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Companies who do good now have a safety net.

By Stacy Cowley

 

When Marlene England and her husband, Tom, decided to start an independent bookstore in Frederick, Maryland, they did something many business owners do: They pledged to donate a percentage of their proceeds to charity. Then they did something unusual: They enshrined that social mission in their incorporation documents to make it legally binding. 

The Curious Iguana bookstore, which opened last September, is a benefit corporation—a new kind of corporate structure for companies that choose to hold themselves to strict standards when it comes to things like environmental impact, charitable giving, and employee welfare. The movement’s aim is to create accountability and legal protection for the growing number of companies who pursue good corporate citizenship goals. 

“My husband and I love the products we sell and the customers we serve, but we also feel strongly that giving back should be a component,” England says. “Becoming a benefit corporation gave us the opportunity to put that philosophy front and center. It helps us keep our priorities straight and also helps our customers see what their purchases are helping to achieve.” So far, Curious Iguana has given $10,000 to charities ranging from the World Food Program’s typhoon relief operation to Cambodia Reads, a child literacy program.

But it’s not only about charity. For benefit corporations, social considerations range from employee benefits to environmental impact. And in the age of globalization, even small businesses can create ripple effects across several continents. For a clothing company, this might mean audits to prevent the use of sweatshops; for a restaurant, the use of responsibly sourced ingredients.

The concept of a corporate class specifically for companies with a conscience is a relatively new one. Four years ago, Maryland became the first state to pass benefit corporation legislation. To be eligible for the state’s statute, companies must create a “general public benefit” and publish an annual report on their work, measured against “a third-party standard.” The aim is to ensure that profit isn’t the sole driving force behind a company’s decision-making process.

Today, 27 states have passed similar bills, and lawmakers in at least a dozen more are pursuing them. The 1,000 or so companies nationwide that are registered as benefit corporations range from small shops and sole proprietors to national brands like Patagonia and King Arthur Flour. 

A legislative wave like that doesn’t happen without a powerful lobbying push. The instigator here is B Lab, a nonprofit formed eight years ago whose founders have not only an evangelical belief in the power of motivated entrepreneurs to improve the world but also a skeptical insistence on seeing the results of such efforts disclosed and analyzed. Companies looking to meet the requirements of a benefit corporation can choose any third-party standard set by any organization they like. B Lab has a wide-ranging set of standards applicable to a variety of industries. Other popular options include the Sustainable Agriculture Network’s certification program or the International Organization for Standardization’s ISO 26000 guidance for socially responsible enterprises. The incorporation framework is intentionally flexible so that businesses can customize their charter to their own industry and needs.

 

The Start of a Movement

Like many of the entrepreneurs B Lab appeals to, Jay Coen Gilbert, one of the organization’s founders, is a savvy businessman with a gonzo streak. He started his career at McKinsey & Company and then launched the basketball apparel company AND1, which at its peak grossed $250 million in annual sales. 

In 2005, he sold it, and when he and his business partner, Bart Houlahan, regrouped a year later to plan their next venture, they decided that what excited them most about AND1 was its corporate culture. “We wouldn’t have self-identified as a green or sustainable or responsible company—it was a pretty testosterone-driven team sports mentality—but we tried to be a force for good,” Gilbert says. The company audited its supply chain to avoid sweatshops, funded a variety of employee wellness programs, and donated a share of its profits to youth development and education programs. “We thought, What if instead of starting a single company, we could support thousands or tens of thousands of companies who were doing that?” 

B Lab set out to solve a few problems that socially conscious businesses frequently encounter. First, if you tell the world that your company is committed to goals like environmental responsibility and treating workers well, how do you prove it? And how do you know how effective your practices actually are? 

B Lab’s response was a benchmarking tool it calls the B Impact Assessment. The free, online quiz presents business owners with a series of detailed questions on topics like supply chain, energy use, compensation structure, community involvement, and internal transparency. By taking the quiz, companies get feedback that includes two numerical scores: one for themselves and a median for comparison that aggregates all the organizations that have completed the assessment. 

It also has a certification program for those that meet its standards and are willing to undergo audits, and pay fees, to prove it. Such companies are called B Corps. B Lab’s goal: Someday the distinction will be as recognizable and impactful as USDA Organic, Fair Trade, and LEED. Essentially, a stamp of approval that consumers can trust. 

More than 1,000 companies have become B Corps, undergoing B Lab’s assessment and audit and paying yearly dues that range from $500 for companies with under $1 million in annual sales to $25,000 for those that gross more than $100 million a year. Certified companies must also publish a biennial report, available on B Lab’s website, revealing their assessment score and how it compares to others. 

Kristofor Lofgren was among the first to sign up. Bamboo Sushi, his small chain of restaurants in Portland, Oregon, is dedicated to serving sustainable seafood and educating the public about it. Going through B Lab’s assessment was eye-opening: “You think you’re treating your em-ployees well, and then you see all the things you could do better,” he says. “We’ve implemented new practices because of it. We now have maternity and paternity leave, which is pretty unique in the restaurant business, and we improved our health care benefits. We also made it easier for team members to give anonymous feedback to management.” 

 

To Protect and To Serve

B Lab’s exacting standards have yet to filter into state legislation. Lawmakers have shied away from being too specific about what benefit corporations should be doing or how they should be audited. So why have so many states created this nebulous corporate structure, and why are so many companies interested in it? 

Part of it is that benefit corporation status provides assurance to business owners who fear that existing corporate law doesn’t sufficiently protect companies that prioritize social goals. 

Consider the case of Ben & Jerry’s, the poster child that inspired the movement. The 36-year-old ice-cream maker is famously dedicated to environmental responsibility and community investment, but in 1984 it went public, transferring control from its founders to investors. In 2000, Unilever launched a takeover bid. Because its offer far exceeded the stock’s trading price, the board of directors felt compelled to accept the deal “despite the fact that they did not want to sell,” co-founder Ben Cohen told NPR in 2010. 

The disaster many feared in the acquisition’s wake didn’t come to pass—Unilever operates Ben & Jerry’s as an independent subsidiary that still pursues its ideals. Still, it spooked many business owners who worry that their altruistic initiatives might disappear in the event of a transfer of ownership. “We realized there was a problem here that needed to be solved if this movement was going to scale,” B Lab’s Jay Coen Gilbert says. 

Most states give the directors of a benefit corporation leeway to do anything they reasonably believe to be in line with the company’s mission. It explicitly allows them to consider broader impacts on employees, customers, and the community, whereas the traditional model only considers fiscal performance. In the case of Ben & Jerry’s, the idea is that benefit
corporation status would have given the directors greater protection against shareholder lawsuits if they turned down Unilever’s bid—or, if they still chose to take it, would have provided a legal structure to ensure that the company’s social ideals, in addition to its sales figures, were passed on to Unilever.

 

The Double Bottom Line

Some investors are embracing the concept because they believe that, over time, it’s healthy for a company.

Albert Wegner, a partner at the influential technology venture capital firm Union Square Ventures, is a fan. One of the most prominent companies in his portfolio, the online marketplace Etsy, is a certified B Corp. “We have a financial system right now with an obsessive focus on short-term performance,” he says. “My partners and I think the businesses that will provide the best benefits for both investors and society are those that focus on being good long-term stewards.” 

But because the concept of benefit corporations is just a few years old, and because the vast majority of its participants are tiny, private companies, it hasn’t yet faced a high-profile legal stress test. In theory, benefit corporation status offers protection; in practice, however, a company’s leadership team—or its new owners—always has the option of re-incorporating. A company can stop being a benefit corporation just as easily as it can become one. 

In the case of baby food maker Plum Organics, though, it worked. The company opened in 2007 and grew its annual sales to $90 million before agreeing last year to be acquired by the Campbell Soup Company. So far, the transition has gone smoothly, with Campbell’s supporting Plum’s B Corps certification and the transparency and philanthropic projects it requires.

“This is not the classic ‘big company buys small company, value goes away’ deal,” says Neil Grimmer, Plum’s co-founder and president. “Campbell’s really got that our values and mission are a core part of what we provide consumers, and that translates into good business.”

B Lab’s top priority right now, Gilbert says, is to convince many more companies of the link between values and profit. It encourages businesses of all sizes to try its free assessment quiz (bimpactassessment.net) to see how they rate. 

“We want every business to have the tools to make and measure a positive impact on workers, their community, and the environment,” he says. “The objective is not just to grow the community of B Corps or benefit corporations. Those people will lead, but they’re leading a much broader movement.”

 

Stacy Cowley is a journalist based in Brooklyn, New York. Follow her on Twitter @StacyCowley. 

 

 

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