Operating at the Intersection of Profits and Value
What motivates entrepreneurs to leave high-paying jobs and start their own companies? While having a great business idea or being their own boss are two reasons, another might be a desire to make a difference in their communities. Similarly, investors often target companies not just because they turn exceptional profits or post strong dividends but also because they effect positive change in the world.
Fortunately for these two like-minded groups, there are now ways for socially and environmentally conscious companies to distinguish themselves within the for-profit sector–by becoming a benefit corporation, a Certified B Corporation, or both.
Regulated on a state-by-state basis, benefit corporations are for-profit companies that voluntarily hold themselves to different standards of corporate purpose, accountability, and transparency than other companies. Specifically, according to benefitcorp.net, directors and management:
- Must have a corporate purpose or mission to create a material positive impact on society and the environment
- Are required to consider the impact of their decisions not only on shareholders but also on workers, the community, and the environment
- Are required to make available to the public an annual benefit report that assesses their overall social and environmental performance against a third-party standard¹
Becoming a benefit corporation does not affect a company’s tax status. Companies may still elect a specific business entity (e.g., C or S corporation). However, the benefit corporation status may offer liability protection for corporate leadership by providing a legal umbrella under which they can make decisions that consider the interests of many different stakeholders, not just shareholders.
As of late summer 2015, 31 states had adopted legislation establishing benefit corporations, and five others were in progress.
Certified B Corporation
Companies may also choose to become Certified B Corps. According to B Lab, the nonprofit organization that provides the certification, “B Corp is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk.” Currently, there are more than 1,300 Certified B Corps in 41 countries and 121 different industries.²
To become a Certified B Corp, businesses must complete three steps:
- First, the performance requirement must be met. Business leaders complete an online assessment that evaluates an organization’s current impact on its stakeholders and must score at least 80 out of a possible 200 points. The questions vary depending on company size (based on number of employees), sector, and location of primary operation. Companies also take part in a review with a B Lab staff member and submit supporting documentation and a completed disclosure questionnaire.
- Next, the company must meet the legal requirements, which depend largely on corporate structure and state of incorporation.
- Finally, the leadership team signs the B Corp Declaration of Interdependence and Term Sheet, and pays the certification fee, which varies depending on an organization’s annual sales.
B Corp Certification is good for two years, after which the organization must be recertified.
¹Delaware is an exception.
²”Cash for B Corps,” Entrepreneur, September 2015