We know that transparency is a strong indicator of a company’s social mission. Turns out, it’s also good for business. Recently, transparency has been shown to be a significant driver of ultimate financial performance. The thread between transparency and profit is trust. By opening up internal operations, successes and failures to the public and to employees, we demonstrate transparency as a company, which customers like. But the reason customers like this is because it allows them to trust us, to recommend us, to tell us when we err and to choose us again.

Thera N. Kalmijn of SureGround and R. Paul Herman of HIP Investor discussed these ideas in Trust, but Verify – a New Mantra for Customer Growth published on Sustainable Life Media. The article is excellent, examining how we can earn and nurture consumer trust and use it to rally support and profits for our social mission. Some of my favorite points from the article are below.

• Increased transparency can get you an 18% jump in revenue, while opaqueness seems to lead to a 6% drop in revenue (per EngagementDB’s 2009 report).
• Transparency is defined by engaging customers in social media and using multiple formats to communicate company operations.
• Top drivers in determining a company’s reputation are 1) transparency, 2) honesty and 3) trustworthiness, compared to 1) product quality, 2) customer needs and 3) financial performance as found four years ago (2010 Edelman Trust Barometer).
• The adages (trust has to be earned, trust is fragile) are still true today. Increasingly, social and environmental disclosures-especially metrics-can help drive or damage trust.
• If a company doesn’t meet its social and environmental problems, they risk brand loyalty, price premiums, and reputation.
• An effective sustainability strategy creates trust and helps protect and build brand.
• SureGround’s developed this schema to guide companies:
  • Transparency–Appropriate, accurate, timely information and metrics
  • Recognition–The company has relevant rankings (in sustainability, green, etc.) and appears often in sustainability indexes
  • Understanding your consumer–What social and environmental solutions give them value?
  • Signaling–Visual “shortcuts”  that signal sustainability, e.g. labels, social media, media awareness, reporting*
  • Teaming–Two-way engagement with stakeholders including NGOs, industry partners, supply chain, and customers
• Seeing is believing. Trust must be signaled and then verified, i.e. labels, ratings, industry recognition.
• Developing an understanding of customer concerns creates deeper relationships and trust.
• Partnering with NGOs to address relevant social and environmental issues is also critical to trust. “The overwhelming majority of the informed public say they would be more likely to trust a company that partners with NGOs to solve global challenges such as climate change, poverty, or disease…” (2010 Edelman Trust Barometer).
• Failures in any the areas of the TRUST schema lead to reputational and financial risk–even more so when a company’s core strategy is based on social and environmental promises.

*Caroline Duell decided to certify Elemental Herbs as a B Corporation because the certification was a visual symbol of what her business stood for.

What’s your experience with building trust in your company? Alternatively, as a customer, has a specific incident earned or lost your trust in a company? Does it only take one slip or is it a compilation of openness, listening and reporting?

Jay Coen Gilbert of B Lab, the non-profit that certifies and supports B Corporations, distinguishes between good companies versus good marketing, and how B Lab is supporting the broader social shift from green businesses to good businesses.

What are B Corporations?

B Corporations are a new kind of company that use the power of business to solve social and environmental problems. Currently, there are more than 200 certified B Corporations, which collectively represent more than a billion dollars in revenue and come from 30 industries throughout 30 U.S. sates.

What are the requirements for B Corporation Certification?

There are two requirements for certification as a B Corporation. The first is to legally expand the responsibility of the corporation to include consideration of the stakeholders. The second requirement is around a company’s performance standard. We use a something called the B Rating System, which is an assessment tool to gauge the company’s impact on its employees, on its customers, in its local community and on the environment. The assessment questions are subject to a third-party audit. The questions document that the company is creating positive impact for all of its stakeholders. Companies applying must achieve a minimum score of 80 [on a 200 point scale] in addition to meeting the legal requirements I just mentioned. What this means is that companies are achieving a higher standard of not only performance, but also accountability and transparency.

Creating a race to higher impact

The median score for companies that apply for certification is around 100 points. Our intention with the B Rating System is to provide a free tool for any company that wants to assess its performance, and hopefully improve it, so we work actively with companies that seek certification to help them elevate their score, whether it’s elevating it to the minimum 80 points, or whether the company is looking to climb the ladder. The rating system creates a way for people to benchmark themselves against the best in the field, and creates a race to higher impact rather than a race to the bottom through lower wages and offloading environmental costs.

It’s not a causal process. Why would a company take the steps to become certified?

The people who have become leaders in their respective industries, whether they are using the power of business to alleviate poverty or to address climate change, are all doing phenomenal things with their business, be it through products or practices, or the distribution of their profits.

It’s cost beneficial. B Lab has saved B Corporations more than 600,000 in annual recurring savings through our service partnerships. Some companies get certified to help them retain their mission as they go through capital raising or succession planning. Some are doing it for the marketing benefit of differentiating themselves in a very cluttered and crowded marketplace where everybody claims to be green and responsible.

I’d say that for the vast majority of B Corps, however, the reason they go through the certification process is because they want to influence the market in a much more powerful way than they are able to do with their individual company. They want to influence public policy to create more favorable structures for sustainable business. They want to drive capital to higher impact investments than traditional socially responsible investments, and they want to change the rules of the game around corporate accountability to create a new corporate forum that has higher standards of transparency and social and environmental performance.

The unifying element among B Corps is that they want to be in the company of leaders who are looking to pull the biggest lever they can find to have a transformational impact as entrepreneurs and investors.

From a global basketball brand to B Lab: How did B Lab form?

All three co-founders were from the private sector. Two of us started a consumer product company called AND1, a basketball consumer apparel company, and the third was a private equity investor. So we all brought an investor and entrepreneurial quality to B Lab. Our core objective was how we can use the next several decades of our lives to be of greater service. We realized that if we wanted to create social and environmental impact at scale, we were going to have to use the power of the market place. As important as government is for creating the right environment for social good and as important as the nonprofit sector is for going places the market won’t go, the fact is that three fourths of the economy is business, with an even greater cultural footprint, socially and economically.

We spent a couple of years talking to investors and entrepreneurs about what was preventing them from scaling their mission-driven businesses as fast and as frequently as they wanted. We kept hearing that a very basic infrastructure was missing in the sustainable business marketplace, which was present in the traditional capital and consumer markets. Our goal was to create a definable brand of companies that have met higher standards of performance, accountability and transparency to make it easier for consumers to find companies they want to support, for investors to find companies they want to invest in and for entrepreneurs to find the type of companies they want to create.

We wove together three elements of infrastructure in what we now call B Corporation:

1. Legal infrastructure to allow mission-driven businesses to scale and hang on to their mission.
2. Standards infrastructure that would enable consumers, investors or policy makers to tell the difference between a good company and good marketing.
3. Branding. Through the power of the brand of B Corporation, companies are able to amplify the collective voice of a very, very diverse marketplace. There’s a lot of amazing stuff going on but it’s all quite fragmented.

As corporate social responsibility and environmentalism have become marketing buzzwords, have you seen a dilution in the caliber of companies now applying for certification?

Even in the two to three years since we’ve started, the winds have shifted dramatically. Capitalism hasn’t finished evolving yet. It’s the most powerful engine of opportunity creation and innovation that’s ever been devised, but that doesn’t mean that it’s finished evolving; it can get better. What people are envisioning is a way to repurpose capitalism so that it’s not just about maximizing short-term shareholder value, it’s about creating both shareholder and social value at the same time. There are a growing number of businesses and entrepreneurs who are seeking these dual objectives as they build their business.

We’re seeing a re-orientation of the question from green to good. Then the question becomes ‘how do you tell the difference between a good company and good marketing’ and the answer to that is not looking at ad campaigns; the answer is looking at a real set of standards.

Jay will be speaking at Sustainable Brands 09 in Monterey, California, on June 1.