What’s A B Corporation?
There’s a handwritten list on my refrigerator. It’s hanging there from a magnet right next to the monthly family calendar and the report cards. My wife keeps a roster of corporations like Costco and Starbucks that follow ethical practices. These are the places we’re supposed to patronize. There’s also another list, over on the side, headlined by companies like Monsanto and Koch Industries that represent a different kind of corporation. Woe to the wayward family member who might drop a dollar or two on one of their products. I haven’t set foot in a Wal Mart in over 5 years and my wife would rather see me walking down the shoulder of an interstate with a gas can in my hand than fill up at an Exxon or BP station. It’s one way of making a statement about corporate practices.
There is a different way to assess corporate behavior. The “B” Corporation is a relatively new development in business management practices. The B stands for benefit. A corporation chartered as a Benefit Corporation has the ability to include activities designed to achieve social or environmental benefits as part of its core business operations. Don’t get me wrong, Benefit Corporations are still in existence to turn a profit. The difference is that the Benefit Corporation establishes societal benefits as one of its founding principles. The company exists, in part, to do good things. Additionally, by the rules of its establishment, the corporation is also bound to follow policies and practices ensuring accountability, transparency in its actions, standardized accounting methods and procedures for governance that are very different from the traditional corporate structure. A Benefit Corporation pledges to work towards its stated goals for the public good as a part of its basic operations and can be called to task by its shareholders should it fail to pursue that mission. 23 states and the District of Columbia currently authorize the creation of Benefit Corporations. Legislation is currently pending in an additional 14 states. Illinois has also introduced legislation that would permit the creation of a Benefit LLC for businesses where incorporation may not be appropriate.
Every time you spend money, you’re casting a vote for the kind of world you want.-Anna Lappe
Related to the creation of Benefit Corporations is a non-profit that has been established to evaluate corporate operations of these entities. B Lab provides an independent certification of Benefit Corporations that assesses their practices and methods and confers the status of “Certified B Corporation” on businesses that meet their requirements. Currently there are 1,040 certified B Corporations in 34 countries around the world representing 60 different industries. A Benefit Corporation does not need to be certified by B Lab, but the certification process provides a measurement tool that can provide a consumer with a presumably objective method of evaluating the standards and practices of a company. Much like LEED Certification, where a building doesn’t need to be certified to be energy-efficient, a Benefit Corporation need not be certified to be engaged in a public purpose. In both instances the certification process provides both the business and the public with a standardized method of evaluating performance. You can find out more about the certification process by visiting the B Lab website.
A New Way Of Doing Business?
The traditional corporation exists for one purpose-to make money. In fact, beyond that, a traditional corporation is committed to pursuing the maximum possible profits possible as part of its fiduciary duty to its shareholders. This corporate “greed” has resulted in all sorts of mayhem for the environment. Corporations in pursuit of maximum profits have engaged in a myriad of practices that have resulted in the destruction or degradation of natural resources. Corporations have a long and sordid history of environmental destruction in the U.S. and a resume’ that includes polluting the air and water, improper disposal of waste, evading regulation and influencing legislation to permit destructive practices all in pursuit of maximizing profits. The Benefit Corporation diverges from this model of corporate governance and creates the opportunity to utilize the methods usually used to create corporate wealth to accomplish goals, especially in the realm of environmental protection, that were heretofore difficult or impossible to achieve because of a lack of resources.
The traditional corporation is “constrained” by its fiduciary duties to shareholders to pursue profit and its own interests above all else. Social entrepreneurs and people looking for an outlet for socially conscious investing are hard pressed to match their goals with the established corporate structure. In fact, in a Benefit Corporation the directors have a fiduciary duty to pursue the established non-financial socially beneficial purposes of the corporation. The creation of Benefit Corporations allows access to all of the advantages of incorporation, or the investment in corporate stock, without the limitation of the obligation to pursue profit above all other goals. It is an interesting, and potentially powerful, hybrid of the role of non-profits and the capability of the for-profit business world focused on achieving social good. The possibility of bringing investment capital to the world of environmental protection has a great deal of promise.
Does It Matter?
There has been some debate regarding whether or not the creation of the Benefit Corporation form was necessary. The freedom to use the corporate form of doing business with its structure and protections, attract investors and pursue socially beneficial goals is reason enough. The possibility of unleashing the financial power of business to address major issues facing our society only emphasizes the advantages of enabling this form of incorporation. The fact that in addition to start-up social entrepreneurs, substantial businesses like Patagonia, Seventh Generation and Cabot Creamery have chosen to conduct their operations in accordance with the standards and practices required of a Benefit Corporation highlights both the possibilities and the efficacy of this way of doing business and the importance of growing the B Corporation community.
According to B Labs, certified B Corporations are more likely to not just be better corporate citizens, but engage in better employment practices. The certification process offers consumers the chance to make informed decisions on where they may want to spend their money. Perhaps most importantly, it offers a different approach to accepted methods and practices of commerce that has the potential to change the accepted norms of capitalism. For environmental advocates the possibilities are endless.
You’re welcome to stop by my house and pursue the lists of good and bad corporations on my refrigerator. They were carefully compiled after extensive research into the corporate practices of the companies that are on them. It’s probably a better idea to consult the folks at B Labs. Their objective standards not only provide a good measuring stick for companies, but they offer encouragement and reinforcement to companies that choose to include public good as part of their business mission. While the idea may be novel today, 10 years from now the benefit corporation may very well be a common way for investors, social entrepreneurs and consumers to use the power of capitalism to change the world.- Ben Spinelli