Feb
27
ETL - B-Corporation
February 27, 2008 |
Today’s entrepreneurs are Andrew Kassoy, Bart Houlahan, and Jay Coen Gilbert. They are thee founders of B-Corporation, a nonprofit that’s looking to create a hybrid corporate system (like C-corporations and S-corporations) that bakes a social mission right into the Articles of Incorporation. It’s a great idea and these guys have a lot of work ahead of them, but they definitely have an interesting story to tell. Here’s the original podcast or read the notes below.
Background: Debra Dunn
Debra Dunn was our moderator for the interview. She is currently working as an Advisor to Social Ventures around the world and is an Associate Consulting Professor at the Hasso Plattner Institute of Design at Stanford University. She originally worked at HP for 22 years, and he most recent role there was as Senior Vice President of Corporate Affairs and Global Citizenship. While in that role, she was responsible for HP’s social and environmental initiatives, and her work resulted in numerous awards and widespread recognition. She holds a bachelor’s degree in Comparative Economics from Brown University and a master’s degree in business from Harvard School of Business.
Background: Andrew Kassoy
Andrew graduated from Stanford where he was a Truman Scholar and President’s Award winner, and went to work for 16 years in the private equity business. His most recent role prior to B-Corporation is as an affiliate of MSD Caital, a $12 billion investment vehicle for Michael Dell. Andrew is also a board member of several prominent organizations such as Echoing Green and Wall St. Without Walls.
Background: Bart Houlahan
Prior to B-Corporation, Bart was CFO, COO and President of AND 1, a $250 million basketball footwear, apparel and entertainment company. Bart joined AND 1 in its second year when revenues totaled just $4 million, and over the course of eleven years Bart helped scale the business to $250 million in revenue and distribution in over 85 countries worldwide. Bart is also a Stanford graduate and after graduation went to work as an investment banker with Stonebridge Associates, BNY Associates, and Prudential-Bache Securities, specifically focused on providing corporate finance and merger and acquisition services to small-cap businesses ranging in size from $20 million to $500 million.
Background: Jay Coen Gilbert
Jay is a co-founder of of AND 1 and was in charge of product development and marketing for most of his 13 years. He was also AND 1’s CEO during its period of most rapid growth. Jay graduated from Stanford University with a degree in East Asian Studies and then went to work for McKinsey and Co as well as several organizations in NYC’s public and nonprofit sectors. Currently, he is also co-chairman of Investor’s Circle, a national angel network dedicated to “Patient Capital for a Sustainable Future.”
What do these guys have in common?
All of them went to Stanford University and did the “respectable” career of investment banking right after graduation. Bart and Jay worked with AND 1, the sports apparel company, and then sold it off. They have all been extremely successful in business and financially, and now they’ve started to do the social entrepreneurship business.
What is B-Corporation?
The idea behind a B-Corporation is to use a business vehicle to create public benefit. This is done through three prongs:
- Standards. The business has to be comprehensive and transparent, to show both B-Lab (B-Corporation’s parent nonprofit) and consumers that they creating public good for society.
- Legal structure. The cool thing about this type of corporation is that it necessitates that the Articles of Incorporation includes the interests of employees, suppliers, the community, and the environment.
- B Corporation logo. The main point of having this is to show consumers that you have your social standards baked right into your business and set you apart as a responsible corporation.
How is it different from other certifications?
- Performance - The goal is to measure the company’s impact, while most other certifications are product specific or industry specific. The idea is to be more comprehensive and widespread that the other certifications, which makes it easier for consumers.
- Acccountability - Baking in the social mission right into the Articles of Incorporation is a way to ensure that the corporation is accountable to people besides shareholders.
- Transparency - By making your information publically available, it is easier for consumers and other interested parties to make sure you are doing what you say you are.
Why did you start B-Corporation?
Andy answered this question by putting together three “Aha!” moments. The first is that we live in a “schizophrenic society” in which people are becoming wealthier and pursuing the luxurious lifestyle, yet they are desperate to find meaning in their lives. The second is that 75-85% of all economic activity is private sector driven. Finally, the third is that there needs to be a legal structure/standards body that supports the goals of creating public benefit in a corporation.
Who has signed up?
Jay responded by saying 80 organizations signed up in first few months. A couple examples are Method, Seven Generation, King Arthur Flour, Good Capital, TBL Capital, Agora Partnership, 17 different states, and a couple of industries. If you go to their website, you can find more information on the organizations that have signed up. 
What do you get out of it?
Bart took the liberty to answer this question with the simple answer that it’s all about differentiation. The more companies use words like organic, social responsibility, etc., the less they mean. There has to be a legal component that ensures the mission is maintained over time. Even though there are a host of services available, they want to influence the market beyond individual organizations.
Andrew added a bit to the question by saying it is hard for mission oriented businesses to grow and create change. There is a tremendous amount of capital that’s layered upon layered and the result is that no one uses their own capital. The risk of this is that if there is a corporate takeover, there is a huge risk of losing the mission if it’s not baked in.
How does it work and how do you get the word out?
Jay answered by saying B-Corporations pay a small licensing fee to B-Lab - $1 per $1000. This money is used to further their goals through advertising, talking to policy managers, etc. There is a huge amount of potential for them because there are 20,000-30,000 business in the nation in a 40-50 billion dollar market. Now, because of their robust business model, they can take a cumulative approach to marketing. Because going green is good and the community is building in itself, it’s very similar to their story of spending $500,000 for an advertisement with AND1 and getting $60 million in stories. They are riding the momentum of the green wave and it makes their job much easier at getting the word out.
What’s it like sharing job and not having CEO?
Jay - The key to success is to get smarter people all around you and then ask them not to leave. By focusing on what needs to get done versus fulfilling roles, it enables you to do more and do it better. If you do it with people you love and respect, you can be really critical through total trust. Only through these friendships can people effectively bounce things around and correct bad ideas.
Bart - The team with most superstars wins. Also, the best ideas win. The only reason they have job titles on their business cards is because too many people didn’t know what they each did. Because you can’t do it alone, you always need a team. Finally, you have to have the humility to know that some good ideas come from outside organization; therefore you need to listen to your team, staff, and community.
Andrew - Ego was what won the day in previous environments. Because he’s not an entrepreneur or manager, but rather an investor, he knows his role and can function very well doing it. It’s all about knowing who’s going to take control of what and doing everything better as a team. You ultimately succeed or fail as a group.
What would a startup need to do to live up to B-Corp standard, and would that slow down the startup?
The best way to effectively become a B-Corporation is to provide all of the information from the get-go so it can be built in right away. If you are already incorporated, go to bcorporation.net, then you’ll see a survey and lists everything you want. Finally, do not incorporate in Delaware, because it is best for shareholders that are generally profit driven. Instead, incorporate in New York or Pennsylvania because the shareholder laws are recognizing the value of B-Corporations and having the mission portion baked in.
What does it mean to be a social entrepreneur and have a social enterprise?
Jay decided to answer this question by saying that a social enterprise is a business. We are not Ashoka and we don’t intent to be. We started in nonprofit, but bled into the for profit world. We really don’t want to get into that debate, but rather provide a new standard. Bill Drayton’s definition is broad and nebulous, and what they are doing is giving a focus to the term
Why B-Corp?
It’s a path towards formal legal recognition. The ‘B’ stands for the benefits created for everyone.
Conclusion
Overall, I feel that Andrew, Bart, and Jay have a long, uphill battle, but with their vision, skills, and tenacity I feel that they can get where they want to be within a few years. I don’t think B-Corporation has hit their inflection point yet, but if they build up enough momentum through the socially conscious businesses we have studied in my Social E ASB class, then I think they could make some real change. As for the key takeaway value-wise, I think these men stand as a testament to the idea that you should go into business to work with your best friends, have fun, and change the world.