Bill Hortz's picture

Can this type of reorganization, into a B Coporation, signal and help ensure a greater level of transparency and rebuild trust for the financial services industry? 

[According to the Certified B Corporation website, B Corporations are officially defined as “businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose”. They are legally required to consider the impact of their decisions – from their operations to business model - on their workers, customers, suppliers, community, and the environment.  The website further reports on and profiles over 2,600 B Corps in 150 industries in 60 countries currently in existence, of which 75 are investment advisory firms.

To learn more about this relatively new business structure and its application in financial services, we talked with Matt Blume and Pat Herrington of Appleseed Capital- an independent, socially responsible wealth management firm and advisor to the Appleseed Fund, a mutual fund - which has been a B Corporation since 2015. Beyond the obvious marketing and differentiation benefits, we are interested in the bigger questions like: Can this type of reorganization signal and help ensure a greater level of transparency and rebuild trust for the industry? Can this newer business model put a stronger spotlight on the bottom line social good that advisors provide by helping their clients and communities? Why aren’t there more financial services firms organized as B Corps? ]

Hortz: What were your main reasons for choosing to become a B Corporation?

Herrington: Becoming a B Corp was a wonderful opportunity to formalize what we had been doing all along, namely focusing on sustainable investing and trying to make a positive difference in the world by how we approach our clients, our employees, our community, and our investment decisions. We are proud to provide our clients with investments that allow them to sleep well at night, knowing that their assets are being managed and that their values are not being compromised. We believe making a positive difference is an obligation for all companies, and we were excited to join the ranks of other committed organizations as part of the B Corp program. It might sound like a cliché, but we truly believe that one can do well while doing good with their investments.

Hortz: What are the essential differences in operating as a B Corp versus a traditional for-profit investment advisory firm?

Herrington: The most obvious difference between operating as a B Corp versus a for-profit company is considering other stakeholders when making decisions and not making profitability the sole, or primary, determining factor.  In fact, as part of being a B Corp, written into our company’s charter is the obligation that Appleseed Capital “is to be managed in a manner that balances the stockholders pecuniary interests, the best interests of those materially affected by the corporation’s conduct and the public benefit or benefits…”  This means members of our Board of Directors are required by state law to consider the needs of others. Examples of how we meet these obligations is by offering our associates paid days off to perform volunteer service, giving preference to third party vendors who have women or minority ownership, and using technology to limit the amount of travel associates must conduct and thereby reducing our company’s impact on environmentally damaging emissions.

Blume: Our approach to investing our clients’ wealth is also different. Our charter states the company “shall promote a positive effect by, on behalf of clients, investing in companies with management teams that make decisions with an awareness of their impact on the environment and on their community…” When we consider investment opportunities for our clients, in addition to an exhaustive financial assessment, our research process includes an assessment of a company’s environmental, social, and governance (ESG) performance.  We believe strong ESG performers present less risk for investors and may offer superior opportunities for revenue and profit growth.  We also take proactive steps to encourage management of our investments to act in responsible ways. For example, in 2017, we submitted a shareholder proposal with The Mosaic Company asking that they assess the feasibility of integrating sustainability metrics into their executive compensation plans. The proposal opened an ongoing dialogue with the company about specific sustainability metrics that they will use as future performance measures, which should help better align sustainability goals with executives’ goals.

Hortz: Who certifies you as a B Corp and what criteria and review process do they use? How do you maintain your status as a B Corp?

Blume: B Lab is the organization that facilitates the certification process.  The first step interested companies must take is completing the B Impact Assessment, a free online platform that evaluates how a company interacts with its workers, customers, community, and environment.  After completing the assessment, B Lab will verify the score to determine if you meet the 80-point minimum for certification.  Throughout this process, you can talk to B Lab staff to review your completed B Impact Assessment, and you must submit documentation for a sample of questions to validate responses. We are required to update our certification as B Corps every three years. 

We used the time between our initial certification and follow up to identify and implement changes based on recommendations from the assessment. Some of these improvements included writing an employee handbook that allowed for flexible time schedules and telecommuting, presenting to the board and associates at least annually on matters related to ESG investing, and writing a whistleblower policy.  We were able to improve our score by almost 20 points, and B Lab recognized us in the Best for Changemakers lists in 2018. This is a testament to the level of support we receive from B Lab.

The final steps are to meet the legal requirement for integrating stakeholder consideration into your company’s governance structure and paying the annual fees. The specific governance requirements depend on the type of company you are (e.g., corporation, LLC, S corporation) and your state of domicile. For example, as a privately held corporation registered in Delaware, we had to re-file our charter and elect benefit corporation status within two years of our initial certification.  Requirements differ for other types of legal status and states.

Hortz: In what areas are you excelling per your B Corp review and what areas do you need to continue to improve?

Blume: The B Corp certification provides scoring across five different areas – Governance, Workers, Community, Environment, and Customers.  Our top scores are in Customers and Workers.  We rate highly in Customers because of our focus on and implementation of ESG investing.  For all of the investments we consider, we evaluate the security’s performance against strict criteria and perform ongoing monitoring of those investments to help ensure companies remain in line with our environmental, social, and governance expectations. We also actively look for opportunities to invest for positive impact.  One example of this is our investment in Benefit Chicago, which is a $100 million impact investment initiative that seeks to finance the growth of impact enterprises throughout the Chicago region in order to build wealth, create jobs, and enhance job readiness in some of the city’s most economically challenged neighborhoods.   

We score highly on Workers because of the benefits we offer and the fact that we pay highly competitive wages.  We believe providing enhanced benefits to associates helps them provide better services to clients and sets a standard for our local and financial services community.  We are also entirely owned by associates who work at the firm and have remained independent since the day we were founded.

An area in which we can improve is tracking more closely and improving upon the energy and other resources we use in our office.  We lease our office space and are in a high-rise building in downtown Chicago. We have worked with our landlord to enhance our recycling practices and confirmed the use of non-toxic cleaning supplies. Other steps we could take include reporting on our water and electricity use and implementing practices that would reduce the amount we use. 

Hortz: Do you feel that the process of becoming a B Corp has helped in any way in your socially responsible money management processes and client engagements?

Blume: We had already incorporated socially responsible investing in our money management activities prior to becoming a B Corp and the certification process re-affirmed our commitment to this investing approach.  Since certification, we transitioned Appleseed Fund to being a fossil fuel free fund and we updated our ESG guidelines to make them more reflective of what we believe to be the industry’s latest thinking on the topic.  We also more clearly delineated those separate account clients who want to follow a values-based approach rather than only having their investments screened for ESG factors.

Hortz: Why do feel there are still not that many financial services firms that have chosen like you to become a B Corp?

Herrington: Getting and maintaining certification is hard. It requires commitment from owners, senior management, and associates and requires people to think differently from how they have done so in the past – namely, to think about more than the profitability of the firm.  That mindset has been so ingrained in businesses, and especially in financial services, for so long and inertia is hard to overcome.  With the growth in popularity of ESG investing, some traditional investment firms have looked for easy ways to gain credibility in the ESG space, but being certified as a B Corp requires a lot more than simply filling out an application.  Becoming a B Corp isn’t a marketing ploy but rather a cultural commitment to doing business with a higher level of integrity.

Blume: Many companies may also have challenges with conflicts of interest across their businesses.  As a boutique firm, we are uniquely focused on sustainability and do not have to worry about our actions in one part of the firm negatively impacting another – being a B Corporation is part of a culture across the firm and is deeply embedded in everything we do.  Other organizations may not find that to be so easy.

Hortz: Can you share with advisors and other asset management firms any thoughts and recommendations on what to know and consider about becoming B Corporations?

Blume: We learned during the certification process that becoming a B Corporation is a journey. It is not about achieving the highest possible score in the initial certification.  It is about identifying the areas in which your company can improve, prioritizing, and working to complete them. Our facilitator from B Lab was very clear that even if we do not meet the minimum requirement in year one, we would then know what we need to focus on to make it the following year.  So, we would encourage companies to go start the process even if they think they will not make it.  You will learn a lot just by going through the assessment.

Herrington: We would love to see more investment advisors become B Corps, as it would provide further proof that there are companies in this industry who want to put clients’ best interests first and want to consider the needs of other stakeholders rather than focus solely on profits.  We believe this might help improve public perceptions of the industry, which are now at a very low point, and rightly so in many cases.

The Institute for Innovation Development   is an educational and business development catalyst for growth-oriented financial advisors and financial services firms   determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here .



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