When I ask entrepreneurs about investors, they often go politely silent. Some go stone-faced. When pressed, they confess to a strained or love/hate relationship with the investment world.
Here’s what they say: “In theory we’re supposed to want the same thing—a strong company that grows in value over time. But in my experience all investors ever do is either insist on dividends now or ask for a really low valuation that takes advantage of us. And they balk whenever I invest in employees or R&D.”
This tension between theory and real life experience leads many businesspeople to forego trying to attract investors. This can deprive their companies of capital they can need for success and growth.
The tension is more acute for some entrepreneurs than others. For those who unapologetically define success as more than money—who, for example, take pride in creating livelihoods for people and don’t treat employees as “cost centres” to be contained—the narrow short-termism of many investors is to be repelled, not pursued.
Wall Street discovers B Corps
Get this: Long-term company success takes not just financial success, but “a contribution to society.” This is from the mouth of Larry Fink, Chairman and CEO of Blackrock, the world’s largest investment firm.
You read that right. A titan of Wall Street—a place hotly, obsessively interested in money, not society—is arguing that the purpose of a company should include things like inclusive, local prosperity, robust communities and a clean environment. What on earth is going on?
It appears investors have discovered B Corps. In a recent report titled Just Good Business: An Investor’s Guide to B Corps, the Yale Centre for Business and the Environment, in collaboration with usual sustainability suspect Patagonia and wealth advisory firm Caprock, explains the distinct financial value created by certified B Corps and Benefit Corporations.
Here’s a sample of what they say:
Through greater appreciation of the real motives that drive and excite people, B Corps provide significant opportunity for investors. I think they could make more profits than any other types of companies…
A simple formula
Does this mean that Wall St. and mainstream business schools have also adopted the purpose that fuels the B Corp entrepreneurs we know? No. Some, certainly. But even if they don’t give a toss about broader value, they’ve learned that the B Corp certification is a rigorous, comprehensive lens through which to evaluate a company.
Not in the Yale report but too good to overlook is a recent €2 billion loan that a syndicate of mainstream bankers gave to Danone, a century-old company and freshly-minted B Corp. What’s striking about the loan is its condition: a lower interest rate predicated on Danone maintaining its B Corp status.
In other words, large banks and other mainstream investors are slowly figuring a simple formula we BDCers have known for years.
B Corp = better managed = lower risk = safer investment
B Corp: the most interesting, necessary movement of entrepreneurial people in the world. Also a novel, robust lens with which to evaluate a company.