How to B Good - Pacific Standard

How to B Good

B Lab wants to separate companies that merely claim they are responsible from those that actually do good in the world. But can a logo really change the way America does business?
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On a blustery October morning, I meet Jay Coen Gilbert at the Gryphon, a small café in Wayne, Pa., a town about 20 miles northwest of Philadelphia. He arrives in his traditional workday garb — shorts, Chuck Taylors and a T-shirt — and we sit at a table near the back. Over the whir of a relentless coffee grinder, Gilbert tells a story about his father, Sidney Philip Gilbert, an architect looking to land a contract to redesign some offices for a nondescript engineering firm in a suburban office park in Somewhereville, New Jersey. It was a tale of the 1980s, at the height of the Ronald Reagan era and the denouement of the Cold War, and you could tell it had been told and retold, adjusted here, embellished there. It was one of those stories meant to leave the listener holding on to its larger-than-life significance.

During a walk-through of the firm’s offices, Sidney Gilbert stopped to ask one of the engineers what he was working on. As it happened, the engineer was devising a guidance system for cruise missiles. The tour ended, and the head of facilities turned to Gilbert and said, “You’ve got the job. When can you get started?”

Sidney Gilbert turned down the offer. A story was born.

“The idea he communicated to me as a 12-year-old,” his son Jay says, “was that there was no difference between an architect designing offices for engineers of weapon guidance systems and an architect designing gas chambers.”

The rebellious message seems clear, but it’s not, really. Though Jay, now 41, plinks away on a guitar in his free time; though his two kids attend a Quaker school; though he drives not one but two hybrids; and though he is married to a yogini, he fits anything but the stereotype of the feel-good peacenik.

In his mid-20s, Gilbert co-founded the successful AND 1 basketball clothing company. Now, flush with the proceeds from the sale of that company, he’s creating a nonprofit that hopes to do for sustainable business what Fair Trade has done for coffee: separate the truly fair from those who are just fairly good at marketing.

AND_2

And he’s going to do the separating faster and better and bigger than anyone else because Jay Coen Gilbert does not do laissez faire. He is intense. With a capital I.

If you choose to mix it up with Gilbert in conversation — particularly on the topic of business — he will speak with the kind of authority that can leave even the most grounded person wondering which end is up. And Gilbert is happy to let him stew in the wondering. All’s fair in the world of ideas.

To those who count themselves friends, Gilbert is devoted. He doesn’t just watch his kids play sports — he coaches them in basketball, soccer and baseball. For three years, he has taught a high school class on the ethics of business in the 21st century.

But it’s fair to say Gilbert is at the top end of the “driven” scale. He graduated from Stanford with a degree in East Asian studies because he felt he needed to speak Japanese and understand the link between what were then the world’s two economic superpowers if he was to have any luck “shaping the world.” Out of college, he applied for (and won) a coveted position at the McKinsey & Company management consulting firm because it seemed like a “cool job” to get, right out of school. After a two-year stint there, he broke into the nonprofit world and found himself working in the office of New York Mayor David Dinkins; soon thereafter he was recruited to be the chief financial officer at Coro Foundation, a training organization for community leaders across the country. All this before his 25th birthday.

His next move turned out to be his biggest. Gilbert and a friend he’d known since junior high school were hanging out at Ortlieb’s Jazzhaus in North Philadelphia. His friend, Seth Berger, a grad student at the University of Pennsylvania’s Wharton School, wanted, more than anything, to find a job that didn’t require wearing a suit and tie. Over the din of music, they went through dozens of business plans.

“I couldn’t get his latest idea out of my head,” Gilbert says. “I was borrowing napkins and pens from the waitress and scribbling notes and passing them to Seth in between sets of Bootsie Barnes. By the end of the weekend, we were looking at each other like, Are you thinking what I’m thinking?”

Gilbert went back to New York, quit his job and spent the next two months sleeping on Berger’s floor as they tried to get the new business off the ground.

Eventually, they settled on a business plan that was quite different from what had been lined out on that original cocktail napkin. “Which is not entirely relevant to this conversation,” he says with a grin, “but is a good lesson in entrepreneurship: The most important thing to remember is ‘Don’t believe your own shit.’ What matters is what today tells you, not what yesterday’s plans said you needed to do.”

The new plan was a company, AND 1, that marketed basketball clothing to a hip-hop generation that found street basketball more beguiling than the NBA. If you ask Gilbert, and I did, he will tell you that the goal with AND 1 was simple: to become the No. 1 basketball shoe comp-any in the world. They wanted the company to be the brand for the serious ball player. The player who talked a lot of shit and had the game to back it up.

“It was a chance to go into business with my best friend and do something kind of cool that was sports related. If it could make money — great,” he says.

Gilbert figured they’d know in six months if the company was going to “suck,” and if it did, well, they’d just go and do something else. As it turned out, AND 1 didn’t suck. It made money and, Gilbert insists, was a great place to work.

Everything about the environment was created with an eye toward the people who worked there; there was a real attempt to make it fun to come to work every day. It was a business of 20-somethings growing up together, and employees were well compensated, financially and emotionally. “We also had awesome relationships with all our suppliers. We treated them like partners in the business, and they, in turn, carried us through some hard times,” Gilbert says. “There was a sense that we were about a relationship, not just about a transaction.”

The apparel company capitalized on hip-hop culture and street basketball and reached $250 million in annual revenue before it was sold in 2005. The terms of that sale (to American Sporting Goods of Irvine, Calif.) were not disclosed, but it almost certainly made Gilbert extremely wealthy. Now, Gilbert, former AND 1 president Bart Houlahan and Andrew Kassoy (who helps manage billions of dollars for computer magnate Michael Dell) have started a project that aims to clean up the capitalism that has been so good to them.

The next time you are in your local grocery and pick up a bag of King Arthur Flour — produced by a 200-year-old, employee-owned company — you’ll see the logo that represents the work of B Lab, a nonprofit headquartered in Berwyn, Pa. B Lab co-founder Bart Houlahan describes the B concept as a three-legged stool. Leg one is standards. Businesses wanting to wear the B Corporation logo must not only claim they work for the public benefit; they must also meet responsibility benchmarks and agree to ongoing audits.

To earn the right to use the certified B logo, a business has to score 80 points on the 200-point B Ratings System, a survey of company practices relating to social and environmental responsibility. The first version of the survey came out in October 2007; version 2, already in the works, is slated for January 2010, following a yearlong beta test.

B Lab’s B survey is governed by an independent, nine-member Standards Advisory Council, only one of whom is part of B Lab’s management team. The others are social entrepreneurs, academics and social investors. The product portion of the survey asks such questions as “Do you deliver a beneficial service?”; “Do you deliver that service in a beneficial manner?”; and “Does the product serve those in need?” The surveys rate prospective B companies in community, employee, consumer, leadership and environmental practices; the results are available on the B Lab Web site.

That a company doesn’t dump toxins into the river says nothing about whether it engages with its community, just as a firm that gives money to charity may or may not treat its employees well. So the B Ratings System was consciously designed not to let companies scoring high in one area of social responsibility, but bottoming out in others, earn B certification. Still, the rating system doesn’t demand perfection; a score of 80 out of 200 was chosen as a realistic representation of what is being done right now among leaders in sustainable business.

The second leg of the B Lab stool is legal. To become a B Corporation, a business must embed social responsibility clauses in its governing documents, where new management or owners will find them hard to ignore. The leg is in large part a response to corporate consolidation. Think Ben & Jerry’s, The Body Shop or Tom’s of Maine: Each of these firms started as a small, socially and environmentally committed business but was eventually bought out by a major corporation (Unilever, L’Oreal and Colgate, respectively), leaving many consumers skeptical about whether the practices and values once representing these companies — and in many cases still used to market their products — remain intact. B Lab requires companies to write social responsibility into the DNA of their business by amending their articles of incorporation to require the company to “take into due consideration the impact of its decisions not only on its shareholders, but also on its employees, suppliers, community and the environment.”

These social responsibility clauses don’t guarantee perfection or even perpetuity, but they do make it harder for a business to divorce stakeholders, especially during a decision to sell, merge or go public — the very juncture at which the most pressure is exerted to maximize profit for the shareholder.

The third leg is the brand. Think “Fair Trade,” “organic” or “Leadership in Energy and Environmental Design (LEED) certified” — but for an entire company, not just a pound of coffee, a bag of carrots or a new building. Really, Houlahan says, B Lab is just creating a platform for the thousands of socially responsible entrepreneurs to come together with one clear, powerful voice — or, to put it in business-ese, in one powerful brand.

In the age of climate change and energy shortages, it appears that B Lab has tapped into the zeitgeist. In the year since its 2007 “coming out” at the national Business Alliance for Local Living Economies conference in Berkeley, Calif., about 130 companies — ranging from small tea sellers to shoe companies to banks to national cleaning supply firms — have earned B Corporation certification.

Dansko

And why the B? “There are C corporations; there are S corporations,” Gilbert says. “We had 24 letters left to choose from, and so we chose B, which stands for benefits created for all stakeholders, not just shareholders.”

At Gilbert’s 40th birthday party — a dinner for about 50 people, one of whom was a Delaware gubernatorial candidate — a bevy of former AND 1ers gathered to roast their employer and friend. They presented him with the “You Idiot” award. The award apparently gave voice to a commonly held perception that it was what Gilbert wanted to say, but couldn’t, following many of their interactions.

“Yeah,” Gilbert says sheepishly, “it’s possible I lack some people skills.”

It’s not, however, possible to say he lacks ambition. After success in the mainstream marketplace, it appears that Gilbert, Houlahan and Kassoy are trying to apply what they’ve learned — not merely to transform that marketplace but to create a new one.

“There is an assumption that the traditional model of business is rape and pillage,” Gilbert says. “I’m not convinced that that is the traditional model, other than it is what we see from our current cultural and historical reference point …

“In the beginning,” Gilbert continues — and the Genesis-like intro does not seem unintended — “the corporation was given a charter for a limited time, for a limited purpose. It had to serve some public interest. Why else would the public give you the right to operate and use public goods for free?”

Gilbert points to George Bailey, the banker from the classic movie It’s a Wonderful Life, as an example of what it once meant to be incorporated. “Look at it,” he says. “It’s a small-town American business.” Twice, Bailey nearly loses the family bank — the one that supports local families, gives them mortgages and finances their small businesses. During a run on the bank in the run-up to the Depression, he gives out personal loans from his honeymoon fund to help friends and neighbors through hard times, a business strategy that narrowly saves the bank. Then, when a relative loses $8,000 and almost sinks the bank a second time, the town rallies to save it. “That movie,” Gilbert says, “highlights the difference a relationship-based approach to business can make to individuals and communities.”

Gilbert, Houlahan and Kassoy, then, are working to grow an economy full of businesses run by George Baileys. They aim to help overwhelmed consumers negotiate the many green and socially responsible marketing campaigns that seem to label every business this side of shipwrecking as beneficial.

Method

They’re well aware B Lab isn’t alone in the realm of identifying and certifying businesses that claim to do good. The nonprofit’s founders say they honor the leadership of certifiers like Fair Trade, Energy Star and LEED.

The yen for doing good business well has resulted in tens of thousands of companies, collectively representing more than $40 billion, each listed as a dues-paying member of socially responsible associations. “Forty billion dollars,” Gilbert says, “is more than double the total revenues of every major sports franchise in the United States: baseball, basketball, football and hockey, and throw in ESPN on top. Ten percent of invested dollars in the traditional marketplace are invested with some form of intention in the socially responsible investment movement.

“That’s a significant expression of intention.”

It’s also a significant market in itself, and one that Gilbert and his partners clearly hope to lead.

To use the certified B Corporation logo, a company has to pay B Lab a licensing fee equal to 0.1 percent of net sales, which Gilbert contends is a fraction of what companies pay for similar product certifications. If, for example, a socially conscious toothpaste manufacturer was certified as a B Corporation and netted $100 million in 2008, it would pay B Lab $100,000 for that year. In return, the company has access to B Lab services, such as deep discounts on computer software from another B Corporation, the use of the B logo and media coverage.

Kassoy says many major investors are interested in growing good businesses while also getting decent returns. But, he says, investors like him remain on the socially responsible sideline because screening in this regard is negative in nature; it tells only what isn’t supported — defense companies, for example — not what is.

“There is a lot of capital,” Kassoy says, “waiting to come into the market. But we need a clear set of guidelines, a (set of) metrics to allow this to flow.”

When I first met Mandy Cabot, the woman who co-founded Dansko, the West Grove, Pa.-based shoe company, she exuded fun with a purpose. As we sat down to talk, she looked around the meeting room at the Social Venture Network conference we were both attending and scanned feet. Seeing that a number of people were wearing Dansko clogs, she greeted the clogs (not the wearers) with her customary, “Hi girls!”

Her husband and co-founder, Peter Kjellerup, says they have always been committed to upholding his Danish heritage and to leaving the world “a better place than we found it.” The first time around, though, Dansko (which translates literally as “Danish shoe”) took the B survey and did not make the B Corporation cut. Cabot and Kjellerup took this as an opportunity to see where they could improve. Though they give 100 percent of the profit from their clog outlet in West Grove to charities chosen by the employees themselves and pay their employees to take time off and volunteer in the community, and though they excelled in the B Lab categories of “leadership” and “employees,” a $100 clog will never be considered an item serving those in need. Attempts to raise their score in the “beneficial products” category probably weren’t going to be effective. But they did see room for improvement in the categories of “environment” and “community” — and they decided to make some changes. One of those was their newly christened, LEED-certified central office and warehouse. A few other serious changes later, they were certified.

Another founding B Corporation, Method, is a nontoxic household products company based in San Francisco. Method was thinking quality and sustainability from its beginning eight years ago. “If you want to do this well,” Chief Financial Officer Andrea Freedman says, “you’d need to hire a lot of people just to stay on top of it. B Corporations innovate standards, so we don’t have to do that.”

Jonathan Storper of San Francisco’s Hanson Bridgett — one of the founding B law firms — says the firm took the B survey for business reasons. Having an outside entity judge the firm as beneficial helps it attract the kinds of clients it wants to represent. “This is hard business,” he says. “If it was just nice, we wouldn’t have done it.”

But if B Lab’s initial customers are sold on the certification idea, others are wary. Gordon Smith, a law professor at Brigham Young University, says it’s not so much that B Lab is doing a “bad thing”; it’s more like an “unnecessary thing.”

Specifically, he says, the B Lab requirement that a B Corporation amend its bylaws to incorporate statements clarifying that the company may consider stakeholders beyond its stockholders when making decisions is unneeded; he says he doesn’t see existing law as limiting company directors from taking stakeholders into account. He agrees that there is an “information failure” in the marketing of socially responsible business but sees B Corporation branding as little more than a Good Housekeeping Seal of Approval. He is also concerned that becoming a B Corporation could increase the cost of capital for B companies. That is, he says, investors may get spooked when they learn that they aren’t the company’s first priority. “At the moment,” he concedes, “this (stakeholder concern) might actually boost attractiveness. But this will eventually wear off as more and more companies go green.”

Smith cited Google, Yahoo and even The New York Times Company (“Readers are our constituents …”) as examples of companies that are doing what B Corporations are doing, without all the legal hoop-jumping.

Victor Fleischer, a professor of law at the University of Illinois, is far less pessimistic. “Regardless of what happens (with B Corporations), this provides a focal point for discussion,” Fleischer says. “Maybe this won’t work. Maybe this iteration won’t be sticky enough. … But it suggests a new model.”

In a June 2006 article in the Michigan Law Review, Fleischer also uses Google as an example. But he cites the search company as an example of a company using legal design — in this case the mantra, Do No Evil — in a way that has had a hugely positive branding effect. Fleischer believes that the B Lab rating system — along with the requirement for company bylaw amendments — serves a similar purpose. “It sends a strong signal,” he says, “that this company is green in a way that is credible.”

In the game of competitive capitalism as we know it, the scorecard is simple: Those with the most money win. But because it is a nonprofit entity, B Lab can’t join that game. Gilbert is so obviously, reflexively competitive I wonder how he is going to keep score. What will B Lab have to accomplish for him to consider it a success? What will his scorecard look like?

“When I think about an anecdotal milestone for B Corporations,” Gilbert says, “it will be when Grandma can put college money for her newborn grandchild into a B Index Fund — a fund made up entirely of companies truly walking the talk — and 18 years later know that her grandchild’s college education was financed by an investment she feels good about.

“What an awesome alignment of the marketplace with what is good,” Gilbert says, looking at me intensely, to be sure that I understand exactly what he is saying.

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