What are B Corps?

The conventional wisdom when it comes to business is that, as a business owner, you have to make a choice: you can either make money, or you can do good.

This is, however, a false dichotomy. You don’t have to choose to either ensure your personal livelihood or to live according to your values. As one of my instructors from the Green MBA used to say, you can choose “both/and” – you can both make money and do good.

What are B Corps?

Benefit Corporations, commonly known as B Corps, are a new type of corporation. Unlike the traditional corporation that gives priority only to financial profitability, B Corps actually use the power of business to address social and environmental problems.

How do they do this? Among other things, they “institutionalize stakeholder interests.” Instead of taking the shareholder as the What are B Corps?primary person to which they are responsible, B Corps give primary consideration to the stakeholder. This is a very important distinction. A shareholder, as we know, is someone who owns shares in a company; a stakeholder, by contrast, is someone who has a stake in the company, regardless of whether he/she actually own shares. Who can have a stake in the company? Anyone who is affected by the actions of that company, such as employees, members of the local community in which the business operates, or members of the community in which the business has an environmental impact.

A traditional C Corporation will focus on increasing shareholder profits, often without regard to how that affects other stakeholders. This is why corporations sometimes do not pay living wages or provide inadequate health benefits – because those are costs that, if saved, can provide profit for shareholders. B Corps, however, are committing to taking social and environmental interests into account when making decisions.

Why are B Corps Important?

B Corps are important for several reasons:

  • They are demonstrating that business can address social and environmental problems. This by itself is important, as it provides a new model for how business can be different in the 21st century.
  • They are creating rigorous and transparent standards around social and environmental responsibility that support the triple bottom line. In effect, when a company becomes certified as a B Corporation, that company’s practices have been vetted by a third party.
  • There are already over 300 B Corps representing over 54 industries with $1.6 billion in revenues – and this is just the beginning.

However, beyond all of these reasons, there is one primary reason why I believe that B Corps are important. They are fundamentally changing the rules of the game when it comes to business.

You see, when a company becomes a B Corp, it doesn’t just earn a certification. It also commits to changing its legal organizing documents to include consideration of stakeholders. Earlier this year, the states of Maryland and Vermont became the first states to legally recognize B Corps.

One of the co-founders of B Lab, the non-profit that issues the B Corp certification, explained why this is important on the B Corp blog earlier this year:

“Today, there is a critical mass of entrepreneurs, investors, consumers, workers, and policymakers seeking to create social and environmental impact through business. However, they face two systemic obstacles: 1) the absence of transparent standards which allow all of us to support “good companies” not just good marketing; and 2) the legal concept of shareholder primacy which makes it difficult for corporations to include employee, community, and environmental interests in decision making.”

B Corp provides a fundamental alternative to these obstacles by establishing transparent standards and challenging the legal concept of shareholder primacy.

How can B Corps Help Your Business?

There are several ways that B Corps can help your business:

  1. Get certified! B Corps must get a score of 80 out of 200 on the Impact Assessment, a survey that covers all areas of the business, including corporate governance, employee benefits, and more. By becoming a B Corporation, you will ensure that your own business meets high standards, join a community of like-minded businesses, and support a larger movement towards sustainable business.
  2. Commit to stakeholder interests in your business. Prior to becoming certified by B Lab, you may be able to include your commitment to consideration of stakeholder interests into your legal organizing documents if you are an LLC, which is what I did for Cultivating Capital. However, be sure consult with an attorney about this, preferably one who is familiar with B Corps. The Katovitch Law Firm explains more about the legal implications of being a B Corp on their blog.
  3. Identify areas in which you can improve. Even if you do not get certified right away, the Impact Assessment is a tool that you can use to identify areas for improvement in your business. To get started with the Impact Assessment, visit the B Corp website.
  4. Support other B Corps. Every dollar that you spend, for yourself or your business, is a vote for either an economy in which businesses can make money at the expense of people and the environment, or one in which businesses can make money in support of people and the environment. Supporting businesses with a social and environmental mission will also help to green your own supply chain.

To learn more about B Corps, you might want to read a related post about “Completing the B Corp Impact Assessment.”

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