A New Kind of Company

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Certification, however, can be somewhat suspect; some organic farmers, for example, have said the organic certification system has actually weakened their movement by enabling the creation of organic factory farms. And some of the questions on B Lab's survey--"Are corporate events or team-building exercises held at least twice annually?"--have dubious social value. B Corporations can be strong in some areas (say, employee ownership) but weaker in others, such as environmental stewardship. But social entrepreneurs are clearly thirsting for standards, and B Lab is far from the only organization working to develop them. The nonprofit Natural Capital Institute is developing a standard for responsible business known as Wiser, and a labeling initiative called Reveal aims to launch soon as well.

B Lab is different from the others because of the articles of incorporation amendment it requires. But how it might play out in the courts is an open question. If a B Corporation were forced for economic reasons to lay off half its workers, would it risk being sued? Could Greenpeace take a company to court for not living up to its green goals? That depends, in part, on the state; 11 states have laws that would insulate directors from liability, says R. Todd Johnson, a partner with the corporate law firm Jones Day, who consults for B Lab. Some states don't even allow companies to add stakeholder interests to their articles of incorporation; only 31 have expressly permitted it by passing what are known as constituency statutes. Ultimately, however, whether the amendments are legally binding will be up for debate until they are tested in court.

It's also far from clear that the amendment is even necessary. Legal scholars are divided on whether companies are actually legally obligated to maximize returns to shareholders. Margaret Blair, a law professor at Vanderbilt University, calls the legal obligation a "mythology," and is surprised the owner of a private company would feel the need to amend its articles of incorporation, given that privately held businesses are not subject to hostile takeovers. In a widely cited 1986 case, Revlon v. MacAndrews & Forbes Holdings, the Delaware Supreme Court ruled that once a public company is soliciting buyout bids, it must accept the highest offer, though a company can simply refuse to put itself up for sale. But that decision is valid only for tender offers--often-hostile bids that bypass management and go directly to shareholders, according to Blair. "It just doesn't happen in the case of private companies," she says.

Coen Gilbert admits that B Lab is a work in progress. But the group already has lined up powerful supporters, including Adam Lowry, co-founder of Method Products, a popular maker of green soaps and cleaning products; Steve Voigt, CEO of King Arthur Flour; and Jason Salfi, co-founder of Comet Skateboards. Jeffrey Hollender, CEO of the consumer products company Seventh Generation, says he has considered participating in at least 10 rating systems and always rejected the idea--until now. He thinks a successful rating system is vital for the social responsibility movement to succeed. "There is a tremendous potential for the idea to lose credibility because of a lack of standards," Hollender says. "I don't want to say this is perfect, but this is desperately needed right now."

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