Benefit Corporations and B Corps

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by Advice Chaser
by Advice Chaser

Everyone knows businesses are supposed to care only about the bottom line. But what if the bottom line could be expanded into something beyond just money? Benefit corporations are companies that prioritize the “triple bottom line” of environmental, social, and financial benefit. By putting the good of the whole community beside financial gains, they can often achieve both goals.

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Benefit Corporations

The normal mode of a business is to maximize value for its shareholders. Since the shareholders technically own the company, they hope to increase the value of their shares. Sometimes this conflicts with what benefits other people, like the employees and customers. A company can sometimes increase share price by reducing services, laying off employees, cutting wages, or taking less care for the environment. It isn’t great, but the incentives sometimes take a company in this direction.

The concept of a benefit corporation is to consider not just shareholders but all stakeholders. A stakeholder is anyone affected by a business, from employees to customers to the wider community. Benefit companies acknowledge that they have an impact on everyone around them, and all of these people can be said to have a stake in the company whether or not they own shares in it.

Benefit corporations aren’t charities. Each one is for-profit, but alongside profit they also try to benefit their community. This can take the form of hiring within the community instead of offshoring to a country with worse labor protections. Or it can involve becoming carbon neutral or preferentially hiring employees with various disadvantages.

There is no single standard for becoming a benefit corporation, though many states do set standards of their own. Legally, they count as C or S corps, whether small or large, and are taxed the same way as other businesses of the same type.

B Corps

A B corporation is a specific type of benefit corporation which has met standards set by an organization called B Lab. By examining and certifying companies, B Lab sets a bar for benefit companies to reach. This allows customers, employees, and potential investors to know which companies actually met the standards rather than only giving lip service to social responsibility.

B Lab started certifying B corps in 2007, and now over 1,700 companies in 50 countries have earned the certification. B Lab describes this trend as a movement to change the way corporate governance works—away from mere shareholder value and toward a more universal approach.

The standards focus on five areas: governance, workers, community, environment, and customers. This diverts attention from just shareholder value onto the important needs of other stakeholders. A company can’t qualify if it regularly mistreats workers, harms the community, or pollutes the environment.

Qualifying as a B corp takes a significant amount of scrutiny. A company must score at least 80 on B Lab’s Impact Assessment. Its governance structure must reflect its commitment to these standards, which includes qualifying as a benefit corporation if that is an option in its jurisdiction. And it must practice transparency by allowing B Lab to keep a public profile of its performance.

Pros and Cons of Being a B Corp

There’s no way to get around it: sometimes paying employees fairly and caring for the wider community costs money. It can mean lower immediate profits to shareholders. So why would a company ever agree to it?

In short, companies are made up of human beings. Despite what economics theorists might write, humans care about things besides the next dollar. If you own a company and want to improve your community, becoming a B corp can be a step on that path. Fixing those standards in the governance structure can keep your company supporting your values for the long term.

However, being a benefit company or B corp doesn’t have to mean hurting your profitability. While there are obvious costs, both in meeting the standards and in the additional scrutiny it takes to be certified, there are also concrete benefits. It improves people’s opinion of the company, gains the trust of stakeholders, and draws conscientious investors. This can lead to long-term stability as your most devoted customers return to you year after year. Just as you like to feel good about how you run your business, other stakeholders want to feel good about where they work or what they buy.

Here are a few successful B corps you might have heard of:

  • Ben & Jerry’s
  • Patagonia
  • TOMS
  • Thrive Market

Each of these companies is doing just fine. Their customers seek them out to improve their own impact on the world while they shop.

Thinking of Becoming a B Corp?

If you want to turn your company into a B corp, be aware it will take months or years to go through the process, as well as a certain amount of expense. Your first step should be consulting your business financial advisor about what the certification will take for your business. To meet the right advisor for your business, contact us today. We can match you with someone qualified and knowledgeable about your type of company.

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