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Impact | To “B” or not to “B”

Volume 21, Number 11
November 2015

Simon Parker is exploring how benefit corporations can gain a sustainable competitive advantage.

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Patagonia, the outerwear company with an environmental focus, is committed to the principle of controlled growth. On Black Friday it urged its customers to bring in used Patagonia clothing to swap for something off the company’s “Worn Wear” rack. The idea behind the program is simple: wear clothes longer and take some pressure off the planet.

 Patagonia is one of a growing number of “certified benefit corporations,” also known as “B corps.” These are for-profit companies specially designed to pursue social goals as well as business ones. “They have a blended mission that’s intrinsic to their identity and their purpose,” says Ivey Professor Simon Parker. “This way they signal to consumers that their social mission will not be abandoned to make profits, but that profits increase if social impact increases.”

There are now more than 1,000 B corps in existence. They can be formed in two ways: through direct incorporation in some jurisdictions or through certification by B labs, a non-profit organization that specializes in external social impact auditing.

Parker recently co-authored a research study with Professors Peter Moroz (University of Regina) and Edward Gamble (Montana State University). In the study, they explore ways in which B corps can gain a sustainable advantage over traditional firms that employ typical corporate social responsibility (CSR). They also look at how firms can use CSR more effectively. For future research they are working with hundreds of B corps to gather data for a giant database – the first of its kind in the world.

Until recently, CSR was the accepted way for firms to achieve social or environmental goals. But Parker says that CSR has not lived up to its promise. “Consumers are not always persuaded that firms are doing CSR for genuine reasons,” he says. In addition, existing research has not been able to make a strong case that CSR programs make firms more profitable.

The idea that a firm must stay true to an explicit social mission is attractive to many entrepreneurs. But is social mission enough to compete against large incumbent firms who win on price and scale? Although many B corps are doing well, there’s very little research to show whether they’re really sustainable.

In their study, Professors Gamble, Moroz and Parker used “legitimacy” theory to compare the competing claims of both B corps and CSR firms, and to explore how these play out in different markets.

The study focused on two forms of legitimacy: social mission legitimacy and core product legitimacy. Social mission legitimacy is rooted in consumer judgements about how companies comply with ethical, social, and environmental standards. Many consumers are looking to buy more than a product – they also want something that satisfies a moral need. Core product legitimacy, on the other hand, is rooted in the qualities of the product itself, such as reliability, service, reputation, and durability.

In some kinds of markets, product legitimacy will be more important to consumers than social mission legitimacy. As a starting point, the study advances the proposition that B corps will have the advantage in social mission legitimacy, and firms employing CSR strategies will have the advantage in core product legitimacy.

For example, West Paw Design is a B corp that makes eco-friendly products for dogs and cats. It purchases raw materials and equipment from local producers, and pays a fair wage to employees who make the products by hand. Consumers see it as an authentic socially responsible organization, and this enhances its social mission legitimacy.

Cell phones, on the other hand, occupy a market where core product legitimacy would tend to dominate. When Apple introduces a new iPhone, the product itself is invested with qualities that consumers desire. It’s important, of course, that Apple has CSR programs to go along with their products, such as combatting climate change, but they are incidental to the product itself.

Although much more research needs to be done, the study by Parker and his team is an important contribution to the literature. The study combines theory, existing research, and real life examples to come up with a number of logical propositions. “We’re trying to understand how it is that two vastly different organizational forms can co-exist and what are the conditions under which we would expect to see one of these forms dominate the market,” says Parker.

The study offers a number of practical insights to social entrepreneurs. Among them:

  • When social purpose is highly integrated within a B Corp’s value proposition, social mission legitimacy is enhanced.
  • B corps often have a disadvantage in product legitimacy, but they have the potential to attract consumers with products that are valued for quality and innovation.
  • Where there is “the right blend” or alignment between social mission legitimacy and core product legitimacy, a B corp enhances its strategic advantage.
  • Firms with social mission legitimacy will have an advantage in markets where consumers expect high ethical behaviour.
  • Creating a compelling story helps a firm earn reputation, giving an advantage in social mission legitimacy. 
  • Starting as a B Corp at the time of founding or not long after enhances social mission legitimacy. Although better not to wait, pursuing a certification strategy after start-up can send a powerful message to consumers.

The research team is planning to follow this research with empirical studies. They are now in the process of enlisting hundreds of B corps to help in the gathering of high quality data. “We want to build up a giant database that is comprehensive, representative, and accurate,” says Parker. This database will be shared with B corps participating in the data collection, as well as other researchers in the field.

Parker is excited about the potential impact of B corps on business and society, but believes that ongoing research is important to making this happen. “Benefit companies need to figure out, given the strength of large incumbents, how they are going to win in this very competitive marketplace,” he says. “At the same time, traditional firms need to learn how to do CSR better and more transparently.”

 

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