Finding good on Wall Street?

Etsy joins Boulder’s Rally Software as a publicly traded B Corp

The B Corp movement commandeered Wall Street’s jaded eye, at least for a moment, in mid-April as Etsy, an online marketplace for selling crafts and handmade goods, took its stock public on the Nasdaq Stock Market. Yet while the initial reaction was overwhelmingly positive, it remains to be seen whether the event was a one-off occurrence or a spark of inspiration for other companies that adhere to the B Corp mantra of using business as a force for good.

Etsy’s stock was a first-day hit, jumping 87.5 percent from its initial public offering price of $16.00 to close at $30.00. Curiously, Virtu Financial, a high-frequency trading firm, went public on the same day and registered a 16.7 percent first-day gain.

A fair amount of the coverage around Etsy’s stock sale referred to its B Corp Certification, which it first earned in May 2012. The company discussed this status considerably in its Form S-1 Registration Statement filed with the U.S. Securities and Exchange Commission, concluding in its values section:

Fundamentally, we believe that companies can and should use the power of business to create social good, which is reflected in our status as a Certified B Corporation. Our commitment to using business as a force of good manifests itself in the way we run our business.

Wall Street ’s patience with this business approach isn’t guaranteed, given it emphasis on non-financial elements, although the use of environmental, social and governance (ESG) analysis has been growing. Perhaps most critically, analyst coverage is driven largely by quarterly and annual sales and earnings projections, but Etsy declared in its S-1 filing that it does not plan to offer such guidance, explaining that such a practice is “misaligned” with the company’s mission.

By comparison, Rally Software Development, a Boulder-based IT firm that has been a Certified B Corp since 2010 and went public in April 2013, does provide quarterly and annual financial expectations. In its regulatory filings, Rally’s references to its B Corp status are also much more muted than Etsy’s. Otherwise, only a few other small, closely held public companies have earned B Corp Certification.

For those interested in furthering the cause of B Corps and public benefit corporations (Colorado’s legal designation for such companies), Etsy’s stand is to be applauded. After all, it’s not just another growth-oriented online venture seeking investor approval, but it’s a company openly committed to working toward making a long-term positive impact on the world beyond its shareholders.

And to be fair, there are few alternatives to going public when it comes to helping early investors cash out. This group could include founders, early employees and venture capital firms, which, in Esty’s case, owned more than 50 percent of the company before it went public.

Ultimately, in an ideal world, the long-range thinking fostered by B Corps/benefit corporations such as Etsy and Rally should—if well executed—lead to value creation for all of the company’s stakeholders, including shareholders. For now, however, the U.S. financial industry is not known for its willingness to look beyond the next few quarters.

Therefore, despite the early attraction to Etsy’s stock, it’s the company’s operational performance over the next 12-18 months that will play a larger role in whether Wall Street is willing to increasingly accept impact-minded business strategies designed with a focus beyond the bottom line.

Disclosure: I am not an Etsy shareholder and I will not be in the next six months. I have owned shares in Rally Software Development in the past; I do not currently own shares in Rally Software Development; and I may invest in Rally Software Development within the next six months.

Categories: Finance