B-CORPORATION SOCIAL IMPACT REPORT

Keli R. McMillen March 8, 2010 B-CORPORATION SOCIAL IMPACT REPORT Double and Triple Bottom Line Reporting for Social Enterprise SME’s: A Ratings Study Research Overview The general business patterns associated with social entrepreneurial (SE) practice emphasize double and triple bottom line social, environmental, and business reporting more than ever before. This is due largely to higher expectations among investors, consumers and communities. Greater importance is being placed on transparent business practices with more comprehensive social, environmental and financial accountability. One promising reporting entity, the newly established “B-Corporation,” focuses on rating the SME’s numerically based upon their leadership, environmental friendliness, and consumer and community indices (BCorporation, 2010). opt-in certification The B-Corporation membership is voluntary with an that helps the consumer distinguish true "good companies" from simply “good marketing” (Timbers, 2010). The qualifying companies are social enterprises by nature devoted to social causes and reporting while turning a profit. The numerical values resulting from a company’s performance must remain above a baseline standard of 80 out of 200 in order to remain in good standing. Though the B-Corporation does not directly disclose which indicators it uses, it grades each company on the broad basis of leadership, community, consumer and environmental values. highlights are summarized providing percentage Additional company data for specific performance values. These highlights are summarized in the analysis in Figure 4, and determined to serve as performance indicators. The research approach here is to analyze and compare the performance data of several B-Corporation social enterprise SME's. This data is new, and comparative analyses have not been made public. The sample size is small (15 companies evaluated) based on random selection from the 280 companies qualified as B-Corporations. This is a quantitative study comparing each company by the numerical rating it has been given by the B-Corporation. It is also qualitative in that one has to decide why the company scores the way it does in each of the areas (community, consumer, leadership, employees and environment). Lacking in the study are input and output variables, and the social, environmental and leadership indicators used to quantify each company’s performance. Discussion The data for each company certified as a “B-Corporation” is based upon proprietary information provided to the B-Corporation. Several criteria must be met to apply for this certification: the company must have been in business for a minimum of six months, and must show a profit. This rating method excludes social enterprises that are nonprofit. Table 1 summarizes the reported scores for each of fifteen BCorporation certified social entrepreneurial companies (B-Corporation, 2010). The companies must obtain a score of 80 or higher on a scale of 80- 200 and are listed in ascending order by composite scores. Table 1, the scoring summary and figures 1-4 examine the data in order to surmise what patterns and impacts contribute to obtaining higher composite scores. Table 1. B-Corporation 2009 Ratings B-CORPORATION IMPACT REPORT* 15 Social Enterprise Companies COMPANY COMMUNITY CONSUMER LEADERSHIP EMPLOYEE ENVIR COMPOSITE SCORE Workplace Dynamics LLC Nolan Painting Inc. PhilanTech, LLC Lateral Line 10.3 26.7 13.3 27.8 3.9 82 28.5 0 14 35.6 6.3 84.4 20.7 48 10.7 0 5.4 84.8 35.1 11 21.9 10.7 7.1 85.8 Beyond the Bottom Line Opticos Design, Inc. Hanson Bridgett, LLP Social(k) 30.2 18.3 8.8 26 3.7 87 13.6 24.8 13.9 34.7 3.2 90.2 22.5 17.5 12.2 29.8 11.4 95.5 51 27 13.7 0 4.6 96.3 Mugshots Coffeehouse & Cafe Green Harvest Technologies Untours 24.2 28.8 12.3 23.3 16.4 105 24.7 30.3 24.5 15.6 11.8 105.9 30.1 28.8 12 30.3 8.5 109.7 Plum Organics Watershed Capital Egg 37.5 20.7 25 20.3 6.4 109.9 25.9 60.8 16 0 12.1 114.8 24.7 30 11.7 33.9 18.7 119 Give Something Back Business Products 38.4 22.1 11.6 33.3 17.4 122.8 *Source: http://www. bcorporation.net (accessed February, 2010). Figure 1 is a graphical summary of how each company performed sector-to-sector with the highest performer on top. The results are stacked making it easier to compare performance in each category from one company to the next. Figure 2 demonstrates that the bulk of reporting seems to be in the double bottom line social reporting categories of community, consumer, leadership and employee ratings. There are many tools available to companies for monitoring corporate social responsibility (CSR) that include leadership models, input and output performance factors, monitoring and reporting criteria (Epstein, 2008). By contrast, few companies scored above 20 in the environmental sector. This could be due to a lack of triple bottom line reporting knowledge by companies who simply do not know how to monitor and report on their environmental impact. It is easier to administer company leadership and employee satisfaction evaluations than to measure the company carbon footprint and product life cycle. Similarly, consumer ratings can be linked to product and/or service sales and community satisfaction to the number of volunteer hours or funds contributed by the company. Figure 3a gives us a three-dimensional view of how each company performed across each sector. It is easy to see the peaks and low scores in each category with the higher composite scores closest to the viewer. Interestingly, this graphic and Figure 3b, demonstrate that the higher performers had more equalized scores across each sector rather than spikes and/or low performances. Score Summary Community: All but two companies scored over 20.0 (Workplace, Opticos). Social(k) and Plum Organics scored the highest. Consumer: All but three companies scored over 20.0 (Nolan, Beyond, Hanson being the low contenders), with one company scoring a 0.0 (Nolan). Leadership: Most companies scored in the lower teens with two exceptions scoring over 20.0 (Green Harvest, and Plum Organics), and one company scoring under 10.0 (Beyond the Bottom Line). Environment: Only six companies scored over 10.0 (Hanson, Mugshots, Green Harvest, Watershed Capital, Egg and Give Something Back). Egg and Give Something Back scored over 15. Employee Compensation: The two top overall scorers, Egg and Give Something Back, also scored highest on their employee ratings. In Figure 1, the performances of each company are stacked with the lowest performing company, Workplace Dynamics, on the bottom, and the highest rated, Give Something Back, on top. This representation of the ratings shows distribution of strengths and weaknesses across each category. For example, Watershed Capital, Social(k) and Philan Tech have scores of zero in the employee reporting. There were several consistent performers across all sectors: Egg, Mugshots, Beyond the Bottom Line, and Lateral Line Apparel. Figures 2-4 summarize the data by category (y-axis) : community, consumer, leadership, environment and employee; and (x-axis) by company with each vertical line representing a company, lowest rating on the left, highest rated company furthest right. These graphics show that the bulk of reporting was conducted in the social sector, with community, consumer and employee indicators providing the bulk of the ratings. Leadership scores were in the mid-teens with only two companies performing above twenty: Lateral Line Apparel and Green Harvest Technologies. Interestingly, both top contenders (Egg and Give Something Back) scored marginally in the leadership category. Environmental ratings were consistently low, with the two overall top contenders (Egg and Give Something Back) achieving scores barely over 15. This rating system is in its infancy, so given more time, a deeper understanding of the performance factors and social and environmental indicators being evaluated should result in company scores improving. Improved reporting and scoring will also make the comparative analysis less subjective, more competitive and graphical analysis more insightful. B-Corporation Scoring Trends Give Something Back Business Products Egg Watershed Capital Plum Organics Untours Green Harvest Technologies Mugshots Coffeehouse & Cafe Social(k) Hanson Bridgett LLP Opticos Design, Inc. Beyond the Bottom Line Lateral Line Apparel PhilanTech, LLC Nolan Painting Inc. COMMUNITY CONSUMER LEADERSHIP ENVIR EMPLOYEE Workplace Dynamics LLC Figure 1. B-Corporation company comparisons top to bottom, highest composite score to lowest Figure 2. B-Corporation bulk reporting scores by category COMMUNITY CONSUMER LEADERSHIP ENVIR EMPLOYEE Figure 3a. B-Corporation reporting scores with companies left to right representing lowest to highest composite performance 100% 90% 80% 70% EMPLOYEE 60% ENVIR 50% LEADERSHIP CONSUMER 40% COMMUNITY 30% 20% 10% 0% Figure 3b. B-Corporation reporting scores with companies left to right representing lowest to highest composite performance Discussion Double and triple bottom line reporting has formally been in existence since around the time of the Global Reporting Initiative in 1997, and is based on voluntary monitoring and reporting methods used by public companies and small and medium sized businesses (SME’s). Gaining access to the reporting ratings for social enterprise SME’s has proven difficult because there are no generally defined rating indices nor social and environmental indicators like there are for publicly traded companies. The B-Corporation has developed a certification system that rates the SME’s based on their social and environmental impact. company performance across five sectors (community, It quantifies consumer, leadership, environment and employee) and grades it accordingly. Social and environmental indicators are summarized from the data in Figure 4, with the top seven performers and the lowest performer (Workplace Dynamics) listed. Community indicators included: paid time off for volunteer work, charity giving, percentage of women employed, local ownership, workforce and suppliers. Employee indicators ranged from receiving compensation for continuing education and earning a living wage to having paid maternity and vacation leave, insurance coverage and participation in profit sharing. The environmental factors included a few difficult to interpret indicators including using renewable energy, having a carbon offset inventory, recycling, access to public transportation for employees, implementation of sustainable design factors (furniture, lighting, products) and environmental Leadership and consumer indicators were the least utilized. auditing. Leadership indicators included supplier life cycle evaluations, disclosure of company ownership and employee input in strategic management. Consumer indicators included a preference for organic products and recyclable containers with requests for capital invested in services devoted to sustainable causes. This information was gleaned from qualitative highlights in the BCorporation summary that outlined specific attributes assigning them a percentage value. It is challenging to determine the factors that contribute directly to improving or lowering a sector rating. The B-Corporation should publish the indicators specifically for greater ease of measurement and analysis. GiveSomething Back Percentage 150 Egg 100 Watershed Capital 50 Plum Organics Untours Indicators Leadership SE DO ESM Green Harvest Consumer OP RC CFS Environment COI RE PT OR SDF EA Employees CEU LW PFS IC VL ML Community PTO CG WE LO LW LS INDICATORS 0 Mugshots Workplace Dynamics Figure 4. B-Corporation reporting indicators for top seven companies and the lowest rated company (Workplace Dynamics) Summary The B-Corporation rating system provides a starting point for SME double and triple line reporting, delivering it to the public via quantitative scoring. It serves as a useful gauge to social entrepreneurs devoted to raising the bar on their own management and delivery practices. Ratings provide the public and investors with comparative analyses of company performance, transparency and devotion to sustainability. Conducting a primary study in which these same companies provide input and output data would be valuable in further defining the social and environmental impacts touched upon in this study. It would require providing a consistent method to measure, monitor and report on specified performance metrics and relating the results to social/environmental indicators. The addition of a financial category using social return on investment (SROI) data would provide an interesting component. On the one hand, it would provide additional performance information, and on the other, financial bottom line reporting that might raise the value of the low profit margins previously reported by nonprofits, thus enabling them to qualify for B-Corporation certification (by showing the market value of donated labor and goods). The proposed primary study would be both qualitative and quantitative in nature and would require IRB permission with company privacy disclosures. Conclusion Social entrepreneurs are often small and medium businesses (SME’s) trying become established by creating new market niches, products and services while generating sustainable revenue and stabilizing communities with social and often environmental values. Because funding for SME’s is competitive, with investors, consumers and the community as their scrutinizers and support system, it would be advantageous for SME’s to implement more rigorous reporting strategies earlier rather than later. Further evaluation is necessary to determine whether or not alongside larger companies, the small and medium sized social enterprises (SME’s) can and do include double/triple line reporting as part of their strategic management, and if so, what advantages or disadvantages result. To summarize, the comparative analysis done for this research approach is general in scope utilizing B-Corporation rating indices. The sample size is small (under 40), and data evaluation of social and environmental SME rating scores challenging. Input and output variables may differ from company to company, and voluntary disclosure implies there may be measurement and monitoring inconsistencies from company to company. The present evaluation does not include delineation of input and output variables because they have not been published by the “BCorporation.” However, one should keep the notion of performance and success indicators/variables in mind because they are the metrics that can be measured and compared across organizations. Input variables are generally organizational in nature and include: staff, capital, operational expenses. Output variables are the least standardized across sectors and range from the number of trees a company plants, how much it recycles, and how many local people it employs to number of employee volunteer hours donated to charitable causes, or number of children an after-school program recruits. Social indicators are a subset of these variables and might include results such as fewer doctor’s visits, increased self-esteem, or lower food costs (Epstein, 2008; Clark, 2004). Tracking the DBL/TBL performance of large companies such as Nike, McDonald's 3M, BP, and Hewlett Packard is easier because they are public companies with similar performance metrics whose annual data can be viewed on Standard and Poor (S&P, 2010), and the Dow Jones Sustainability Index (DJSI, 2010), to name a few. By contrast, SME's performance methods are scattered here and there, with variable consistency regarding measurable output variables (Clark, 2004; Austin, 2006). This makes it difficult for investors, consumers and the community to assess the full value of a company. Consequently, it would be beneficial for social enterprise SME’s to utilize the tools available to them (B-Corp, IVC, SROI, CSR, etc). Not only would it be good marketing, but would also position the SME’s more visibly in the public eye while solidly establishing their social, environmental and financial goals.