What is a B Corporation? Everything You Need to Know

What is a B Corporation? Everything You Need to Know

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 run your business according to your values. As one of my MBA instructors used to say, you can choose “both/and” – you can both make money and do good.

Now, you might be wondering:

“That sounds good, but how would it actually work for my business?”

This is where B Corps come in. Let’s take a closer at look.

What is a Certified B Corporation?

A Certified B Corporation, commonly known as a B Corp, is a new type of company.

B Corps are companies that voluntarily meet the highest standards for social and environmental performance. They go through a rigorous certification process, completing a comprehensive assessment of their company’s impacts on all stakeholders, and having their assessment verified by B Lab, the nonprofit behind the B Corp certification.

Unlike the traditional corporation that gives priority only to financial profitability, B Corps actually look at the triple bottom line and use the power of business to address social and environmental problems.

Inspiring, don’t you think?

The B Corp Definition

Because B Corps are still a relatively new concept – the first companies were certified in 2007 – there’s a lot of confusion about what they actually are.

Here’s the definition provided by B Lab, the nonprofit behind B Corps:

Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy.”

An analogy that is commonly used is that B Corp Certification is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk.

In short, B Corps are companies that undergo a rigorous certification process to improve their social and environmental performance. They don’t just say that they’re good businesses or socially responsible businesses, as so many other businesses do.

They’re committed to using business as a force for good – and they’re willing to have their practices be independently vetted by a third-party and to make their results transparent. You can see the score of any B Corp on the B Corp directory.

B Corps are working to have business be a part of the solution, rather than part of the problem. Personally, I find this to be an inspiring approach, which is why I’m committed to advancing the B Corp movement.

What is B Corp Certification?

B Corp Certification is a third-party certification standard that evaluates a company’s impact on all stakeholders. Companies that choose to pursue this certification complete the B Impact Assessment and go through a rigorous certification process.

When I first heard about B Corps back in 2008, I was immediately attracted to the concept of a rigorous framework for sustainability to distinguish the companies that were greenwashing from those that were actually doing good.

Yet there was one other element about the B Corp movement that really caught my attention because it differentiated the B Corp certification from every other sustainability certification out there:

B Corps were committing to changing their legal organizing documents to include consideration of all stakeholders.

They weren’t just paying lip service to sustainability. They were willing to make changes to the company as a legal entity to preserve their commitment to being socially and environmentally responsible.

Instead of taking the shareholder as the primary person to which they would be legally responsible, B Corps were giving primary consideration to the stakeholder.

It’s an important distinction and one that directly challenges an economic system that views a company as having one purpose and one purpose only: to make money for its shareholders.

But what exactly is the difference between a shareholder and a stakeholder?

A shareholder, as you 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 that individual actually own shares.

This leads to the question: 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.

In effect, by focusing on the stakeholder instead of the shareholder, B Corps are recognizing that they need to take responsibility for their impacts while they’re generating their profits. They can’t just focus on making money while also exploiting people and harming the environment.

B Corps make a commitment to take all of these stakeholders into account, so that their very purpose as a business goes beyond just the profit motive.

Benefit Corporation vs B Corp

This commitment to stakeholders needs to be included in company’s legal organizing documents.

Up until just a few years ago, there was no specific corporate form for a company that wanted to legally consider the impact of its activities on all stakeholders over the profits of its shareholders. Now in many states, there is.

However, this has caused confusion about Benefit Corporation vs B Corp. Are they the same thing? If not, what are the differences?

No, they are not the same thing.

Here’s the difference:

What is a B Corp?

A B Corp earns a certification from B Lab by scoring a minimum of 80 points on the B Impact Assessment.

What is a Benefit Corporation?

A Benefit Corporation adopts a corporate form that is legally recognized. This is similar to a C Corporation or S Corporation  with the key difference being the consideration of all stakeholders.

benefit corp vs b corp
Source: https://benefitcorp.net/businesses/benefit-corporations-and-certified-b-corps

It can get confusing when you consider the following:

  • A company can be a Benefit Corporation but not a Certified B Corp if they use the Benefit Corporation structure but have not gone through the certification process.
  • A company can be a Certified B Corp but not a Benefit Corporation if they got certified but don’t use the Benefit Corporation structure, either because it is not legally available in their state or because they are not incorporated (e.g., they’re a sole proprietor).
  • A company can be both a Certified B Corp and a Benefit Corporation if they went through the certification and changed their corporate status.

Since I’m not an attorney, I reached out to one to get more information about the legal requirements. This separate post goes into more detail about becoming a Benefit Corporation.

Meeting the B Corporation Certification Requirements

Every B Corporation must meet rigorous and transparent standards around social and environmental responsibility that support the triple bottom line. These standards represent best practices in business sustainability and are laid out in the B Impact Assessment, the online tool that a business must take to become a Certified B Corporation.

To become a Certified B Corporation, a company have been in operation for one year (though there are steps a startup can take to prepare for B corp certification) and must earn at least 80 points out of 200 on the Impact Assessment.

Yes, that’s right, you can pass the B Corporation certification by earning less than 50% of the available points on the assessment.

How rigorous can that be, you might ask?

Actually, more rigorous than you might think!

The Impact Assessment is designed to be challenging, to really represent the best practices that companies can implement. It’s not designed to be an easy way for companies to do just a few things around sustainability and consider themselves done.

In fact, it’s the comprehensive and aspirational nature of the assessment that makes it such a useful sustainability framework.

It’s also why companies can make money while doing good: they’re minimizing their negative environmental impact (often resulting in cost savings through improved efficiencies) and maximizing their positive social impact (often building goodwill and loyalty among employees and customers).

In addition to meeting the minimum threshold of 80 points, B Corps also have to provide documentation to verify the information in the online assessment, commit to changing their legal status if required to do so, and make it official by signing the necessary term sheet and paying the licensing fees.

Next Steps – The B Corp Impact Assessment

If you’re interested in B Corps, a great next step is to take the B Corp Impact Assessment. There’s no cost involved to take the assessment (though there is a fee if you choose to get certified), and you’ll be able to fully evaluate your own company’s sustainability practices.

Whether you’re just getting started with sustainability or are already far along your journey, you’ll find opportunities to improve your impact as a business by getting certified as a B Corp.

If you have questions or would like to talk about getting certified as a B Corp, please get in touch with us at Cultivating Capital.