Money Tip 005: B Corps are where it is at.
Nothing in this post is a recommendation.
“Doing good is good for business.” And for your soul.
“The B Corp community works toward reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high-quality jobs with dignity and purpose.
(If you would like to skip the part about my story and how I came to LOVE B Corps and what they are, just jump to the line about 7 paragraphs down.)
I put about 4 years into building all the basic bodies and concept for my clothing company. It was endless days of work so that I could do to get the ball rolling on the collections ethos, be placed in a few stores, raise capital, and become a true brand. And I started losing steam. Not because the design, manufacturing, distribution, selling, and branding process was exhausting, and it was, especially with a small team and myself managing contracted professionals to in every part of that process. I wasn’t losing steam because the fear of not making it held my entire body paralyzed with fear most nights. These are normal issues for entrepreneurs. What was it?! I figured it out, finally. It was because I couldn’t shake the newly acquired knowledge of how detrimental this path was for people AND the planet…and me. That fast or even moderately slow fashion is all wrapped into one of the most damaging industries in the world, toxic at every turn, and that I wasn’t ethically aligned with it at all. I started to feel like I didn’t have purpose. I felt like I was causing more harm than good. And that wouldn’t be sustainable for me long term. I didn’t enjoy watching people dump dye into their local rivers. And then I certainly didn’t enjoy watching people bathe in the canals that lined the streets of beautiful Bali, likely in the dye that our clothes were using. It was a sight most Western people never see because they don’t go deep into the truth of the island. But it was a sight I will die with engrained into my mind. One I’m forced to revisit over and over again, because it’s one of those things that changes you as a person once you see it. People bathing in their only precious water, water that had human waste and anything else you can imagine in it. It all started to feel just plain wrong. When I picked out fabric, I wondered where it was from. Who suffered to create that and how many rivers were polluted to make it? Had everyone in the fashion industry just been content to be this evil, to see this process, and never do anything to correct it? (If you want more information and links on the actual detriment of the fast fashion industry, and your retirement, read the 3rd blog on this site.)
So, I decided that to just create something wasn’t enough. I didn’t just want to make a clothing brand and get rich off of raping the planet to do so. Even to create a consumer experience or community around the brand was not enough, because it was still supporting something that I had a hard time continuing my belief in. We needed to be really DOING something. We needed a cause. And all of a sudden, that passion, that undeniable spark which carried me 4 years into the process of owning my own clothing line, was back.
I quickly made contact with two water-based charities. I decided we would have a cause for each collection I created and I would find a way to use better quality textiles. The textile thing proved very challenging. So I looked at the positives that we did have. I felt okay with my factory because they provided food, water, shelter, and schooling to everyone and their children who lived there and worked for this family. I felt like it was a happy and relatively clean place.
So, I pushed on and started identifying the best charitable organizations we could align with. The first would be to donate a percent of our proceeds to clean the great lakes in Michigan where I am from. And the second would be birthing camps in the Philippines and other parts of Asia including Indo. My friend was a mid-wife who told me that the issue was water for birthing. Water was far from these camps. These women, who didn’t have access to birth control, who were having babies they didn’t have a choice in having or necessarily really want or could afford, were dying because they didn’t have 2 buckets of clean water, which is necessary for safe childbirth. I started looking into the Balinese water charities and issues like this, to start conversations with them as well. I started to really feel this idea out, this idea of creating something that by the very sale of the product that I was selling, would help part of the process. I spoke with a few people at the charities and I decided we would become a B corp. We would need to figure out how to make our process transparent to our customers and make it part of what we would do with our company. But it all proved more difficult than I could manage with only one other full time employee. It was now 2015 and I felt so compelled to do something good with my life, but this was proving near impossible. I lost steam again. I lost faith in this mission. Was it an oxymoron to try to clean the planet by creating and selling clothes? And then, the magical twist happened. We had an issue with my production and I took it as the chance of a lifetime to run away from this diabolical industry. It was time for a personal and professional MAJOR life pivot.
Now most people judge a pivot, let’s be real. But a pivot can really be a breath of fresh air. And in The Lean Startup which I strongly recommend you read before even thinking about starting a company, he says that this is integral to creating sustainable business. And pivots will be a whole other blog. So pivot, I chose. Did I mind that the next 5 years would be filled with roller coaster emotions, second guessing my choice to abandon the last, by now, 5 years of hard work on a collection and company that at one point was my whole universe and future wrapped into one? I did. But not long enough to let it stop me from moving away from this place that made me miserable, that I found myself trapped in all of a sudden. By choosing to step back and really take some fresh air in for what I was embarking on with owning a clothing company was everything I needed and more. In that time, I grew. I found myself in more ways than I could have imagined. I reflected on all the things I would do differently if I ever did it again. I tried to recover what I could that wasn’t stolen from my collection. I tried many jobs to just make ends meet. I got hired and fired and hustled. I didn’t make it sometimes. I was sad. Then I was revived by knowing I was on a new path and it was taking me to the next version of me that was better than the last one. We kept Paradisiac on the back burner but didn’t put pressure to ever make it a thing again. Then I started respecting myself for being so brave and strong. And then I started respecting my money. And then I left New York so I could save and get some fresh air for real. I got super healthy. And then I got super smart. I managed to get my series 7, 65, and 63 and transition into finance. From the ages of 34-37 I changed my entire life direction. It was painful and probably the hardest thing I have ever done to date, but it was totally worth it. Because I found ESG.
Now most people are thinking, Mel Rose, Finance? Really? Yes, because this is where we really start to be able to make changes and this was where I had the hardest time as an entrepreneur and professional female. So if nothing else, I could help people and relate to them for a job, which suits me. I met countless people and started to learn about this little tracking tool for financial analyzing called ESG. I watched and learned how companies are now measuring their impact. From Environmental, Social, And Governance, stances. Those quantitative (measurable) things, matter. Now, finally, we can say that we only want to invest in and build companies that have a conscious and a way to prove it. The great part is (and this is not a recommendation) that these companies seem to consistently outperform other companies. The best IPO for 2020 so far was Lemonade, a B Corp. There’s still a lot of gray here. But we are finally and definitely, with me as a part of it in my own small way, now off to the races. This is my curiosity and something I can be passionate around forever, and without courage, I would still be sitting in a factory back pedaling on how to not hurt people with my job. ESG is something I can surely build a business around. So, I started thinking, just how big IS the nonprofit sector and just how does one go about starting a B Corp. For many people reading this, I’m sure you’re like, what even is a B Corp?! A B Corp, in my humble opinion, is the future of our economic policy. It is a way to create a circular motion that is sustainable, literally for us to survive and grow in the best way possible, exponentially and with a conscience while still generating business. Let us explore the world of the B Corp and let us develop the businesses of the future with this information on hand.
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Everyone knows that non-profits are the “good guys” in society. But just how good are they for a nation's economy and is there a way to form a corporation with ethics and the community in mind that still can make money? The answer is a lot and yes, it’s called a B Corp, short for Benefit Corporation. Both of these company formation styles offer perks galore and are essential to the United States growing and growing in the right direction. So, I think we need to talk more about these kinds of companies. “Doing good is good for business.” And it’s really true. Which is Patagonia’s long-time motto, my favorite B corporation, and the first one I ever learned about.
Patagonia was the first California company to sign up for B certification in 2012, joining over 500 already certified B Corps in 60 industries. But what exactly is a B Corp and how is it different than a non-profit? B lab is a nonprofit organization based in Pennsylvania that certifies B Corporations. “To qualify as a B Corp, a firm must have an explicit social or environmental mission, and a legally binding fiduciary responsibility to take into account the interests of workers, the community and the environment as well as its shareholders. A company must also amend its articles of incorporation to adopt B Lab’s commitment to sustainability and treating workers well. In addition, a B Corp must pay an annual fee based on revenues, biannually complete a B Impact Report (a lengthy questionnaire that measures social and environmental impact), meet B-Lab’s comprehensive social and environmental performance standards and make that B Impact Report public, in order to receive the certification from B Lab.” *1
But how can a clothing company be good for the environment you ask? By not using harmful products, dyes, packaging, the list here goes on. They can do so by encouraging customers to buy items to last for a lifetime, while creating items that will actually last that long and urging consumers to have items fixed when they break or turn them in for discounts on newer models, and more. There are so many ways companies can do good for the environment, and also for their staff. Often times, executives are capped at their earnings, and this is a key element to making these companies work. Does any executive really need to make $20M and honestly how did we even get to the point where that makes any sense. Someone is paying for that either in the company, in the consumer, or by way of the planet. And it doesn’t mean that the companies cannot sell or IPO, and now more than ever, the attractiveness of such a company is here and hopefully to stay. I dare to say this is the new version of a company that would offer a pension from the Boomer era. Since companies converted mainly to 401K plans, the ethos of taking care of your employees has been something the Gen X and millennials have not had the pleasure of experiencing the way it once was. But maybe with B Corps, that kind of loyalty to companies that keep employees at for decades, will see a resurgence of long-term employment and loyalty, not to mention being proud of where you work.
Now I know what you’re thinking, how will I ever become a huge a successful company if I use a B Corp formation? You will do so like Lemonade. The best IPO of 2020 so far has belonged to a B Corp that is a mobile based insurance company and I couldn’t be prouder to report this news. Lemonade gained 139% after its initial public offering on Thursday July 2nd. The stock opened from the primary market price of $29 and ended at $69.41. *2 While being “a B Corp does not generally affect the company’s financials or provide any particular tax advantages” it does claim to “offer some public benefit to the economy at large.” Now just think if the DID offer some kind of tax incentive. Look up an EIS fund for the UK, this could work well in the US. These benefits, regardless of tax write offs, are something that investors aware of ESG are paying attention to. Now, I do not own this stock and this is by no means a recommendation. The stock dropped 7% after Goldman went bearish on it. But as of today, it is at $70 and I hope it stays up as a message to businesses that doing good really is good for micro and macro level financial wellness of a company.
B Corps are incredibly inspiring and the right way to move forward in a more conscious capitalism. When companies got rid of the pension, companies really reduced their care taking obligations for their own people by such a significant amount, so much so, that it seems the loyalty to companies went with it. And maybe some ethics as well. Who can blame someone for taking better options when they can find them, when a company takes away caring for you in a real way. Maybe with the ethics of caring for staff and the planet being built into the framework of start-ups and existing companies, these organizations that are certified “doing good” will pave a softer and much better way to the forefront of our economy.
These companies will be the ones who create jobs where people will want to grow within the “walls” and leadership of such corporations and even spend lifetimes with companies that they believe in, who also believe in them, and together all believe in a main purpose and mission. If you would like to see a speech, I gave in 2011 about how truly all start-ups should have charitable or conscious causes as their spines, how modeling exposed me to the toxicity of the fashion industry and the plethora of world problems, and that with more purpose, companies have higher chances of success, watch this: Mel Rose for Stitch Factory In this speech, which I was very nervous about, I outlined my experiences in the modeling industry which led me to my career in fashion as a designer which ultimately was unfulfilling. The thing is, when you’re starting a company, you need purpose, not just something to sell. Because 2, 6, 10 years down the line, the cycle gets boring and you will want to be contributing to life in some way. Money isn’t enough. And that’s the point. Money is the starting point, but it’s not the only end goal. We should be creating companies that, yes we want to sell, but that do cool and important work. If you head into the world of business with a spine that vibrates “one that cares about social and environmental performance, public transparency, and legal accountability to balance profit and purpose” *7 you’re ahead of the rest, and the people will pay attention to you. I didn’t know about B Corps back at the beginning of my company, but when I did find out, I tried to change my company formation and I have been suggesting them to countless startups I have worked with over these last 9 years because they just make so much sense.
Having a purpose adds a desire to push on when the going gets tough. Something many start up founders, often find to be the most challenging element of business once 5-7 years in. And that’s why B Corps are an incredible solution. We need to find a way to make B Corps truly the way of the future of our economy and appealing to people controlling the economy and largest corporations on the public marketplaces. That way is to create legislation that will provide some relief and tax breaks for B Corps. Maybe this would be a motivator for more companies to feel the need to create these frameworks within already existing companies that maybe don’t care much about their large staffing or their impact on the planet. Maybe this is the key.
In addition to B Corps, we do have one organization that does offer major tax breaks and that is non-profits. I’m here to shed a little light on the truth about non-profits. They’re huge, and important. Overall, the nonprofit sector provides roughly 10% of all private jobs in the U.S., employing more than 12 million people as of 2019. *3 That is A LOT of jobs. With 10% of employees wanting to have a purpose to their work and that being built into the definition of the places where they work, I think it’s safe to say non-profits matter and are here to stay. Researchers for Johns Hopkins Center for Civil Society Studies*4 reported that by the end of 2016, the sector came in third overall in total employment rate tied with American manufacturing. The report is fascinating, stating that “80% of all jobs in the sector come from three major cornerstones: healthcare (55%), educational services (14%), and social assistance (12%)
The report shows that nonprofit jobs pay 55% more on a weekly average than among social assistance groups, followed by 45% more in the education, and 24% more for outpatient healthcare. Hospital workers gained 14%.” *3.
There are all sorts of reasons why those numbers may be, but at the end of the day, these large numbers are super important. Why? Because Non-Profits actually while not profiting, make up vast parts of our economy. And now that it seems the capitalistic nature is slowly starting to consume with a conscience, it might matter a lot how companies form in the future and whether they choose non-profit or B Corp.
Ally 360 reports The Economic Impact of Nonprofit organizations and the numbers are startling. “Non-profit organizations play a vitally important role in the American economy. In fact, recent estimates show that non-profits account for roughly 5.3% of the nation’s total GDP and 9.2% of all wages and salaries—that makes nonprofit organizations roughly a trillion dollar industry.
The United States non-profit sector alone would rank as the 17th largest economy in the world.
The fact that the non-profit sector has been able to experience positive growth virtually every year since its formalization in the 1970s demonstrates the fact that it is an important component of the economy that is here to stay. The non-profit sector creates jobs, provides systematic financial security, and is able to help move financial assets to where they are objectively needed the most.
This part is even more fascinating. Even during the years 2007-2009, despite the fact that the overall economy was experiencing a ‘Great Recession’, the non-profit sector was able to continue growing. While the rest of the private sector was actively losing jobs at a rate of 3.7% per year, the non-profit sector was able to continue gaining jobs at a modest—but still positive—rate of 1.9% per year.”
As we all are well aware by now, we are in another weary time for our economy and this might be a key component to job creation and stabilizing the economy in times that injections might not solve. The article goes on to state “There are now more possible ways to acquire tax exempt status than ever before, and because of this, 1.6 million non-profits are able to currently operate in the United States and tens of thousands are now choosing to open their doors every year.
Additionally, non-profit organization have tremendously boosted the overall employment rate, and have been noted for providing over 14.4 million jobs in 2013 (the last year a full set of data is available for).”
Another voice that matters, the National Council of Nonprofits, brings up some other fair points. “While nonprofits are often recognized for their mission-based achievements and results, their economic impact as dynamic businesses in local communities is often overlooked.” * 6 Their article really helps narrow down the real implications of short- and long-term benefits to society from nonprofits. I recommend visiting their site because you can choose your state and see what percentage of private employment this sector makes up by state. Florida is at 7.2% while Vermont is 19%.
There are jobs in this space right now and with lots of tax benefits, these companies are emerging more and more every year, even in recessions. Maybe especially in recessions. The Aspen Institute released an article called “A Strong Nonprofit Sector is KEY to thriving communities. It reads “According to a survey conducted by The Bridgespan Group for the JPMorgan Chase, more than 200 nonprofits serving low- and middle-income communities identified the top four areas where they needed the most help. In addition to fundraising (61%) they listed communications and marketing (51%), program evaluation (38%), performance management (33%), technology (31%) and strategic planning (29%). Other areas for strengthening included board governance, human resource management and financial planning.” This is really important because if you are unemployed right now, this may be your calling and solution. Pay attention people!
And with that, I think B Corps are really the middle ground between S,L and LL Corps and non-profits.
“Society’s most challenging problems cannot be solved by government and nonprofits alone. The B Corp community works toward reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high-quality jobs with dignity and purpose. By harnessing the power of business, B Corps use profits and growth as a means to a greater end: positive impact for their employees, communities, and the environment. B Corps form a community of leaders and drive a global movement of people using business as a force for good. The values and aspirations of the B Corp community are embedded in the B Corp Declaration of Interdependence.” *7
This is so important. The story of how B Corp certification came about is inspiring. “In 2006, three friends left careers in business and private equity and created an organization dedicated to making it easier for mission-driven companies to protect and improve their positive impact over time. The first 82 B Corps were certified in 2007.
The B Corp community reflects the world's business landscape, ranging from sole proprietors to publicly-traded companies. The majority of the 2,500+ B Corps are small businesses. Multinationals are engaging the global B Economy both through B Corp Certification and other engagements with B Lab.”
This whole concept and community was born out of 3 people wanting to actually create businesses that cared about the way things are made and who is making them, from the start. Oddly, it was a fashion company that sparked their desire to “do better” which I highly suggest reading on their website.
“Here are five ways every business can help build the benefit economy.
Know Your Values: At the core of every business is a set of values and principles and a vision of the world it wants to help achieve. Taking the time to articulate and express them might be, to employees and customers, the best investment you'll ever make in your company.
Commit Your Assets: Many companies make positive impacts. Enduring social enterprises build their business models around them: no impact, no business. Maybe you've heard that chickens contribute to a bacon and egg breakfast but pigs commit?
Measure Your Progress: What gets measured gets done, so figure out what your company's social impact metrics are and make sure all of your team members know how their jobs are vital to achieving them.
Invest in Progress: No company gets it all right. Everyone is learning new ways of making impact core to their work--and some other company is doing it better than you. Learn how to get better when the world around you is constant. Because you'll need to get better when it is changing.
Partner with Your Competitors: You might maximize profits on your own, but you cannot maximize impact alone. Do business with other companies that are building the B economy. Social entrepreneurs are as innovative at creating positive impact as they are about business success. At the end of the day, the B economy requires a market-scale, full-service network of benefit companies working together.
“Today, B Lab reports that more than 50,000 nonprofit and for-profit companies in at least 60 nations are using its assessment tool to measure progress toward the dual goals of performance and purpose. They include international brands, such as Dannon (yogurt), Patagonia (outdoor clothing and gear), and Eileen Fisher (women's clothing); prominent social enterprises, such as Ben & Jerry's (ice cream) and Kickstarter (online fundraising); and many other smaller ventures. They also include progressive financial institutions, such as Amalgamated Bank, Virginia Community Capital, and Beneficial State Bank.” *8
Lastly, “A 2010 study appeared in the Harvard Business Review under the headline, “More Small Firms Mean More Jobs.”5 The authors wrote, “Our research shows that regional economic growth is highly correlated with the presence of many small, entrepreneurial employers — not a few big ones.” The authors further argued that the major preoccupation of economic developers — how to attract global companies — is fundamentally wrong-headed.” *9
In closing this article really helped me understand the reasons for wanting a company to become a B Corp. “Cabot became a certified B Corp. To my surprise, certification not only addressed the questions posed by our retail partners but also delivered value beyond our expectations. B Corp certification encouraged more “whole-systems thinking” around our social and environmental practices, which led Cabot to develop even more robust customer and consumer programs, cut operating costs, and strengthen our brand reputation as a sustainability-minded company.” So odd enough, by following the process for creating B Corp, other problems were solved along the way. Genius!
“According to several studies, such as Nielsen’s The Sustainability Imperative, global consumers say they will pay more for sustainable consumer brands, and sales of consumer goods with a demonstrated commitment to sustainability have grown more than 4% globally, while those without grew less than 1%.” *10
So, while it may not be obvious to all, that becoming a B Corp matters, the proof will be in the pudding and in the hopeful IPOs. The proof has already been documented in countless articles online about non-profits, the best IPO of 2020, and in the actual feeling that these companies experience in their missions and in their creations of goods and services that help and heal, not hurt. Now it’s just a matter of time that people hop on the B Corp wave and process, while protecting our planet and our people, and while keeping the economy on course to create multi-generational wealth that will benefit not just a few families, but everyone and the only home we have, Earth.
*1 Patagonia.com
*2 https://www.yahoo.com/news/lemonade-gains-139-ipo-listing-213440097.html
*4 http://ccss.jhu.edu/publications-findings/?did=507
*5 https://learn.ally360.com/economic-impact-nonprofit-organizations-part-1/
*7 https://bcorporation.net/about-b-corps
*9 https://www.abell.org/sites/default/files/publications/BCorps%206-28%20%28002%29.pdf
*10 https://hbr.org/2016/12/it-pays-to-become-a-b-corporation
