The Rise of the B Corporation

13 min read

B Corporation status for a business is much like what a Fair Trade certification is for coffee products that are shipped internationally. It indicates that the business adheres to certain practices and standards.

B Corporation is short for “benefit corporation.”

It’s a designation that is given to a for-profit company that is certified by B Lab, a non-profit organization. When awarded the B Corp status, it shows the organization meets specific standards for accountability, transparency, and social/environmental performance.

To receive this designation, a company must apply through B Lab to have a range of metrics evaluated to determine eligibility. Companies are rated on a scoring scale of 0-200.

b corporations

As of June 2018, there are currently more than 2,100 firms that have been awarded B Corporation status. They are located in more than 50 countries and work in over 130 industries.

John Elkington, who developed the concept of the ‘triple bottom line’ in 1994 to move companies toward a broader measure of success, recently wrote about the promise of B Corporations:

I see a bright ray of hope coming from the high-energy world of B Corporations. There’s a lot of momentum there; around 2,500 businesses worldwide are now certified as B Corps. All are configured around the TBL — dedicated to be not just “best in the world,” but “best for the world.” Major companies like Brazil’s Natura and Danone’s North American operation are now B Corps, with other multinational corporations considering how to follow suit.

It’s also a legal corporate status that has become available in certain locations since 2010.

The goal of these businesses is simple: to redefine what it means to be a successful business. Success now includes a business’ social and environmental impact as well.

Does My Small Business Qualify to Become a B Corporation?

Only for-profit companies qualify for the B Corporation status. Government agencies and non-profit organizations are excluded from this process.

Companies must have a minimum of 1 year of documented operations to acquire full certification status through B Lab.

For companies pursuing the legal status of a benefit corporation in their state, then all governing documents, applications, and structures must meet published local guidelines.

No revenue is required to apply for B Corporation certification.

Any business in any geographic location is permitted to apply for this certification through B Lab.

For start-up companies with fewer than 12 months of documented operations, there is a temporary certification track available. If your business meets every other qualification for certification, then you’ll be granted a pending certification status.

B Corp Declaration

How to Become a B Corporation

The first step toward obtaining certification as a B Corporation is to fill out an initial online assessment. A company must earn a minimum score of 80 out of 200 points to trigger an assessment review process.

About 200 questions are part of the initial impact assessment. Some of the questions are weighted more heavily than others, depending upon the structure and size of your company.

The review process involves B Lab contacting your company, often through a conference call, to verify the information relayed through the assessment is accurate. Evidence supporting claims made must be provided before certification will be awarded.

About 10 randomly selected responses will be the focus of the supporting documentation. This request is usually centered around the questions which have the most weight for your company.

You’ll be requested to fill out a disclosure questionnaire at this time too, which will examine areas of potential concern, such as the litigation history of your company.

There are 4 primary categories evaluated in the assessment summary: governance, workers, community, and environment. The score of 80 is chosen because that is the average score of all businesses which have taken the assessment.

 

b impact assessment

 

You don’t need to be a certified B Corporation to take advantage of the tools that are offered by B Lab.

Over 40,000 businesses are currently using the B Impact Assessment tool regularly to create benchmarks for their performance or to set goals for improvement.

For Rasuli Webster of Prem Group, the B Impact Assessment process dug deeply into what the company does and how effective it happens to be.

“We have learned that our line of business communications needs to be far more open on a daily basis,” said Webster. “For example, we are trying to make sure that our customer service platform is an open book where all employees can have eyes on everything that transpires within our buildings.”

The Prem Group scored a 90 on their assessment in December 2012.

If your company makes it through this step, then certification will also require that you integrate the B Corporation stakeholder commitments into the governing documents of your company.

The process for making amendments to the governing documents in the United States depends upon the state(s) where incorporation occurred. Not every state permits an amendment. You will need to check to see if you live in a non-constituency state to determine if you can meet this standard.

Certification as a B Corporation does allow for the bylaws of your company to remain secret. You are required, however, to have the company’s values exist under new ownership, management, or investors. No prioritization of a stakeholder over another is permitted.

Benefit corporations do not need to mention their status within their name.

The share certificates of a B Corp are required to state the benefit nature of the company. Then all other provisions relating to shares, or their transfer, follow the corporate laws, rules, or regulations of the incorporating state.

Sample Questions from the B Corp Impact Assessment

All of these sample questions are multiple choice and are taken directly from the Impact Assessment website.

Here are some of the sample questions taken from the community section of the assessment.

  • When evaluating the social and environmental performance of significant suppliers, which of the following list of practices apply to your actions?
  • What percentage of management in your company comes from under-represented populations?
  • Are FT employees allowed any paid or non-paid time-off hour options for community service projects?
  • Which under-served populations does your business impact, or target?

Then here are some sample questions to review from the environment section of the assessment as well.

  • Which is the broadest community with whom your environmental reviews or audits are formally shared?
  • Have you worked with your landlord to implement any improvements in the past 2 fiscal years if you lease or rent your facilities?
  • What percentage of energy, relative to company revenues, was saved in the past 12 months from your corporate facilities?
  • How much of the energy used at your corporate facilities comes from renewable, on-site energy production?

Here are the sample questions taken from the governance section of the assessment.

  • What portion of your management is evaluated in writing on their performance with regard to corporate, social, and environmental targets?
  • Does the company have a formal process to share financial information with its full-time employees?
  • Has the company worked within its industry to develop social and environmental standards?
  • Have you ensured that the social or environmental mission of your company will be maintained over time, regardless of company ownership?

And finally, here are some of the question examples from the workers section of the assessment.

  • How does your company’s compensation structure, excluding the C-Suite, compare with the market based on referenced compensation studies?
  • What is the minimum number of vacation days, sick days, personal days, and holidays offered annually to full-time tenured workers?
  • What percentage of the company is owned by full-time workers, excluding founders and executives?
  • Do you have a worker health and safety committee that helps monitor and advise on occupational health and safety programs?

With this assessment, it is important to remember that the questions will be tailored to the geography, sectors, and size of your company. These sample questions may or may not be on the assessment.

Even though there are about 200 questions on the assessment, most companies are able to finish it in 3 hours or less. Smaller businesses tend to complete the assessment more rapidly.

To prepare for the assessment, it is helpful to have your company’s financials available to you. At the very least, you’ll want to have your most recent profit and loss statement.

You’ll want to have your vendor ledger available as well, with the amounts you’ve spent within the past year.

A product bill of materials, or your project list, is helpful to answer some of the questions as well.

No one specific person from your company is required to take the assessment. Anyone who is interested in this information, no matter what their tenure or title may be, is permitted to take the assessment.

B Lab recommends that teams appoint a leader to complete the first draft of the assessment. Then the rest of the team can be convened to go over the answers together before submitting the assessment for evaluation.

There are more than 40 different versions of the assessment, so if you’re thinking about filling it out for your business, you’ll want to connect with B Lab directly about which one is right for you.

Taking the assessment is free and is considered a public service.

How to Incorporate as a Benefit Corporation

Existing companies can elect to become a benefit corporation when a two-thirds super-majority vote of all shareholders permits this process.

The actual process to file for incorporation is different in each state if it is even permitted at all. You must look at the rules and regulations of each state to determine what processes your company must follow.

In general terms, here are the three steps you’ll need to follow to become an incorporated benefit corporation.

  1. Make sure that your state will recognize the status. As of June 2018, Washington, Wyoming, North Dakota, South Dakota, Missouri, Michigan, Ohio, Maine, Tennessee, North Carolina, and Alabama do not recognize, nor have any plans to recognize, the B Corporation status.
  2. Get your paperwork together. If you are creating a new business, then approach it the same way you would for any other corporate structure. You must include language in your articles of incorporation which state that you’re creating the company to form a general public benefit. Some states require you to state a specific benefit during the incorporation process.
  3. Check the correct box. If you are creating a benefit corporation in Oregon or Connecticut, then check the box which allows you to elect the B Corporation status.
  4. Create your bylaws. Your bylaws must include specific language regarding how you will achieve the public benefits discussed in the articles of incorporation.
  5. Meet the annual reporting requirements. Most businesses will be required to publish an annual benefit report. This report must be made available through B Lab if you decide to pursue certification after incorporation. The reports must also be made publicly available, unless you incorporate in the State of Delaware.

At this moment, the annual reporting compliance of benefit corporations is below 10%. Because of these low compliance levels, you can expect extra scrutiny in your first years of doing business when you choose this status or certification.

What Resources Are Required for Certification?

There are specific financial obligations which must be met when the B Corporation certification is awarded to your business.

Certification as a B Corp comes with a term of 2 years. After the 24-month term, each company is required to re-certify.

For re-certification to be permitted, your company must continue to meet the performance expectations of the original certification. You must also meet whatever legal requirements are appropriate for your specific business structure and your articles of incorporation.

10% of certified companies are also randomly selected for an evaluation. Your company must participate if selected to maintain your certification.

Then you must be able to pay the annual certification fees. The minimum annual fee is $500, which applies to businesses which have annual sales below $150,000.

For companies with annual sales below $2 million, the annual fee is $1,000.

The maximum published fee by B Lab is $50,000 per year, which applies to companies which earn more than $1 billion in annual sales.

There is also a one-time payment for incorporating, or reincorporating, as a B Corporation. Varying legal fees may also apply.

Why Choose to Become a B Corporation Matter?

Being a B Corporation means that your organization is joining a global movement to create more good in the world.

“The B Corp movement is one of the most important of our lifetime,” said Rose Marcario, Chief Executive Officer of Patagonia, “built on the simple fact that business impacts and serves more than just shareholders – it has an equal responsibility to the community and to the planet.

“The B Impact Assessment added a new twist to our initiatives,” said Rob Michalak of Ben & Jerry’s. “It helped us understand where we are in comparison to other companies.”

Ben & Jerry’s used the results offered by the assessment to extend the impact their franchised retail locations made for their communities. They also found the assessment to be a potentially easier way to engage partners on an overall social mission.

When to Become a B Corporation

The easiest way to become a B Corporation as a small business is when you are the sole member of your Board of Directors. If you qualify for the certification or designation, then pursue it.

Once you have a mission-driven company that is overseen by a full Board of Directors, obtaining permission to pursue this certification can be a difficult path to navigate.

Etsy is one of best examples of this issue. Before 2017, they were one of the few certified B Corporations that were also traded publicly. They are incorporated in Delaware, which recognizes benefit corporations.

To maintain its certification status, Etsy was required to incorporate as a benefit corporation by December 2017.

Chief Executive Officer Josh Silverman made this statement when announcing that Etsy would not become a benefit corporation, which would then eliminate its B Corp certification.

“Although Etsy will no longer be a Certified B Corporation, Etsy and B Lab share a long-term vision for the role of business in society and the positive impact companies can, and should, have on the world, and we look forward to exploring new opportunities to work with them to advance that shared vision.”

Etsy decided to retain its C Corporation status because the Board of Directors felt that a conversion to a benefit corporation was complicated and untested.

The Board chose the pursuit of profits over the 5-year benefits of B Corporation certification. In doing so, they were forced to change their mission statement and impact strategy.

That is why acting early on a desire to become a B Corporation makes sense.

What Are the Benefits of Being a B Corporation?

One of the primary reasons to pursue the status of a benefit corporation is to join with like-minded small businesses, entrepreneurs, and C-Suite executives in a common mission.

It is an approach which favors conscious capitalism over the push to create profits at any cost. When used appropriately, the push from B Corps around the world help to address inequalities that are found socially, economically, and in the environment.

Profit motivations also exist for pursuing B Corp certification also exist. Consumers repeatedly say that they are willing to pay more items when they come from a sustainable consumer brand.

The sale of consumer goods by businesses with a demonstrated commitment to sustainability have grown by more than 4% in the global market. For companies without such a commitment, their growth has been less than 1%.

B Lab reported that companies which were certified before 2008 were 63% more likely to survive the period of recession compared to companies without the designation. Since 2008, B Corporations have demonstrated an annual survival rate of at least 90% in the United States.

Small businesses without this certification have a 69% survival rate.

“This level of resilience is impressive in any economic climate,” wrote Dermot Hikisch, Head of Community Development at B Lab, “nevertheless one as challenging as we’ve experienced lately.”

There is also the benefit of public accountability that comes with the B Corporation status. To maintain the certification, companies must meet a specific set of standards during evaluation periods.

Companies are better able to put their mission first when operating as a benefit corporation as well. Most businesses are started with a specific vision in mind to help someone. This certification allows organizations to think about the world’s best interests instead of their shareholder’s best interests as a top priority.

sustainability investing

The current market for socially-responsible investing could be as high as $1 trillion. Companies which have identified millennials as a targeted customer group tend to experience the largest benefits in terms of investor attention in this area.

Earning certification as a B Corp is also a good tool to use to attract top talent. Being a benefit corporation means that you are making a public declaration that you have motives that go beyond profit.

Employees who are engaged in the social mission of their employer are 3.5 times more likely to invest personal time into problem-solving activities. People work harder when they care about the work they are doing.

By being committed to something bigger than your business, you can attract better employees, repetitive customers, and even a potential investor or two.

What Are the Disadvantages of Being a B Corporation?

“One of the major drawbacks is expanded reporting requirements,” writes Doug Bend and Alex King for Forbes. “Each year a benefit corporation must give each shareholder an annual report.”

The report must show the efforts made to achieve benefits for the general public. If not available, the report must explain why such an achievement was not possible.

These standards must be applied through the requirement of a third-party standard for assessing performance. How this performance tool is selected must be explained within the report itself.

The annual report must be posted on your company’s website if you have one that is active.

There is also a level of uncertainty which comes with the B Corp certification. The status of a benefit corporation is somewhat new. From a legal standpoint, this status tends to be more of a certification for C or S Corporations than a formal legal structure.

How a judicial system would mandate future efforts to create profits while trying to improve elements of local society is unknown. There are unknowns about the impact of this certification for raising capital from angels or venture capitalists.

34 states currently accept the status of a benefit corporation as a legal designation. Another 6 states have legislation at some level of government which is working on the issue. Any company in the United States can pursue B Corp certification status without the designation.

b corp entrepreneurs guide

“There is a lot of misinformation and mislabeling, and self-proclaimed experts and authorities spreading that misinformation and mislabeling,” said Aby Barnes, author of “An Entrepreneur’s Guide to Going ‘B’.

“As an entrepreneur, I felt that it would be difficult to understand if I didn’t have a law degree.”

Scrutiny can come from within an organization with B Corporation status as well. If a shareholder owns at least 2% of the company, then they are permitted to bring a benefit enforcement proceeding.

This proceeding can be brought if the directors of a company, or its officers, fail to follow the general public benefit requirement of the certification or legal status. This action compels a company to take specific actions to rectify the situation.

There is always the threat to the short-term profits being experienced by shareholders in the company too. Although a B Corporation is more resilient, and may out-perform other for-profit structures, there may be a trade-off of lower short-term gains.

2018-07-16T08:10:45+00:00
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