Remaking Capitalism: The Strength of Weak Legislation in Mobilizing B Corporation Certification

Companies, legislators and social movements are working in a variety of ways to increase transparency and accountability for businesses toward a more just and sustainable society. How do these highly diverse initiatives create synergies among top-down legislation, bottom-up voluntary certification, business and culture?

This question is at the center of “Remaking capitalism: the strength of weak legislation in mobilizing B corporation certification” by Assistant Professor of Entrepreneurship David S. Lucas; Matthew G. Grimes, professor of entrepreneurship and sustainable futures at Cambridge University’s Cambridge Judge Business School; and Joel Gehman, the Lindner-Gambal Professor of Business Ethics at George Washington University School of Business. “There are lots of different levers that change makers are trying to pull, but very few studies have looked at how those different levers intersect,” Lucas says.

For their study, published last year in the Academy of Management Journal, the researchers focused on the interplay of two voluntary and legislative sustainability designations. On the one hand, B Lab, a well-known global nonprofit, has designated over 6,000 companies around the world as B Corporations since 2007, certifying their sustainable and related values and practices. On the other hand, benefit corporations are a new legal form of sustainable business created in 36 U.S. jurisdictions since 2010, in part thanks to B Lab’s lobbying efforts.

“The interesting wrinkle is that the movement got what they wanted with this legislation, but it’s not playing out with the rigor of enforcement that might have been expected or hoped for,” Lucas says. Instead, legal analyses suggest that benefit corporation legislation is largely toothless, vague and unenforced—a feature that the researchers captured in measures of weakness along several dimensions (legislative strength and legislative scope). “We found that these qualitative differences of the legislation mattered a lot for explaining what was going on,” Lucas says. “It turns out that that weakness and ambiguity in the benefit corporation legislation are exactly what helped the certification serve an even more important role.”

Weak legislation created uncertainty about what the participating organizations stood for, while the B Corp designation offered a high threshold for certification and strong reporting and auditing practices. As a result, B Corp certifications and recertifications increased as companies genuinely committed to sustainability sought to distinguish themselves from less authentic firms that might take advantage of the law.

This effect varied with the strength of cultural related corporate sustainability norms in the region. The less rigorously the certifications ere supported, the more incentive legitimate companies had to distinguish themselves from less authentic businesses that might use “greenwashing” to increase their sales—boosting the effect of the legislation on new B Corp certifications.

“To understand legislative effects on business organizing, it is critical to understand how the law plays out in practice and how it is perceived,” Lucas says. “While informing discussions about the role of business in society, we also have advanced a new way to think about how organizations interact with law that hasn't been explored much.”

Lucas, D.S., Grimes, M.G., & Gehman, J. (2022). Remaking capitalism: the strength of weak legislation in mobilizing B corporation certification. Academy of Management Journal.