B Corps: A higher purpose than profit

Larry Platt

is the coauthor of "Just Tell Me I Can't: How Jamie Moyer Defied the Radar Gun and Defeated Time"

You'd never finger this guy as a savior of capitalism. We're in a bar in Wayne, and Jay Coen Gilbert, though pushing 50, gives off the excited air of a grad student, breathlessly addressing me as "dude" and highlighting ideas that fascinate him as "freakin' awesome."

Gilbert, one of the cofounders of AND1, the groundbreaking basketball apparel company that positioned itself as the upstart alternative to Nike, still has the youthful exuberance of his former brand. But he's moved on to loftier pursuits, turning into an international disrupter when it comes to business values. He just may be precisely what the times demand, a smart, modern-day answer to the Ayn Rand-inspired go-it-alone crowd.

Gilbert's most recent project, the Wayne-based nonprofit B Lab, encourages market-based solutions to social problems and is quickly changing the zero-sum way business does business. He calls it "solutions capitalism."

After Gilbert and his partners sold AND1, which had $250 million in sales at its peak, in 2006, the ever-inquisitive entrepreneur looked around and saw a trend: Many companies were doing well by doing good. Gilbert, a pragmatic idealist and an avowed capitalist, sensed a societal need.

"If we just wait for government to solve our problems, or hope that charities and NGOs will fill the gaps, we're delusional," he says, taking a brief pause to pull on his beer. "Government and nonprofits are necessary but insufficient to the task. The action is in the marketplace, and the question I focused on was, Can you use market forces for a higher purpose beyond just amassing personal wealth?"

And B Lab was born. Gilbert and his college-buddy partners, Bart Houlahan (the former president of AND1) and Andrew Kassoy, realized there was no credible way for consumers to judge companies' claims to be socially responsible. They came up with, in effect, a Good Housekeeping seal of approval for businesses that really are doing good - as opposed to those that simply practice good marketing. They devised a rating system covering about 180 factors, ranging from how a company treats its employees to how green its buildings are to how often it buys local products and supplies.

But they didn't stop with performance standards - they took the mission into the legal realm.

Coen Gilbert, who says his biggest lesson in business was learning "you're always wrong, and life's about asking people to help you see more quickly how you're wrong," discovered that systemic reasons - codified into the law - lay behind the "greed is good" corporate ethos. He attended an academic gathering with an author who pointed out the deleterious effects of "shareholder primacy": If a company's sole fiduciary relationship is to its shareholders, if nothing else matters but the return on their investment, you get what we've gotten - companies that move factories overseas to increase profits, damn the consequences back home, and founding entrepreneurs who live in fear of shareholder revolt.

So B Lab has created a new legal category of company - a B corporation - that expands the fiduciary responsibility to stakeholders such as employees, neighbors, and the environment.

"Until B Corp, corporate law said you are free to think of any way that's legal to make as much money as possible, but you have to justify everything to that one single end - shareholder return," Coen Gilbert says. "That's pretty restrictive. B Corp allows you to be innovative around not only the means by which you seek your ends, but also about the ends that you seek. If you believe in free enterprise, you should be able to choose the purpose for which you're freakin' busting your butt. For a lot of us, that's our employees and our neighbors, as well as our investors."

It's a concept that has taken off, especially in these newly populist, post-Great Recession times. Nineteen states and the District of Columbia have passed B Corp legislation, and 850 companies carry the B Corp certification.

It helped that Coen Gilbert and his partners are capitalists themselves; they've built and sold companies, so when they approach entrepreneurs about, as Gilbert says, "widening the aperture of their lens," they have more credibility than some antibusiness activist.

They also have a bottom-line argument to make: B Corps, it turns out, were 63 percent more likely to survive the Great Recession.

Thanks to Councilman Jim Kenney, Philadelphia recently became the first city in the nation to pass a pilot tax-break program for B corporations. San Francisco has a procurement preference - the city's vendors are encouraged to do business with B Corps. The Yale School of Management and Columbia and New York Universities offer loan-forgiveness programs for graduates who go to work for B Corps. It is interesting that Coen Gilbert and B Lab had no hand in any of this - something about their model is naturally registering in the zeitgeist.

"It's a settled issue already," notes Center City philanthropist and venture capitalist Richard Vague. "Almost every start-up that comes to see me founded by twentysomethings is already committed to being a B Corp. They're almost like, Why wouldn't we be?"

Coen Gilbert looks like any other hipster in this Wayne bar, munching fries, downing a beer, and talking excitedly. But what he's talking about is revolutionary. Out of the ashes of the Great Recession came the need for a new economy, something he and his partners either foresaw or intuited.

That new economy, Coen Gilbert says, "needs to be more inclusive, resilient, and sustainable. And, for that, we need a new kind of corporation."

With that, this entrepreneur who is convinced that it's both a moral obligation and in the self-interest of our businesses to share our values, has to run. Tonight, his son is starring in the high school play.