Mergers and acquisitions (M&A) are one of the main strategies corporations use to accelerate growth, create new and added value for their customers, and reinvent their business and brand. Acquiring another company offers instant entry into new markets, creates relationships with new customers, and offers other operational synergies and benefits like reducing the cost of goods and expanding production capacity.
In particular, there has been a significant shift in demand and expectation around businesses creating clearer positive impacts on their employees, customers, and the environment. In fact, “Green Deals,” which are acquisitions with the objective of improving a company’s environmental impact, have seen a particular spike in the last few years and are a trend that is expected to continue.
As companies look to grow through acquisition, the fundamental operating principles of the two companies are an important part of what the integrated organization will look like and, ultimately, what value the integration will create.
Companies that have a strong sense of purpose when it comes to social and environmental impact, like Certified B Corporations, may find it particularly challenging to integrate into a company that does not prioritize purpose over profit. In instances like this, where a company has clearly demonstrated their dedication to social responsibility across several areas from their stakeholder governance to their workplace culture, to their human rights standards and beyond, it is critically important to evaluate how to protect these unique aspects of the company during and after a merger.
For B Corps, their demonstration of “doing good” goes beyond the measures often defined by ESG standards. The certification process is rigorous and requires candidates to provide evidence to a third-party evaluator to prove their work to make a positive social and environmental impact meets the standards of the Certification. And despite the high standards for certification, the number of B Corps has grown from a couple hundred in 2010 to over 9,000 today, with no signs of slowing.
As M&A and “Green Deal” activity is projected to increase and the number of B Corps grows, so does the potential for mergers between B Corps and non-B Corps. There are many implications of the union between two distinct business types. Still, by focusing on protecting the B Corps’s “Purpose & Stakeholder Governance” practices, their unique “Workplace Culture,” and their “Human Rights“ standards, there is an improved likelihood that the merger will benefit all stakeholders involved. While these areas of evaluation for the B Corp Certification are only three of the ten, they comprise some of the more significant elements easily impacted by a merger of a vastly different company.
Purpose & stakeholder governance
When a non-B Corp acquires a B Corp, the acquired company may find itself thrust into a governance ecosystem that does not adhere to B Corp principles. Stakeholders in the non-B Corp are more likely to be focused on the company’s financial success than on the societal good their company provides. The acquiring company’s stated mission, while perhaps aligned on paper, might not be aligned when subjected to the demands of executing the day-to-day needs of the business. Leadership incentives and perspectives on what success for the businesses looks like may be inconsistent. Key areas to evaluate for alignment include:
Board structure
Given the Board’s ultimate responsibility for all aspects of a company’s operations, it is imperative that it advocates B Corp principles in both words and action. One way to ensure this is to have B Corp champions on the Board of Directors who are passionate about a mission-driven purpose to do good.
Without these advocates, the Board may lack agenda items that reflect that mission for social and environmental impact and may not approve expenses for these types of programs. These Board members must advocate B Corp principles and feel empowered to challenge decisions designed to achieve certain outcomes at the expense of societal good.
Their job is to remind the acquiring company’s leadership team of their commitment to preserving their new acquisition’s B Corp principles.
Non-negotiables
A key part of expectation management is ensuring all parties are very clear on the non-negotiables at the very beginning of the relationship. Non-negotiables represent the critical aspects of the company that collectively define how the company achieves its purpose. These non-negotiables could include which suppliers the company uses or avoids, a commitment to using sustainable or fair-trade materials, an acceptance of taking public positions on current events, or even certain customers or industries they won’t sell to. Having frank conversations about the deal breakers and where there is room for flexibility upfront can mitigate disagreements later.
Stakeholder alignment
Most well-run companies have rigorous performance processes, goals, and KPIs that stakeholders use to set expectations across all aspects of the enterprise. These stakeholders could include the company’s leadership team, employees, external markets, and shareholders.
As the acquiring company on-boards the B Corp, they need to carefully assess these metrics against the acquired company’s tenants to identify potentially conflicting objectives.
For example, the parent company may have an objective to lower input costs and focus on efficiencies, but the B Corp is less focused on costs and more focused on the ethical sourcing of materials, which typically comes at a premium. The metrics and priorities may differ, but these conflict areas need to be identified and accounted for to properly set expectations across all stakeholder groups.
Workplace culture
When merging the cultures of a B Corp and a non-B Corp, even if the B Corp remains an operationally separate subsidiary, there can be unique challenges due to their fundamentally different priorities and value systems. A B Corp is deeply committed to the well-being of their employees, which may not be as intentionally prioritized within the non-B Corp’s culture.
Employees of B Corp may be concerned about losing their sense of community and belonging amid an increased emphasis on profit margins, whereas those of non-B Corp might need help adjusting to increased accountability for sustainability and social responsibility.
Navigating these differences requires a thoughtful approach that respects both perspectives and establishes a shared purpose that incorporates values from each organization. Key areas to evaluate for alignment include:
Organizational identity
A sense of organizational identity is often one of the most critical elements of a company’s culture, especially for B Corps. This includes ways of working, rituals, and value systems. Some companies have highly anticipated annual retreats that include families. Others have Slack channels dedicated to non-work-related communications like birthday wishes, vacation pictures, and jokes.
Many, if not all, of these rituals should continue and even be included as non-negotiables. Removing these pillars can erode the sense of organizational identity that keeps employees engaged.
Communications
What a company says affects its culture. Sharing and repeatedly communicating a common theme like “Better Together” will reinforce the new strength the merger has created for both companies. For example, a B Corp with a small manufacturing capacity might now be able to take advantage of the acquiring organization’s network of manufacturers. By working together, the B Corp can expand their production to meet demand, and the acquiring company can benefit from the added profit margins and lower costs their manufacturing systems offer so both companies benefit.
Clearly communicating the value of the merger, the benefits to both organizations, and how both are better together will keep everyone moving forward with the momentum they need to overcome the bumps and friction they may experience post-merger.
Feedback
Strong feedback loops are a hallmark of Certified B Corps. Proactive and structured processes that ensure workers are party to decision-making are a non-negotiable and should continue under new ownership. Seeking, acting, and reporting on feedback will ensure management has a finger on the company’s pulse and can sense when B Corp principles are being compromised. Small compromises can add up over time and eventually move a company away from its stated mission.
Human rights
When a B Corp becomes part of a non-B Corp, it is critical to understand the underlying business case of the merger and the implications of the value drivers. For example, if a driver of the business case was supplier consolidation, then all suppliers of the new entity now effectively need to adhere to the same high standards that were met when the B Corp was initially certified.
Adopting new suppliers, operational practices, facilities, and customers can potentially introduce players who are not aligned with B Corp values into the mix. Key areas to evaluate for alignment include:
Supply chain traceability
When companies that distribute physical products merge, supply chain synergies often influence a significant part of the deal value. These synergies can be driven by purchasing leverage, facility asset efficiency gains, and distribution benefits. To the extent the B Corp integrates into the acquiring company’s supply chain, those new players are all subject to the traceability requirements of being a B Corp. Depending on the scope of the integration, conducting the due diligence and remediation of supply chain issues could be a significant new requirement that slows down supply chain integration and the realization of financial benefits.
Additionally, if a B Corp intends to maintain its certification status, it needs to analyze which areas of integration may compromise their score and decide how to make up for a loss of points in another area.
Customer perceptions
Similar to understanding where and from whom a company sources its material, understanding the practices and locations of the acquirer’s facilities is critical. Even if the new facilities aren’t going to be integrated with the B Corp, acquired companies need to communicate to their customer base the implications of being part of a new company.
For example, the acquiring company may be interested in a B Corp due to a decade-old human rights violation that customers still associate with their brand. Acquiring a B Corp could be a strategy to improve their brand reputation among hesitant buyers. However, this also has the potential to damage the brand reputation of the B Corp. Due to the acquiring company’s past and poor reputation, consumers may begin to doubt how committed the B Corp really is to their human rights practices, even without valid evidence that any violations have occurred.
So, evaluating the brand impact of the mergers and how a B Corp may be seen as less trustworthy due to their new affiliation must be clearly understood and prepared for in advance.
Supplier compliance
B Corp suppliers need to go above and beyond traditional social compliance audits because they can create a false sense of compliance with actual negative human rights violations. Newly integrated suppliers need to understand that their performance will be measured rigorously from sources like site visits, feedback from union and civil society organizations, and grievance procedures.
This process may feel invasive, but it could result in necessary remediation. Companies should be prepared for conversations about commercial arrangements and other impacts resulting from any required changes.
Conclusion
Weighing the benefits of B Corp versus non-B Corp business structure, it’s clear that B Corp is gaining steam in the marketplace, among employees, and within the talent pool. Under mounting pressure to move toward alignment with socially responsible and beneficial values, companies are getting creative with M&As, grafting in B Corp Certified businesses to give themselves an advantage over competitors, both social and financial.
Integrating a B Corp with a non-B Corp is complicated and involves challenges that require open-mindedness, planning, and cooperation. The process is not one-size-fits-all, so it’s imperative that both parties establish non-negotiables early to set the tone and follow through at each step of integration.
