logo helps consumers identify them. But I don't think it's gone that far yet. Just my concluding comment, I'll say I think that this movement has come a long way in convincing investors, in convincing lawmakers and creating these laws.
Chris Marquis:
But I think there's still, we, as individual consumers need to be doing much more in being conscious consumers. And I think that over this next decade, I hope that this movement helps propel that idea to individual consumers building on its strength from the other thing. There's a bunch of logos. I'll stop there. Thank you.
Aldo Musacchio:
Thank you, Chris.
Philippe Wells:
Thank you.
Aldo Musacchio:
I know some people have to go and you have a hard stop. So I just wanted to ask you a couple of questions, and anyone else who wants to jump in. But one that is very important for me is that it's not very clear to me, I know that the book is very aspirational. What role do you, because you see the government as an important facilitator on the side but you don't see like a regulatory role for governments where they can actually sort of maybe start adopting some of regulations.
Chris Marquis:
You're right, my strength and background is much more on the company side. And so I think that... I mean, the government is essential to this. So if the government were to mandate ESG reporting across the broad set of metrics, I think I'd be totally supportive of that. I think that would be great. I wrote something in the hill that talks about that, and the need to sort of expand it beyond just environment, also social and governance. And I think, obviously, the legal framework too.
Chris Marquis:
I think that I do, the book does focus on this sort of grassroots movement that I think the government has a huge role to play. And I hope that in the future, they will play bigger and bigger roles, because it's essential.
Aldo Musacchio:
Okay. Clearly in the book, it feels like you're talking about governments, but then it's more like a facilitating role, rather than they could make the change in a way.
Chris Marquis:
Yeah, no, I would be very happy if they did.
Aldo Musacchio:
If they did. I don't know if anyone has any other question. Some of the companies that you showed in that slide where you had all the Brazilian companies, it's kind of interesting, and I was thinking that maybe in places like in Brazil, there's a ton of impact investing concentrate on sustainability, the pension funds care about sustainability. So there's a virtuous circle where have a separate stock index or a sustainable stock. So I wonder if that virtuous circle is not something that… I think you mentioned it, because you talk about a lot of other investors and investors-
Chris Marquis:
Yeah.
Aldo Musacchio:
But it seems like there's a key place for that, precisely because all investors are now focused on sustainability.
Chris Marquis:
I think you're right. I wrote something in Forbes about why it's getting such traction in Latin America and Europe. And I think that just the models, broadly speaking, and some of the stuff you mentioned about Brazil, I didn't know. And I interviewed actually the head of the B Lab, Brazil for that, but I think you're right. I think that some places, there's more fertile ground for this than others. And I think, ironically, that it started in the US. I think the US with the dominance of Wall Street and the Silicon Valley at those, I think that the US is one of the least sort of fertile places for this around the world. I think that Europe and Latin America. The future of this movement is in Europe and Latin America, it's not in the US. It's big in Australia, UK also, growing in Asia, growing in Africa.
Aldo Musacchio:
You didn't talk too much about supply chains, which is another topic that I've researched. In Brazil, for instance, meat packers are screwed. It's amazing that you could see, they track the cows. They track the cows. They see where the cattle is to make sure that they're not burning the Amazon to expand production, things like that. I feel like that's another powerful way to connect what this is backwards, right?
Chris Marquis:
Yeah. So there is a supply chain questions and things that the company has to do. And there's also work to extend this through the supply chain. A number of companies that I talked to, they seek out B corps to be suppliers. And they ask their big suppliers to actually go through that assessment process where they may not become B Corps but at least they're able to have an idea of where they stand. So I agree, we need to think about the whole value chain of production, not just the focal company.
Aldo Musacchio:
Yeah, because you could have governments for instance, for procurement. That could be something that encourages companies to actually get the certificate.
Chris Marquis:
Right. And to the point about someone asked about tax benefits, there's not that many sort of financial benefits, but there are procurement benefits. And these companies are included. There's sort of certain classes of companies or NGOs that they can get preferential procurement. And so a number of places, these B corps are in those lists.
Aldo Musacchio:
Awesome. I don't know if anyone has any… Sandra.
Sandra Cha:
It's actually related to what you just said, Chris. Our NGOs, governmental organizations, international organizations, are they using these tools as well?
Chris Marquis:
Not so much. I mean, they're really designed for companies to track and manage their processes. So I'm sure some of this stuff they could, but it's much more focused on corporate behavior.
Sandra Cha:
Another question would be, what advice would you give to people who are the founders of a tiny startup, like B Classic founder of the company in your garage. What advice would you give to them if you're interested?
Chris Marquis:
Yeah, so they can go on the B Corp website. It's called the STG Action Manager, which is a smaller version, it's very quick to do, you can learn a little bit about your company, I think takes like, half an hour, 45 minutes, and get a sense of how your company stacks up, you might learn something. I can understand that for certain companies, I mean, this might be something they really like, but maybe it's priority number five, and maybe they're not going to get around to it until year two or whatever. But even by going through that early process and familiarizing themselves, they'll probably sort of learn to be able to benchmark a little bit, but then also set themselves up for later on if they want to spend more time and energy on it.
Sandra Cha:
Great, thank you. That's helpful.
Aldo Musacchio:
And Chris, I don't know if you've met Sandra before. Sandra is-
Chris Marquis:
Yeah, of course.
Aldo Musacchio:
Perfect. And Philippe is teaching some of the sustainability courses. That's why he's asking-
Philippe Wells:
I was asking that question about Etsy and Warby Parker.
Chris Marquis:
Yeah. I'm happy to send slides for the whole book, because I teach it. I've taught it twice now to my students at Cornell. Actually, the third, I'm right in the middle teaching the third time now. So I have a whole set of slides. Well, I'm happy to send you. I've done on my website, if you look on my website is there's a teaching note that goes through in detail the various topics that teach from the book. So if you're interested, I'm happy to send all that stuff to you.
Philippe Wells:
Oh, yeah. That'd be great. And what's your email?
Chris Marquis:
It's CMARQUIS@CORNELL.EDU. I might have it on my last slide. You should go to the last slide, Philippe.
Philippe Wells:
Yes, it is. Yep.
Chris Marquis:
There you are.
Aldo Musacchio:
Well, Chris, I want to thank you. I actually read some parts of the book and it is very fun read, it's super easy to read. So I want to thank you for presenting it. Having read it, it's actually a pretty good reading. And thanks so much for sharing it with us. I think most people got the message. I got a lot of messages while you were talking about it. This is from seminar. Sorry you have to go and things like that. We appreciate that you took the time and that even though you're in England, you could still-
Chris Marquis:
Yeah, no problem. It was great. Thank you for all the interesting questions. I enjoyed engaging. Like I said, I really hope next time, I want to come visit Brandeis.
Aldo Musacchio:
For sure. And let's make sure this is a conversation rather than just a presentation. That'd be very cool. Thank you so much.