Has Their Time Come? A Tale of Two Corporate Responsibility Movements
Amid the many calls for corporations to become socially responsible, two 21st-century movements stand out as being particularly serious about holding corporations to higher standards. One is the business and human rights (BHR) movement, which includes human rights advocates, socially responsible investors, businesses, government and UN officials, and academics. It seeks to hold businesses accountable for harming human rights and to promote corporate respect for human rights. The other is the B Corp movement, comprised of two types of entities: 1) benefit corporations, whose charters require them to have a positive impact on society and the environment and meet “higher standards of accountability and transparency” than traditional companies; 2) certified B corporations, which are certified by the non-profit B Lab to have “met a high standard of overall social and environmental performance.”
In a recent article, we trace the rise of these two movements, their shared goals, and their as-yet unrealized potential to strengthen each other’s efforts to make companies responsible. The BHR movement, whose proponents are sometimes hemmed in by the need to make a business case for companies to uphold human rights, could follow the lead of benefit corporations in using corporate law to ensure that companies respect human rights. The B Corp movement, in turn, could learn from the BHR movement in finding ways to improve its certification tool, the B Impact Assessment (BIA), thus strengthening its role in promoting human rights.
In our paper, we examine BIA questions and scoring. We find that the BIA has the potential to improve B Corps’ social performance but fails to measure and account for companies’ negative impacts on human rights. Our analysis offers ways to correct these shortcomings and better integrate human rights into the assessment.
We then ask whether a company — benefit or conventional — can be too big to take human rights into account, a question neither movement has considered closely. B Corp proponents premise at least some of their movement’s success on the potential for B Corps to scale up without limit. B Lab co-founder Jay Coen Gilbert has declared that B Corps are a revolutionary effort to “evolve the system of capitalism,” creating “one of the biggest stories in the history of the world.”
Yet this viewpoint overlooks the high human rights risks of mega enterprises. The BHR movement’s work provides a cautionary tale, as large corporations and their involvement in significant human rights violations are its focus. Yet BHR proponents rarely mention the problem of a company being too big to manage its human rights impacts. We agree that B Corps, many of which are micro-enterprises, need to grow in order to survive, prosper, and create promised benefits. But BHR and B Corp advocates need to think more seriously about how growth can affect human rights. In 2016, B Lab established a Multinational and Public Markets Advisory Council to advise multinationals on gaining certification, and is now grappling with these issues.
One exception to the BHR movement’s silence is the debate on the conduct of tech giants. Attention has focused on Facebook’s efforts to revamp its core business model of data-driven, audience-based advertising, which enabled Russian interference in the 2016 U.S. presidential election. Although CEO Mark Zuckerberg vowed in his New Year’s resolution to fix the model, the problem is the model itself, and there is little chance that Zuckerberg will abandon it. As John Batelle has written, “Because he is required by Wall Street to put his shareholders above all else, there’s no way in hell Zuckerberg will do that… Put another way, Facebook has gotten too big to pivot to a new, more ‘sustainable’ business model… Facebook is simply too large an ecosystem for one person to fix. And anyway, his hands are tied from doing so.”
Another challenge major multinationals face is that their massive supply chains overwhelm their ability to track and prevent human rights harms. In our paper, we use the examples of Walmart, the world’s largest company by revenue, and Disney, the world’s largest licensor, to demonstrate this struggle. As a warning that even social enterprises can unwittingly stray from their mission when they grow rapidly, we point to the controversy over the certified B Corp Etsy when it went public and began struggling to provide buyers with “authentic authorship and provenance.” In December, it was reported that Etsy’s new CEO is interested only in growth, the company will let its B Corp certification lapse, and “it may never again be the sensitive community” it was under its old leaders.
In breaking news this month, BlackRock CEO Larry Fink sent a three-page letter to the world’s largest public companies with this message: “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.” He traces a trajectory for companies that operate without a “purpose” other than profits, which has long been a rallying cry for corporate responsibility advocates: that “ultimately” such a company will “provide subpar returns to the investors who depend upon it to finance their retirement, home purchases, or higher education.”
As a demonstration of his commitment to transform the companies in which BlackRock invests, Fink outlines changes at BlackRock to encourage asset managers to engage more with companies. He demands that companies clearly articulate a long-term strategy that includes understanding their “societal impact” as well as how “broad, structural trends — from slow wage growth to rising automation to climate change” affect the companies’ growth potential. If BlackRock makes good on its promises, and companies take these investor demands seriously, this development could have a dramatic impact.
What does the Fink letter portend for the business and human rights movement and the B Corp movement? It could provide a big boost to the BHR movement if advocates engage with the financial sector and send a clear message that “purpose” and “sustainability” must include respect for all human rights and not only the social concerns to which company directors wish to pay attention. For the B Corp movement, the Fink letter could prompt stricter screenings to ensure that companies involved in human rights violations not be certified as “benefit” corporations.
This article first appeared in the Columbia Law School (CLS) Blue Sky Blog, February 2, 2018.
Photo by Alex wong on Unsplash