Non-economic Performance of Benefit Corporations: A Variance Decomposition Approach

Abstract

Drawing on evolutionary realism as a guiding framework and using relevant theoretical bases at macro- (country-), meso- (industry-), and micro- (firm-) levels, we investigate the relative variance explained by each level on selection (non-economic performance) and retention (decertification) of Benefit Corporations (B-Corps). Based on a sample of 5052 observations of certified B-Corps and 1403 observations of decertified B-Corps, relative to the country and industry differences, firm-level differences explain most of the variance in non-economic performance, especially for workers and community impact areas. Industry-level differences explain small differences in customers and environmental performance while country differences do not explain meaningful performance differences. The results also show a similar pattern in relative effects for decertified B-Corps. Our findings point to the value of disaggregating the relative effects of multilevel factors in further understanding drivers of non-economic performance and the decertification of B-Corps.

This is a preview of subscription content, access via your institution.

Notes

  1. 1.

    Source: https://bcorporation.net/about-b-corps.

References

  1. Alexander, F. H. (2016). The Capital Markets and Benefit Corporations. Business Law Today, 1–4.

  2. Alikaj, A., Nguyen, C. N., & Ning, W. (2016). The combined effect of firm external and internal factors on corporate social responsibility and firm performance. International Management Review, 12(2), 20.

    Google Scholar 

  3. André, K., & Pache, A.-C. (2016). From caring entrepreneur to caring enterprise: Addressing the ethical challenges of scaling up social enterprises. Journal of Business Ethics, 133(4), 659–675.

    Article  Google Scholar 

  4. Bauer, J., & Umlas, E. (2017). Making corporations responsible: The parallel tracks of the b corp movement and the business and human rights movement. Business and Society Review, 122(3), 285–325.

    Article  Google Scholar 

  5. Berrone, P., Cruz, C., Gomez-Mejia, L. R., & Larraza-Kintana, M. (2010). Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less? Administrative Science Quarterly, 55(1), 82–113.

    Article  Google Scholar 

  6. Berrone, P., Cruz, C., & Gomez-Mejia, L. R. (2012). Socioemotional wealth in family firms: theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25(3), 258–279.

    Article  Google Scholar 

  7. Brammer, S., Williams, G., & Zinkin, J. (2007). Religion And Attitudes To Corporate Social Responsibility In A Large Cross-Country Sample. Journal of business ethics, 71(3), 229–243.

    Article  Google Scholar 

  8. Branco, M. C., & Rodrigues, L. L. (2006). Corporate social responsibility and resource-based perspectives. Journal of Business Ethics, 69(2), 111–132.

    Article  Google Scholar 

  9. Bromberger, A. R. (2011). A new type of hybrid. Stanford Social Innovation Review, 9(2), 49–53.

    Google Scholar 

  10. Cao, K., Gehman, J., & Grimes, M. G. (2017). Standing out and fitting in: Charting the emergence of certified B corporations by industry and region. Hybrid ventures: Perspectives and approaches to blended value entrepreneurship. Advances in Entrepreneurship, Firm Emergence and Growth, 19, 1–38.

  11. Chell, E., Spence, L. J., Perrini, F., & Harris, J. D. (2016). Social Entrepreneurship and business ethics: Does social equal ethical? Journal of Business Ethics, 133(4), 619–625.

    Article  Google Scholar 

  12. Chirico, F., Sirmon, D. G., Sciascia, S., & Mazzola, P. (2011). Resource orchestration in family firms: Investigating how entrepreneurial orientation, generational involvement, and participative strategy affect performance. Strategic Entrepreneurship Journal, 5(4), 307–326.

    Article  Google Scholar 

  13. Conger, M., McMullen, J. S., Bergman, B. J., Jr., & York, J. G. (2018). Category membership, identity control, and the reevaluation of prosocial opportunities. Journal of Business Venturing, 33(2), 179–206.

    Article  Google Scholar 

  14. Cordeiro, J. J., & Tewari, M. (2015). Firm characteristics, industry context, and investor reactions to environmental Csr: A stakeholder theory approach. Journal of Business Ethics, 130(4), 833–849.

    Article  Google Scholar 

  15. Dopfer, K., & Potts, J. (2004). Evolutionary realism: A new ontology for economics. Journal of Economic Methodology, 11(2), 195–212.

    Article  Google Scholar 

  16. Dopfer, K., Foster, J., & Potts, J. (2004). Micro-Meso-Macro. Journal of Evolutionary Economics, 14(3), 263–279.

    Article  Google Scholar 

  17. Ebrahim, A., Battilana, J., & Mair, J. (2014). The governance of social enterprises: Mission drift and accountability challenges in hybrid organizations. Research in Organizational Behavior, 34, 81–100.

    Article  Google Scholar 

  18. El Ghoul, S., Guedhami, O., & Kim, Y. (2017). Country-level institutions, firm value, and the role of corporate social responsibility initiatives. Journal of International Business Studies, 48(3), 360–385.

    Article  Google Scholar 

  19. Fassin, Y., Van Rossem, A., & Buelens, M. (2011). Small-business owner-managers’ perceptions of business ethics and csr-related concepts. Journal of Business Ethics, 98(3), 425–453.

    Article  Google Scholar 

  20. Fitza, M. A. (2014). The use of variance decomposition in the investigation of ceo effects: How large must the ceo effect be to rule out chance? Strategic Management Journal, 35(12), 1839–1852.

    Article  Google Scholar 

  21. Gallego‐Álvarez, I., Prado‐Lorenzo, J. M., & García‐Sánchez, I. M. (2011). Corporate social responsibility and innovation: A resource‐based theory. Management Decision.

  22. Gehman, J., & Grimes, M. (2017). Hidden badge of honor: How contextual distinctiveness affects category promotion among certified b corporations. Academy of Management Journal, 60(6), 2294–2320.

    Article  Google Scholar 

  23. Gehman, J., Grimes, M. G., & Cao, K. (2019). Why we care about certified B corporations: From valuing growth to certifying values practices. Academy of Management Discoveries, 5(1), 97–101.

    Article  Google Scholar 

  24. Gelman, A., & Hill, J. (2006). Data analysis using regression and multilevel/hierarchical models. Cambridge: Cambridge University Press.

    Google Scholar 

  25. Girling, R. H. (2012). The good company: Compassionate companies that are changing the world. Charles City, VA: Hill Press.

    Google Scholar 

  26. Gomez-Mejia, L. R., Cruz, C., Berrone, P., & De Castro, J. (2011). The bind that ties: Socioemotional wealth preservation in family firms. Academy of Management Annals, 5(1), 653–707.

    Article  Google Scholar 

  27. Gómez-Mejía, L. R., Haynes, K. T., Núñez-Nickel, M., Jacobson, K. J., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms: Evidence from spanish olive oil mills. Administrative Science Quarterly, 52(1), 106–137.

    Article  Google Scholar 

  28. Grimes, M. G., Gehman, J., & Cao, K. (2018). Positively deviant: Identity work through b corporation certification. Journal of Business Venturing, 33(2), 130–148.

    Article  Google Scholar 

  29. Honeyman, R. (2014). Has the B corp movement made a difference? Stanford Social Innovation Review.

  30. Honeyman, R., & Jana, T. (2019). The B corp handbook: How you can use business as a force for good. San Francisco: Berrett-Koehler Publishers.

    Google Scholar 

  31. Husted, B. W., & Allen, D. B. (2006). Corporate social responsibility in the multinational enterprise: Strategic and institutional approaches. Journal of International Business Studies, 37(6), 838–849.

    Article  Google Scholar 

  32. Jacobides, M. G., Knudsen, T., & Augier, M. (2006). Benefiting from innovation: Value creation, value appropriation and the role of industry architectures. Research Policy, 35(8), 1200–1221.

    Article  Google Scholar 

  33. Jenkins, R. (2005). Globalization, corporate social responsibility and poverty. International Affairs, 81(3), 525–540.

    Article  Google Scholar 

  34. Karniouchina, E. V., Carson, S. J., Short, J. C., & Ketchen Jr, D. J. (2013). Extending the firm vs. industry debate: does industry life cycle stage matter? Strategic Management Journal, 34(8), 1010–1018.

  35. Kellermanns, F. W., Eddleston, K. A., & Zellweger, T. M. (2012). Article commentary: Extending the socioemotional wealth perspective: A look at the dark side. Entrepreneurship Theory and Practice, 36(6), 1175–1182.

    Article  Google Scholar 

  36. Kets de Vries, M. F. (1985). The dark side of entrepreneurship. Harvard Business Review, 63(6), 160–167.

    Google Scholar 

  37. King, B. G., & Pearce, N. A. (2010). The contentiousness of markets: Politics, social movements, and institutional change in markets. Annual Review of Sociology, 36, 249–267.

    Article  Google Scholar 

  38. Klein, S., Schneider, S., & Spieth, P. (2020). How to stay on the road? A business model perspective on mission drift in social purpose organizations. Journal of Business Research, 125, 658–671.

    Article  Google Scholar 

  39. Kullak, F. S., Baker, J. J., & Woratschek, H. (2020). Enhancing value creation in social purpose organizations: Business models that leverage networks. Journal of Business Research, 125, 630–642.

    Article  Google Scholar 

  40. Lenssen, G., Painter, M., Ionescu-Somers, A., Pickard, S., & Albareda, L. (2013). Csr Governance innovation: Standard competition-collaboration dynamic. Corporate Governance.

  41. Lyon, T. P., & Maxwell, J. W. (2008). Corporate social responsibility and the environment: A theoretical perspective. Review of environmental economics and policy, 2(2), 240–260.

    Article  Google Scholar 

  42. Maon, F., Vanhamme, J., De Roeck, K., Lindgreen, A., & Swaen, V. (2019). The dark side of stakeholder reactions to corporate social responsibility: Tensions and micro-level undesirable outcomes. International Journal of Management Reviews, 21(2), 209–230.

    Article  Google Scholar 

  43. McGahan, A. M., & Porter, M. E. (2002). What do we know about variance in accounting profitability? Management Science, 48(7), 834–851.

    Article  Google Scholar 

  44. McGahan, A. M., & Victer, R. (2010). How much does home country matter to corporate profitability? Journal of International Business Studies, 41(1), 142–165.

    Article  Google Scholar 

  45. McWilliams, A., & Siegel, D. (2001). corporate social responsibility: A theory of the firm perspective. Academy of management Review, 26(1), 117–127.

    Article  Google Scholar 

  46. McWilliams, A., & Siegel, D. S. (2011). Creating and capturing value: Strategic corporate social responsibility, resource-based theory, and sustainable competitive advantage. Journal of Management, 37(5), 1480–1495.

    Article  Google Scholar 

  47. Miller, D., & Le Breton-Miller, I. (2014). Deconstructing socioemotional wealth. Entrepreneurship Theory and Practice, 38(4), 713–720. https://doi.org/10.1111/etap.12111.

    Article  Google Scholar 

  48. Montiel, I., Christmann, P., & Zink, T. (2019). The effect of sustainability standard uncertainty on certification decisions of firms in emerging economies. Journal of Business Ethics, 154(3), 667–681.

    Article  Google Scholar 

  49. Moroz, P. W., & Gamble, E. N. (2020). Business model innovation as a window into adaptive tensions: Five paths on the B corp journey. Journal of Business Research, 125, 672–683.

    Article  Google Scholar 

  50. Moroz, P. W., Branzei, O., Parker, S. C., & Gamble, E. N. (2018). Imprinting with purpose: Prosocial opportunities and B corp certification. New York: Elsevier.

    Google Scholar 

  51. Muñoz, P., & Cohen, B. (2018). Sustainable entrepreneurship research: Taking stock and looking ahead. Business Strategy and the Environment, 27(3), 300–322.

    Article  Google Scholar 

  52. O’Shaughnessy, K., Gedajlovic, E., & Reinmoeller, P. . (2007). The influence of firm, industry and network on the corporate social performance of japanese firms. Asia Pacific Journal of Management, 24(3), 283–303.

    Article  Google Scholar 

  53. Orlitzky, M., Louche, C., Gond, J.-P., & Chapple, W. (2017). Unpacking the drivers of corporate social performance: A multilevel, multistakeholder, and multimethod analysis. Journal of Business Ethics, 144(1), 21–40.

    Article  Google Scholar 

  54. Parker, S. C., Gamble, E. N., Moroz, P. W., & Branzei, O. (2019). The impact of B lab certification on firm growth. Academy of Management Discoveries, 5(1), 57–77.

    Article  Google Scholar 

  55. Pollack, J. M., Garcia, R., Michaelis, T. L., Hanson, S., Carr, J. C., & Sheats, L. (2020). Pursuing B corp certification: exploring firms’entrepreneurial orientation and prosocial motivation. Academy of Management Discoveries. https://doi.org/10.5465/amd.2019.0083.

    Article  Google Scholar 

  56. Rawhouser, H., Cummings, M., & Crane, A. (2015). Benefit corporation legislation and the emergence of a social hybrid category. California Management Review, 57(3), 13–35.

    Article  Google Scholar 

  57. Reiser, D. B. (2010). Blended enterprise and the dual mission dilemma. Vt. L. Rev., 35, 105.

    Google Scholar 

  58. Reiser, D. B., & Dean, S. A. (2016). Financing the benefit corporation. Seattle UL Rev., 40, 793.

    Google Scholar 

  59. Romi, A., Cook, K. A., & Dixon-Fowler, H. R. (2018). The influence of social responsibility on employee productivity and sales growth. Sustainability Accounting, Management and Policy Journal, 4, 391–421.

    Google Scholar 

  60. Rumelt, R. P. (1991). How much does industry matter? Strategic Management Journal, 12(3), 167–185.

    Article  Google Scholar 

  61. Schmalensee, R. (1989). Inter-industry studies of structure and performance. Handbook of Industrial Organization, 2, 951–1009.

    Article  Google Scholar 

  62. Scott, W. R. (1987). The adolescence of institutional theory. Administrative Science Quarterly, 32, 493–511.

    Article  Google Scholar 

  63. Seanor, P., & Meaton, J. (2008). Learning from failure, ambiguity and trust in social enterprise. Social Enterprise Journal, 4, 24.

    Article  Google Scholar 

  64. Short, J. C., Ketchen, D. J., Jr., Bennett, N., & du Toit, M. (2006). An Examination of firm, industry, and time effects on performance using random coefficients modeling. Organizational Research Methods, 9(3), 259–284.

    Article  Google Scholar 

  65. Short, J. C., McKelvie, A., Ketchen, D. J., Jr., & Chandler, G. N. (2009). Firm and industry effects on firm performance: A generalization and extension for new ventures. Strategic Entrepreneurship Journal, 3(1), 47–65.

    Article  Google Scholar 

  66. Sirmon, D. G., Hitt, M. A., Ireland, R. D., & Gilbert, B. A. (2011). Resource orchestration to create competitive advantage: Breadth, depth, and life cycle effects. Journal of Management, 37(5), 1390–1412.

    Article  Google Scholar 

  67. Smith, W. K., & Besharov, M. L. (2019). Bowing before dual gods: How structured flexibility sustains organizational hybridity. Administrative Science Quarterly, 64(1), 1–44.

    Article  Google Scholar 

  68. Stubbs, W. (2017). Sustainable entrepreneurship and B corps. Business Strategy and the Environment, 26(3), 331–344.

    Article  Google Scholar 

  69. Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571–610.

    Article  Google Scholar 

  70. Udayasankar, K. (2008). Corporate social responsibility and firm size. Journal of Business Ethics, 83(2), 167–175.

    Article  Google Scholar 

  71. Villela, M., Bulgacov, S., & Morgan, G. (2019). B corp certification and its impact on organizations over time. Journal of Business Ethics. https://doi.org/10.1007/s10551-019-04372-9.

    Article  Google Scholar 

  72. Weerawardena, J., Salunke, S., Haigh, N., & Mort, G. S. (2019). Business model innovation in social purpose organizations: Conceptualizing Dual Social-Economic Value Creation. Journal of Business Research. https://doi.org/10.1016/j.jbusres.2019.10.016.

    Article  Google Scholar 

  73. White, C. L., & Alkandari, K. (2019). The influence of culture and infrastructure on Csr and country image: The case of Kuwait. Public Relations Review, 45(3), 101783.

    Article  Google Scholar 

  74. Wilburn, K., & Wilburn, R. (2014). The double bottom line: Profit and social benefit. Business Horizons, 57(1), 11–20.

    Article  Google Scholar 

  75. Williams, D. A., & Kadamawe, A. (2012). The dark side of social entrepreneurship. International Journal of Entrepreneurship, 16, 63.

    Google Scholar 

  76. Yang, X., & Rivers, C. (2009). Antecedents of Csr practices in Mncs’ subsidiaries: A stakeholder and institutional perspective. Journal of Business Ethics, 86(2), 155–169.

    Article  Google Scholar 

  77. Zimmerman, M. A., & Zeitz, G. J. (2002). Beyond survival: Achieving new venture growth by building legitimacy. Academy of Management Review, 27(3), 414–431.

    Article  Google Scholar 

  78. Zott, C., & Amit, R. (2010). Business model design: An activity system perspective. Long Range Planning, 43(2–3), 216–226.

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Pankaj C. Patel.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Pankaj C. Patel and C. S. Richard Chan contributed equally to this work.

Appendix

Appendix

See Tables 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14.

Table 5 Variance decomposition analysis results (winsorized continuous DVs)
Table 6 Variance decomposition analysis results (alternative nested structure)
Table 7 Variance decomposition analysis results (firm size-fixed effect)
Table 8 Variance decomposition analysis results (country fixed effect)
Table 9 Variance decomposition analysis results (industry fixed effect)
Table 10 MLE variance decomposition analysis results (replacing country with national business systems)
Table 11 REMLE variance decomposition analysis results
Table 12 REMLE variance decomposition analysis results with covariance between firms and industries
Table 13 Comparison of VDA results
Table 14 Exact items in the environment impact area

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Patel, P.C., Chan, C.S.R. Non-economic Performance of Benefit Corporations: A Variance Decomposition Approach. J Bus Ethics (2021). https://doi.org/10.1007/s10551-021-04754-y

Download citation

Keywords

  • Benefit corporations
  • Non-economic performance
  • Variance decomposition
  • Global sample