The Legal Infrastructure of Business: Certified B Corp: An option ...

Investors often say, ?I don?t care what the company does as long as it makes me money?. However, there is a growing group of investors that don?t feel that way. They want to make a social or environmental impact with their investments. Until now, it has been difficult to find reliable information on a company?s overall impact on society. Certified B Corporations are looking to make this information more transparent and reliable.

What is a Certified B Corporation?

Social entrepreneurs have historically chosen between creating a non-profit and a for-profit entity to run their business. Non-profit structures limit scalability because they don?t allow direct distribution of profits to shareholders, while choosing a for-profit structure means focus solely on financial performance of its shareholders.

B Corporations construct a different framework that allows free market investment for socially conscious companies and ensures they consider the impact to financial, social and environmental issues on its business. Critically, B Corporations must be certified by independent evaluators to meet established standards. There are no tax benefits as a result of this legal structure, but the movement is gaining increased visibility. It is now a law in 12 states, including Illinois, which passed in August 2012.

Why become a B Corporation?

The B Corporation concept was kick started by B Lab, a non-profit that defines the standards and monitors Certified B Corps, and was co-founded by Jay Cohen Gilbert, a former CEO of AND 1, Bart Houlahan, former CFO and COO of AND 1, and Andrew Kessoy, a partner in a private equity firm. They believe that it is necessary to evolve capitalism to encompass more than just fiduciary duties to shareholders. While the free market has done remarkably well focusing solely on profits, businesses of the future needs to consider more than just the financial impacts of their decisions to create a sustainable society.

Without legal definitions and standards of conduct with third party certification, there is not much meat on the bone of any company claiming to be ?green? or ?sustainable?.? It can just be good marketing campaigns but little tangible benefit. ?Being a Certified B Corp means that the company has been measured against a consistent definition and the results are disclosed online.

Being a C-corp limits the ability to decide business priorities. For example, Delaware law has ruled in the 2011 case of Ebay v Craigslist that C Corps only have one focus ? to maximize shareholder value. If a company wishes to consider other aspects of the decision, either social or environmental, they could be held liable for not focusing on shareholder wealth.

How to become a B Corp?

There are two criteria to become a B Corp. First, there is a language change to its Articles of Incorporation that must be made to create the triple bottom line in the corporation. The language consists of an expanded definition of ?best interests of the company? that includes financial, social and environmental impact and indicates that any director of the corporation needs to consider and act in the best interest of the company.

?Second, the company must take an annual assessment that is audited by an independent, non-profit B Lab. The critical difference here is that the certification to these standards helps give consumers? piece of mind that this is not just a marketing scheme. To ensure truthful reporting, approximately 10% of businesses are randomly selected for auditing each year.

The assessment covers 5 main topics:

• Accountability ? measures the corporate mission, governance and transparency
• Employees ?relationship with employees through measuring comp & benefits, training, and the work environment including corporate culture and health and safety practices
• Consumers ? relationship with consumers through measuring whether the product is designed to solve a social or environmental issue, and whether products are available to underserved communities
• Community ? relationship with community by measuring participation with local suppliers, activeness in the community through donations and/or outreach events
• Environment ? relationship with environment through measuring impact on facilities, materials, emissions, and energy use

Pricing is on a sliding scale based on revenue. From $0-2M annual revenue, the annual dues are $500. This annual fee increases up to $25,000 for companies with an annual revenue of $100M+. These prices go to the non-profit B Lab to create awareness for the brand and momentum in the market place.

Growing momentum

Illinois just passed the B Corporation legislation in August 2012, and twelve Chicago companies are already registered on B Lab?s directory including Rockstar CPA and MightyBytes website design company. Fourteen more states have pending legislation. Ben and Jerry?s, Patagonia, and Etsy are some high profile entities that have already aligned with this business structure.

Etsy, an online marketplace for handmade crafts, barely exceeded the required 80 points out of 200 to gain certification. They held an all employee day for brainstorming how they could improve their score. The day resulting in a lot of ideas and engaged employees excited to make an impact on their environment and communities. ?

Ben and Jerry?s was certified as a B Corp in 2012 and was the first subsidiary of a major corporation to achieve this status. Unilever is the parent company but because it has a separate board for Ben and Jerry?s it was able to get certified. The company believes that business can be a positive force for social and environmental good and this certification helps to strengthen that vision.

Long term viability

Currently there are no tax benefits for becoming a certified B Corporation, but the founders of B lab think that by creating standards and a consistent way to differentiate businesses that it creates the foundation to make that a possibility in the long term.

What do you think? Would you like to be employed by a Certified B Corporation or as an entrepreneur would you set up a Certified B corporation? The solution is voluntary and in the free market, and creates a differentiator in the market place. Do you think this is a fad or the start of an evolution?

http://online.wsj.com/article/SB10001424052970203413304577088604063391944.html

http://www.youtube.com/watch?v=mGnz-w9p5FU

http://www.slideshare.net/timothyfrick/b-corps101

http://blogs.hbr.org/cs/2012/11/etsys_hackathon_for_good.html

http://valleycurrent.blogspot.com/2010/10/ebay-v-craigslist-limits-to-maintaining.html

http://bcorp.nonprofitsoapbox.com/storage/documents/bcorps/ben_n_jerry/ben_and_jerry_interview.pdf

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Source: http://picker.typepad.com/legalinfrastructure/2012/11/certified-b-corp-an-option-when-financial-profits-arent-your-only-bottom-line.html

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