If you're in B-School or business, you've probably heard the "B Corp" buzz phrase by now. You might also have come across the term "benefit corporation" and wondered what it was benefitting, and what the difference between theses two types of entities is. This week, we'll explore the similarities, the differences, and whether these companies are making a move toward a better capitalism.
Image Credit: Green Element
First of all, what is a certified B corporation (or B Corp) versus a benefit corporation? According to the Harvard Business Review, B Corps are "social enterprises verified by B Lab, a nonprofit organization. B Lab certifies companies based on how they create value for non-shareholding stakeholders, such as their employees, the local community, and the environment." At this time, there are over 6,000 certified B Corps worldwide, including famous brands like Patagonia, Toms, Ben & Jerry's, Coursera, Aesop, and Eileen Fisher.
On the other hand, benefit corporations are entities created under state law for the purpose of conducting business while simultaneously creating general public benefit, which is defined as a material positive impact on society and the environment. In that regards, a benefit corporation structure is intended to shield the board and executives from stakeholders who might object, if not sue, over management decisions that don't support an ethic of maximizing shareholder value. In other words, the benefit corporation structure provides breathing room to make management decisions beyond maximizing an immediate profit. At this time, more than 40 states have either proposed or passed benefit corporation legislation. Examples of these kind of companies are Kickstarter, King Arthur, Change.org, and Method.
The corporations in these two categories share certain goals, such as accountability and transparency. They differ in several other areas, though, as listed below:
Certified B Corporation Benefit Corporation
Performance Has to achieve a minimum Self-reported
score on the B Lab Assessment
Availability Anywhere in the world for a Many US states, several
company that has existed for other countries
at least one year
Cost $2,000+/year, based on the $70 - $350, depending on the
company's size state
Oversight B Lab recertifies every 3 years No oversight, self-governing
At a time when many people are more socially and environmentally conscious, having the certified B Corp or benefit corporation label can provide advantages to the company itself, such as attracting and recruiting quality employees and promoting brand loyalty. A Business Sustainability Index survey found that 60% of American adults would pay more for green and/or ethical products; that number jumped to 80% for people between the ages of 18-34. In another study of 25,000 subjects, over 83% said they would pay more if they knew the products were ethically sourced. 71% of those surveyed also said that companies needed to ensure that all parts of their supply chains were adhering to ethical standards.
The certified B Corp and benefit corporations seem to fill this need for transparency, but even the best of systems can be taken advantage of or need reforming, and these entities are no exception. For example, B Lab has been accused of "greenwashing" several member companies--Nespresso, Brew Dog, and New Seasons Markets--when they clearly violated ethical standards in one or more areas of their business. These violations caused multiple other B Corp members to write a protest letter to B Labs, stating that by being associated with such companies, their own validity as ethical companies was on the line.
In response to these objections, B Labs is currently in the process of revising their certification process to a new model that ensures their members are adhering to standards in all areas of concern. On the benefit corporation side, proposals have been made to require these companies to form Public Benefit Plans, which would be created both by the corporation and by the people whom the plan is intended to benefit. These proposals also call for enforcement outside of the company, instead of the current model of self government.
Of course, those investors and others who are steadfastly wedded to a single ethic of maximize shareholder value and with no tolerance for other perspectives can be expected to be critical of B Corp and benefit corporation efforts toward a better capitalism. Progress take time, though, and it is clear that efforts are being made to improve this type of corporate model. There are many companies with either of these designations that are doing a great job of making their business, and the world, a better place by practicing a better capitalism. We've already looked at several of these corporations (Patagonia, Danone, and Unilever) in earlier blogs, and we will continue to look at more of them in the future.
While there are companies that try to use these labels for their own good without doing the good they promise, the idea of a company with a vision of doing well while doing good is one of the goals for which we at Better Capitalism continue to advocate. There will inevitably be bumps along the way, but with a continued emphasis on partnership economic ethics, such as the ethic of mutuality and ethic of enough, a better form of capitalism is a vision that we are confident we can collectively achieve sooner rather than later.
What about you? Share your story, question, comment, idea, disagreement -- yes, we welcome disagreement for the sake of mutual benefit! -- with us at blog@PartnershipEconomics.com. We will give a thoughtful response.
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