Introduction

The longstanding debate regarding the purpose of corporations has been revived in recent years within both theory and practice. There are strong indications that acceptance of the shareholder primacy view is on the decline, while a stakeholder theory approach to corporate governance is becoming more mainstream. This research explores the role of the B Lab movement in encouraging this transition. B Lab is a not-for-profit organisation with the objective of transforming the global economy to benefit all people, communities, and the planet. At the time of writing, B Lab was operating across 102 countries and 160 industries, with 9,552 certified B Corporations (B Corps) in existence.

Literature review

Stakeholder governance is a pluralist approach that accepts corporate governance is shaped by ideologies, legal rules, and social conventions. It exists along a spectrum regarding the power and influence given to stakeholders in decision-making. At its simplest, it is the notion that the concerns of all firm stakeholders should be brought into the governance of the firm. Most Anglo-American corporations operate using a ‘hub and spoke’ model, where the corporate board remains at the centre and each stakeholder group acts as a separate spoke. Critics argue that achieving stakeholder governance is impossible in practice, as it may leave directors without a clear goal and reduce their accountability. Conversely, stakeholder theorists suggest a ‘win-win’ business case where long-term sustainability and joint value creation benefit everyone, including shareholders.

Research context and methodology

The research context was provided by the changing requirements for B Corp certification in Australia and Aotearoa New Zealand. At the time of the study, there were approximately 500 certified B Corps in these regions. In 2020, B Lab made it mandatory for Australian B Corps to amend their corporate constitutions to include a commitment to corporate purpose and stakeholder governance. The methodology involved direct engagement through semi-structured interviews with 20 B Corp leaders. These interviews, conducted during the second half of 2021, lasted between 45 and 75 minutes. The response rate was approximately 33 per cent. The sample ranged from small founder-led companies with no employees to large multi-national organisations across various industries. Data analysis was abductive, involving a three-step process to code and group findings into dominant themes.

Findings

The research found that corporate purpose acts as a moral compass that embeds pro-social values into the organisation. Six specific roles were identified for corporate purpose in the implementation of stakeholder governance. Three of these roles involve decision-making: the Establishing role (proactive board decisions setting strategy), the Applying role (reactive managerial decisions applying purpose-oriented policies), and the Developing role (collaborative decisions made together with stakeholders). The other three roles involve signalling and communication: the Announcing role (proactive public signalling of purpose), the Demonstrating role (reactive signalling through relationships and behaviour), and the Sharing role (collaborative signalling to share practices outside the firm). These findings indicate that an organisation-specific purpose helps leaders attract and retain supportive stakeholders while minimising conflicts.

Discussion

The analysis suggests that stakeholder governance is a much more proactive and collaborative process than previously envisioned. Reconciling conflicts is only a small part of the puzzle; the primary processes involve making decisions and communicating priorities in a way that avoids conflict and fosters collaboration. B Corps use corporate purpose to proactively set stakeholder priorities and build pro-social cultures through consistent decision-making. The study provides evidence of ‘how’ stakeholder governance is achieved by drawing out detailed processes and tools, such as the B Impact assessment tool, which helps companies measure progress across social and environmental dimensions.

Conclusions

The B Lab model of stakeholder governance assists corporate leaders in attracting supportive stakeholders and building collaborative relationships. Corporate purpose serves as a governance tool that helps companies be proactive in finding stakeholders who align with their mission. This process significantly reduces risk for the organisation in terms of potential shareholder complaints regarding their pro-social purpose. The research reveals the ‘black box’ of stakeholder governance as being about proactive signalling and sharing rather than just conflict resolution.

Implications for theory

The theoretical contribution of this study is threefold. Firstly, it demonstrates how stakeholder governance can be given direction by combining a commitment to stakeholders with an organisational purpose. Secondly, it shows that stakeholder governance is a proactive method of stakeholder selection rather than just a reactive process of resolving conflicts. Finally, it reveals that relationships with stakeholders can be collaborative and drive joint responsibility for systemic change. Signalling is identified as a vital mechanism for building these relationships, an element that has been previously overlooked in governance literature.

Implications for policy and practice

B Corps in Australia and Aotearoa New Zealand provide a helpful template for purpose-led enterprise. By imprinting a specific corporate purpose into the ‘DNA’ of the corporation, the B Lab model seeks to re-imagine stakeholder governance and ensure responsibility moves toward substantial cultural change. Policymakers have an opportunity to work with social movements to transform corporate mindsets toward responsible, purpose-driven governance, which has the potential to trigger wider systemic change through supply chains.

Limitations and suggestions for future studies

Limitations of the study include the sample nature, as some B Corps were small or medium-sized private companies not facing the same share-price pressures as publicly listed entities. Future research could explore the changes needed to ensure effective signalling as an enterprise grows and matures. Additionally, as all participants were committed to the B Corp certification process, future studies could investigate how other types of corporate reporting might work in tandem with purpose commitments to improve accountability across mainstream corporate governance.