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B the Change: The Benefit Corporation

Recently, the terms “B Corp” or “Benefit Corporation” have been thrown around in the public sphere, but few people, even within the sustainability field, really know what it means.

By definition, a Benefit Corporation or B Corporation is a for-profit entity, similar to a traditional corporation, that also wants to consider society and the environment in their decision making process. Additionally, benefit corporations differ from traditional corporations in regards to their purpose, accountability and transparency. B corporations, not to be confused with B Lab Certified corporations, are are new type of legal incorporation currently recognized in 22 states and DC, with pending laws in 15 other states.

Corporations 101

First of all, let’s brush up on our corporation basics. By definition, corporations are known as separate legal entities that have been formed directly through legislation or some other legal registration process. Incorporated entities have legal rights and liabilities that are different from those of their employees and shareholders, and are allowed to conduct their business either as a profit-seeking business or a not for profit business.

Corporations were initially formed as a way for owners and shareholder to avoid liabilities, or being personally sued or bankrupted, which is not the case in partnerships and sole proprietor firms.

There are three main operations that dictate the structure of a corporation:

  1. Incorporation or registration happens at the state level
  2. Shareholders pick a Board of Directors to oversee or “govern” the firm
  3. The Board of Directors chooses management members (CEOs, CFOs, COOs etc) to represent both board and shareholders in conducting day to day business and reporting on the firm’s performance regularly

If a company contains these three components and has been legally formed by a state, then you can call it a corporation.

Once the option of incorporation emerged, long long ago, corporations took off to become the primary business structure. The combination of enormous flexibility given to board and management to run the company, and a lack of liability to shareholders which encouraged investment, led to the growth of corporations almost everywhere.

The first corporation ever was the East India Company, which was a trade company incorporated by British royal charter on December 31st, 1600. Since then, the number and diversity of corporations has burgeoned. So far, there are four main types of corporations, including for profit, not for profit, professional corporations (give limited liability protection to groups of professionals like doctors, lawyers, engineers; formerly known as partnerships), and lastly, B corporations.

The B(enefit) Corporation

As mentioned, B corporations are a new type of corporation that intend to benefit more than just their financial bottom line. Benefit corporations give business leaders and investors freedom to make decisions that are in the best interests of society as well as their own bottom line (profit). Shareholders define that split.

Over 900 B corporations have been incorporated as of July 2013 and this number is growing rapidly. Delaware approved B corporations in 2013, which was an important gain since its the U.S. state with the greatest number of venture-backed businesses, and home to 50% of all publicly-traded companies and 64% of all Fortune 500 companies.

So, Benefit corporations sound pretty cool, huh? They are. Take Greyston Bakery for example. Located in a low-income neighborhood in Yonkers, NY, Greyston opened in 1982 to serve the needs of the community through its  for-profit baked goods. The bakery practices an “open-door hiring” policy where individuals are offered employment opportunities regardless of education, work history or past barriers, such as incarceration, homelessness or drug use.

“A modest bakery has grown into a broad array of results-oriented, evidence-based programs and services designed to respond to the changing needs of Yonkers residents.”

Greyston has also built low-income apartments for Bakery workers and their peers, many of which were formerly homeless, a child care center with high-quality, low cost child care that could enable employees to work, and even opened a housing and adult day health services center for people living with HIV/AIDS when the epidemic spread. Most recently, concerns about growing health disparities for communities of color and concern about the environment prompted the creation of community gardens and an environmental education program. Greyston also offers a comprehensive workforce development program for its employees and the greater community to enable people to get the tools and skills they need to make a sustainable living and achieve a higher quality of life.

The mission of the bakery is clear, even among the scent of delicious baked brownies (they supply the brownie bits for Ben and Jerry’s popular Half-Baked ice cream flavor if you’ve tried it): Greyston operates to make more money in order to hire more people, build more centers for the community, and uplift its surrounding society in a responsible way. Sounds like quite the benefit.

The B Lab Certification

In addition, there also exists a non profit called B Lab, which is not itself a Benefit corporation (it’s a not for profit), but offers certification to companies who wish to align themselves with the environmental and social values that Benefit corporations hope to embody.

In order to be granted certification, a company must reach a verified minimum score on an online assessment intended to measure high levels of social and environmental performance. Also, certified companies are required to integrate their stakeholder commitments into the company governing documents. This helps bring immediacy to environmental and social issues among the board and management, so that these concerns can be continuously addressed and integrated throughout operations.

The online craft marketplace giant, Etsy, is B Lab Certified and believes that “business has a higher purpose, and companies like Etsy can and should operate both to succeed as a business and in service to the local and global commons.” Besides the Etsy business model itself, which supports a community of micro-enterprises at scale, other sustainable initiatives include offering loaner bicycles to employees, hiring local small food businesses for its catering, and regulating office energy consumption. These extra initiatives help add social and environmental value that may had been overlooked had profit maximization been the only goal for the company.

“Our work is a mission of positive change, not just doing business as usual. B Corp is a way to prove that, first to ourselves, then to others.”

Another example of a B Lab Certified company is Closed Loop Advisors who offer specialized sustainability consulting services to a wide variety of clients. Through their work, Closed Loop aims to improve a business’s competitiveness, but also add social and ecological value to their bottom line. In other words, Closed Loop strives to provide strategies to their clients to not only boost the business financially, but to treat people fairly and create as light an ecological footprint as possible. The company hopes to change the way business is done and to shepherd as many organizations and their partners as they can to look beyond short-term considerations towards the most responsible ways of conducting business. Clearly, this boutique sustainability firm is hoping to B the change in how corporations run their businesses.

B the Change

Increasingly, the idea of responsible capitalism to ignite regenerative economies are growing in popularity and relevance. As we continue to try to improve society and find new ways to address unforeseen changes, it’s important to consider new modes for implementing change. For many entrepreneurs and businesspeople, creating a business that not only brings in capital, but also supports society and the environment, is a great benefit for everyone.