This article was originally published on Mashable on 3/2/12: http://mashable.com/2012/03/02/benefit-corporations/
To B or Not to B? Weighing the Benefits of Benefit Corporations
by Aiden Livingston
Aiden Livingston is a cause marketing expert and the author of two books on the subject. He is also the Marketing and Communications Director at Call2Action, a New York-based social enterprise that creates online tools to help non-profits.
At first glance, a Benefit Corporation seems like a good thing. I mean it has the word “benefit” right in the title, so what’s not to love?
Well, dig a little bit deeper and one finds they have to dig a lot deeper to discover what exactly the benefits of Benefit Corporations are.
For starters, Benefit Corporations and B Corps, terms that are often used interchangeably, are entirely different. A B Corp represents a certification, whereas a Benefit Corporation is an actual legal entity.
Confused yet? Now consider that the B Corp certification process, which requires a company to pass a rigorous examination of all their policies, is not actually legally binding. Whereas a Benefit Corporation, which is legally binding and currently recognized by six states, does not require a company to adhere to the same standards as the certification.
Feel free to reread the above at your own liberty and try to make sense of it. I know I certainly had to.
Evidently, this is a by-product of decisions by legislators, those increasingly popular folks who felt that forcing companies to adhere to the standards of a B Corp certification would put too much control in the hands of the governing body, B Lab, and therefore removed the requirements altogether for the new Benefit Corporations.
Thus, a ridiculous double standard and branding conundrum that would give Don Draper an aneurysm.
So What Is a B Corp Anyway?
Since the only ethical prerequisite for becoming a Benefit Corporation is, seemingly, the will to join, let’s focus on the stricter certification process of a B Corp.
A B Corp is like a non-profit in that it must work with the greater public good in mind, and not just the good of a few select shareholders. However, unlike a 501(c)(3) organization, it is still taxed as a business, which doesn’t seem entirely beneficial to anyone who is a B Corp. In fact, B Corps and Benefit Corporations currently receive no specific tax benefits over traditionally incorporated businesses.
Unlike traditional corporations such as an S Corp or LLC, B Corps are subject to rigorous scrutiny of their practices and policies to ensure they are holding themselves to the highest ethical standards.
The way it works is that to become a B Corp, a company must fill out what is called an Impact Assessment. In order to qualify as a B Corp, companies must score at least 80 out of the 200 points available.
The criteria for evaluation encompass a considerably large range of issues, such as: Does the company have a policy of sharing financial information with employees? What percentage of overseas vendors have you visited to tour their facilities? What percentage of employees are women? What percentage of your energy comes from renewable sources?
Sounds Painfully Tedious — Why Would Anyone Want to be a B Corp?
So on first impression, a B Corp seems like being in a relationship with a really insecure partner. There are a lot of rules about what you can’t do, without a very clear idea of what you are getting in return.
But just like a good relationship, the benefits are not always things that are easily enumerated. To find out what makes Benefit Corporations special, it is best to ask some people who are currently in a relationship with a B Corp.
Charlotte Rademaekers, the founder of my organization, first became certified as a B Corp and has since double-downed and also become a Benefit Corporation.
Charlotte was anxious to become a B Corp because “I felt strongly that I wanted to not only start a business that made money but also made a difference, and that becoming a B Corp spoke to my deeply held values on how companies should conduct business in a meaningful way. It has since been a great way to meet other like-minded business owners as well as to express my ethical priorities to customers.”
Elisa Miller-Out, who is the CEO of Singlebrook and another early adaptor of the B Corp/Benefit Corporation movement, echoes Charlotte’s sentiments. “Singlebrook is registering as a Benefit Corporation because we believe that caring for our community and the environment is essential to creating a just and sustainable economy and because implementing these values has led to greater success for our business.”
Time and time again, when I talked to companies that were B Corps, Benefit Corporations, or both, I was struck by their dedication to the movement that B Corps represented. In a very real way, these companies were not so much interested in a legal classification as much as they were anxious to join a movement that represented the evolving landscape of how business ought to be conducted in the 21st century.
Interestingly, some even found that through exploring the moral impact of their company practices, the certification process made them work to become more ethical.
Jeni Bauser, senior account executive at Green Team, said, “B Corporations’ rigorous criteria create a structure for us to improve our sustainable practices, and stand with like-minded businesses that believe it’s their responsibility to meet the highest social and environmental standards.”
So not only do these companies not mind having their practices examined, many found that the exercise of doing so made them work harder to be more responsible businesses even beyond the B Corp requirements.
The B Corp Movement Sounds Great. How Do Benefit Corporations Fit In?
After much confusion and frustration, Charlotte was able to explain how having states recognize companies’ Benefit Corporation status is important.
Normally corporations are legally required to act in whatever way necessary to ensure the greatest profitability to shareholders, which, as you can imagine, is often directly at odds with a company’s ingrained social mission.
A good example is when Ben and Jerry’s was acquired by Unilever in what ultimately became a forced takeover. To be specific, Ben and Jerry’s rejected Unilever’s offer and moved to accept a lesser offer that promised to honor their corporate mission. So Unilever sued, and won, on the grounds that Ben and Jerry’s had a fiduciary obligation to ensure the maximum return to their shareholders and accept their higher offer.
Ben and Jerry’s had always had a very strong sense of corporate responsibility, and certainly did not want to lose control of that by being swallowed up by a large corporate entity like Unilever. But no matter how much they resisted, ultimately they were acquired by Unilever and lost control of their own company.
A Benefit Corporation status could have prevented the overthrow of the company’s strict mission statement by legally obligating the board to consider both the social implications as well as the profit implications of the decision.
This legal acknowledgment of the company’s moral imperative was one of the main reasons discussed by Patagonia’s CEO, Yvon Chouinard, when he explained his company’s decision to become a Benefit Corporation, remarking that he was glad to know that this company, which had become his life’s work, would carry on long after him and would be able to stay true to the principles he instilled in it.
Though perhaps the main thing to consider about Benefit Corporations is that they are, in fact, still quite new. S Corps were established over 50 years ago, and have been tweaked and legislated constantly ever since. Benefit Corporations are only two years old, giving them the same amount of precedent as a middle-aged hamster.
An old Chinese proverb says, “A good judge conceives quickly, but judges slowly.” Given the new status of these corporations and the lofty aspirations and passion of the people supporting them, I am sure we have yet to see all the true benefits that will come from Benefit Corporations.