How to Become a Benefit Corporation
Social entrepreneurship has grown to include an estimated 40 million people working worldwide to address the most pressing environmental, economic, and social challenges of our time. With so many companies claiming to be eco-friendly and socially responsible, it's becoming more difficult not just for consumers but for investors to separate a good company from a good marketer. Add to that corporate laws haven't made it easy for companies to prioritize social good and shareholder return.
Enter the Benefit Corporation and Certified B Corporation movement whereby "doing good" is actually built-in as part of your for-profit business model. This trend in social entrepreneurship is allowing businesses to make a significant social or environmental impact while still turning a profit. The mission of a benefit corporation is to create a general public benefit in addition to shareholder value.
A benefit corporation is a new form of incorporation that is legally recognized in Maryland, Vermont, New Jersey, and Virginia. Other states moving forward in 2011 to pass benefit corporation legislation include New York, Pennsylvania, Michigan, North Carolina, California, and Hawaii. The benefit structure allows companies to adopt higher standards of corporate purpose, accountability, and transparency.
The law lets entrepreneurs commit their for-profit ventures to a specific public good, and requires them to report on contributions to that goal and submit to auditing of their impact. Having official benefit corporation status allows entrepreneurs to consider the interests of stakeholders including their employees, suppliers, communities, and environment in business decisions as legally stated in the company's mission. Under the traditional corporation structure, while companies may make donations to charities, offer educational scholarships, or sponsor community events, directors consider above all the financial interests of shareholders.
Finding a legal basis for the formation of benefit corporations grew out of the work of B Lab, a Berwyn, Pennsylvania, nonprofit that certifies socially responsible companies as B Corps. Becoming a certified B Corp is one way to meet benefit corporation statutory requirements.
The B Corp movement was founded in 2007 by 81 companies seeking an alternative to the for-profit way of doing business. According to B Lab, the B community today comprises 422 certified companies throughout 54 industries including business services firms, telecoms, banks, venture capitalists, tech firms, apparel, and consumer goods manufactures. These certified B Corps have a combined total of $1.94 billion in revenues.
There are tons of certified B Corps that are profitable businesses, says Jay Coen Gilbert, a B Lab cofounder. "Some have been getting great valuations and attracting outside capital. And some have sold their businesses for a profit."
Prior to B Lab, Gilbert co-founded and sold AND 1, a $250M basketball footwear and apparel company based outside Philadelphia. He serves on the board of Investors' Circle, a network of over 150 angel investors, venture capitalists, foundations and family offices. Since 1992, Investors' Circle has facilitated the flow of over $145 million into more than 220 companies and small funds addressing social and environmental issues.
Gilbert is quick to point out that over half of the B Corps have grown jobs by more than 5 percent over the past 24 months in the midst of a recession. "That is at a time when American business have been shedding jobs and unemployment is at a record high." What is compelling about these entrepreneurs is that they are not just creating jobs but high quality jobs with better compensation and benefits, flexible work environment, diverse workforce, and more employee ownership opportunities, Gilbert adds. "They are helping improve the quality of life in their communities while at the same time creating a great work environment for their employees."
One example of a B Corp is Dolphin Blue, an online retailer of environmentally sustainable green office products and printing. The Dallas-based company was founded in 1993 on the belief that "we can all consume more responsibly." From soy-based inks to chlorine free paper, Dolphin Blue's virtual shelves of some 4,000 products must be made of at least 20 percent post-consumer recycled materials and all made in the USA.
"Our B Corp certification came naturally because of commitment to operate and grow in a sustainable manner," Thomas Kemper, Dolphin Blue CEO and founder, said in a press release announcing its recent certification by B Lab. Dolphin Blue is one of eight B Corps located in Texas. "We became a B Corp because it is the mission of Dolphin Blue to make sure that the next generation is better off than ours," states Kemper. "Being a B Corp allows us to codify, protect, and pass this mission along."
Dolphin Blue's status as a certified B Corp follows its most prosperous year, according to company records. Despite the economic downturn, sales for fiscal 2010-2011 were the highest to date. In addition, Dolphin Blue was one of three companies in the country selected by American Express Open to participate in the Victory in Procurement Mentorship Program, which is designed to help small businesses increase their sales through federal government contracting.
Dig Deeper: What It Means to Be a B Corporation
How to Become a Benefit Corporation: Why Become a B Corp
For social entrepreneurs, a B Corp was created to help them specifically meet their needs, which is to scale their really good idea. But when they scale, they don't also want to lose control of their social mission, explains Gilbert. "Becoming a for-profit corporation helps them scale. Becoming a B Corp helps them to hold onto their mission."
The big advantage of a B Corp over a nonprofit organization is the for-profit structure. As a for-profit benefit company you can attract outside investors that a non-profit organization cannot. While B Corps may raise money through donations (there is no rule against it), it is however difficult as most foundations require grantees to be 501c3 nonprofits. Another advantage of becoming a B Corp is that you can pay people whatever salary you wish, allowing you to attract top talent. It's more than just your stakeholders understanding that there is a social component to the business; a B Corp is legally required to pursue that social mission, Gilbert says.
For social entrepreneurs being a B Corp gives them a couple of very important tools. "In addition to getting legal protection to their social mission even as they raise outside capital, they are getting a way to differentiate themselves in a very cluttered marketplace where everybody claims to be green, socially responsible, or sustainable," adds Gilbert.
Dig Deeper: Could You Be a B Corporation?
How to Become a Benefit Corporation: How to Become a B Corp
If you are starting a new company, you can simply incorporate as a benefit corporation in Maryland, Vermont, New Jersey or Virginia. The procedure of incorporation is the same as with any other corporate structure. If you are an existing company seeking to become a benefit corporation, then you need to amend your governing documents (i.e., articles of incorporation and bylaws).
To become a certified B Corp under B Lab, you have to complete four tasks:
1. Take and pass the B Impact Ratings System. That gives you an initial score on your company's employee and environmental practices.
2. The next step in the process involves a telephone interview and review with a B Lab staff member. If your score is above an 80 your company is eligible for certification.
3. Begin work on adopting the B Corporation Legal Framework (amending your governing documents).
4. The final task is to fill out and sign a Term Sheet that makes your certification official. Certified B Corps are subject to random third-party audits. Moreover, companies are certified only for two years and must constantly recertify as standards evolve.
Over the last five years, social entrepreneurship has become more widely recognized as a career choice. "Most social entrepreneurs think of it as a vocation, it's their calling," says Gilbert. "It used to be, if people felt a call to serve they would go run a nonprofit or go serve in public office." Increasingly, entrepreneurs are frustrated by both politics and the constraints that are placed on nonprofits, he adds. "They view themselves as business people and problem solvers."
Indeed, social entrepreneurship provides a more compelling path. Community and environmentally minded business owners get to serve in a way that allows them to call their own shots, be innovative, and move quickly to respond to market demand in a way that was once only afforded to traditional businesses. "I want to apply my talent, energy and drive to private enterprise but I also want to serve the public. Social entrepreneurs now recognize they are not alone. There is a whole movement of out there," Gilbert says.
The biggest mistake newbie social entrepreneurs make is thinking that having a social mission gives their company a right to exist in a competitive marketplace. Even as a benefit corporation, you still have to be able to compete on the merits of your business—quality, performance, price, added value, service, convenience, and innovation—the same with any viable company.
"No one is going to invest in your company or buy your product just because you say you are one of the good guys," explains Gilbert. "You need to be a highly competitive business and you need to be a high impact business." That's how you attract more investment, build long-term relationships with suppliers, and retain loyal customers. "Remember no margin no mission."
Dig Deeper: A New Kind of Business