Putting the Benefit Back in B Corporations

Image by Taekwonweirdo via Flickr

We’ve taken issue with B Corporations before, mostly criticizing the conceit that formalizing good notions will render much positive effect. And I think, in general, it’s fair to say that they  in this, as in some much else, cash is best. But Matt Yglesias, in a roundabout way, does suggest one way that B Corporations could really do some good:

[T]here might be a niche out there for something along the lines of “charitable entrepreneurship.” Bill Gates and Warren Buffett are trying to urge billionaires around the world to give half their money to charity. That would be great. But maybe what we really need some super-rich charitably inclined businessmen to do is finance some new ventures in these quasi-utility markets like charge cards, cell phones, mortgage origination, etc. based on a “don’t screw the customer over” business model. The striking thing about the credit card universe, after all, is that there’s very little competition and no meaningful difference in business practices between Visa and MasterCard.

There are two main problems with B Corporations. One is that, as currently structured, their incentive structure is too flimsy to really enforce doing good. And the second is that they work with vague terms like “stakeholders” to support – ending up tossing money in fifty different altruistic directions.  Great businesses specialize, and great B Corporations should too. Here are two solutions to these problems:

1. Have direct, tangible benchmarks for progress and rely on them stringently. If you’re an energy company, make sure that you have a clear cap on emissions. If you’re a diamond company, try to keep the diamonds from supporting bloody armed conflict.

2. Certain companies, like those highlighted by Yglesias, are suited to be B Corporations – and others not. A credit card company could exploit a current problem in credit card companies – namely, that often their system hurts a lot of people through complex financial mechanisms or seducing some into debt, even if on balance they’re a good thing – and thereby specialize in that important task. Don’t partner with a dozen local charities, don’t go to Bangladesh and the Congo, don’t name a wing of a museum. Rather, specialize in one task that you can really use to help people’s lives.

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