By Cayman Macdonald
Other than being awesome companies, what do Kleen Kanteen, Patagonia, and Boloco have in common? Not only are they all certified B Corps, but they are also legal benefit corporations – which are not one and the same. The central idea around both is that they are companies committed to enhancing value not just for shareholders, but other stakeholders such as employees, communities, and even the environment. Both shatter traditional business dogma based on shareholder wealth maximization and present new ways of doing business that is people and planet friendly. If they’re so great, what’s the difference between the two?
B Corps
First, let’s break it down and take a step back; what is a B Corp? And what’s a benefit corporation? Let’s start with B Corps. B Lab, a non-profit organization founded in 2006, evaluates and endorses companies as “certified B Corporations,” or “B Corps,” based on five categories that evaluate a company’s social and environmental performance: accountability, employees, consumers, community, and environment.[1] Companies have to meet a baseline score of 80 out of 200 to receive certification from B Lab. B Lab’s certification system represent a new way to establish key performance indicators for business that expand beyond traditional business metrics of financial returns.
Let’s look at Ben & Jerry’s, a certified B Corp, to see what that looks like in real life. Ben & Jerry’s is known for its tasty ice cream, but there’s a bigger story behind that motto of “love, peace, and ice cream.” Among some of the highlights of B Lab’s evaluation of Ben & Jerry’s that earned them a score of 110 on their B Lab score report, their lowest-paid workers make 46 percent above the living wage, employees have contributed over 5,000 hours of community service, and they donate 7.5 percent of pre-tax profits to charity. B Lab certifies that not only is Ben & Jerry’s making delicious ice cream, they are committed to enhancing value for all stakeholders – from the cows to the customers.
Benefit Corporations
Benefit corporations are legal business entities incorporated with a legal requirement to pursue a social mission in addition to pursuit of profit. Since Maryland became the first state to pass benefit corporation legislation in 2010, more than 30 states have passed similar legislation. In legal terms, becoming a benefit corporation protects the company from shareholders who might sue if the pursuit of its social mission interferes with the norm of shareholder profit maximization. Not only does benefit corporation legislation provide legal protection to socially-driven companies, it also provides a legal mechanism for motivating and ensuring the company’s commitment to social good. Benefit corporation legislation is broad in terms of what is defined as a social mission, but most laws require third-party evaluation from organizations such as B Lab.
Patagonia is one of the most well-known companies that is both a benefit corporation and a B Corp. Earning a score of 152 on B Lab’s scale, some of the highlights of their social and environmental impacts include the fact that they donate 1 percent of sales to environmental NGOs, 75 percent of their materials are “environmentally preferred (organic, recycled, etc.),” and they extend health-care benefits to part-time, retail, and warehouse staff. [2]
What’s the Difference?
So is it better to be a B Corp or a benefit corporation? Companies could potentially be one or the other, or both. Both are focused on creating positive social change in addition to making a profit. Both have a similar level of accountability and transparency. Benefit corporation status is, of course, only open to American businesses incorporated within the states where legislation has passed, while any company in the world can be evaluated and certified as a B Corp.
The key point to use in comparison to benefit corporations is that any traditional for-profit company can elect to be evaluated and become certified as a B Corp. However, these businesses are still beholden to standard corporate law and established norms, such as the norm of shareholder wealth maximization. While it may be unlikely that a B Corp shareholder might sue the company for pursuit of a social mission, it is still possible. While simply being a B Corp and being held to certain standards to use for marketing may be enough for some companies, for companies that actively want to pursue a social mission and want to ensure legal protection, pursuing benefit corporation status would be the right choice.
B Lab itself is responsible for developing model legislation for benefit corporations and has actively worked towards passing legislation in various states. While most benefit corporation legislation requires corporations to be evaluated by a third-party, one of the weaknesses of benefit corporations is that there is no legal benchmark or standard for measuring a minimum level of social good; however, many benefit corporations are evaluated by B Lab as the third-party evaluator and become certified. One potential improvement to existing legislation could be to set minimum standards based on B Lab’s evaluation methods. B Lab’s involvement in passing benefit corporation legislation suggests that one is not better than the other; rather that both could be beneficial working in tandem to inspire better business practices.
Better Business with B Corps and Benefit Corporations
In an age of heightened interconnectedness ripe with corporate scandals and abuse in a “hyper-capitalist” system, B Corps and benefit corporations represent a hopeful future of business. In the words of Dennis Shaughnessy, Founder of the Social Enterprise Institute at Northeastern, B Corps and benefit corporations have the potential to “return capitalism to a more balanced and healthy state, in which all stakeholders carry equal importance.”[3] As my own generation, the millennials, increasingly look to meaningful work and have more access to information about the impacts of globalization, B Corps and benefit corporations represent attractive workplaces to make a living while making a real difference. Whether as consumers, employees, or shareholders, everyone can have a role to play in growing, shaping, and supporting B Corps and benefit corporations to make positive, sustainable impacts in business, in local communities, and the world.
[1] American Express. https://www.americanexpress.com/us/small-business/openforum/articles/how-to-become-a-b-corporation/?linknav=us-of-topics-findmore-goinggreen-article
[2] B Corporation. https://www.bcorporation.net/community/patagonia-inc
[3] Making the World a Better Place, Dennis Shaughnessy. https://www.northeastern.edu/sei/2017/04/making-the-world-a-better-place/
Further information from B Lab: https://www.bcorporation.net/what-are-b-corps/certified-b-corps-and-benefit-corporations
