What Are Benefit Corporations, and Why You Should Consider Structuring Your Business as One
In general, in the business world, companies exist to make money; of course, customer service, meaningful relationships and giving back to the community are all desirable, but in the end, everything comes down to turning a profit and ensuring the company will last. As well, investors need to be satisfied, and that won’t happen unless revenues are coming in.
However, a strictly “profit-first” mindset isn’t for everyone, whether they’re entrepreneurs or investors. Instead, those seeking social good should be aware of the “B Corporation” certification, which highlights a company’s motivations to go beyond profits (the B stands for benefit). Companies with B Corporation certification are still for-profit; they simply meet high standards of transparency to prove that they’re providing some sort of socially meaningful purpose.
To some, B Corporations appear to sacrifice profit in the name of generating goodwill through social and environmental projects; however, that’s not necessarily the case. While B Corporations aren’t nonprofit organizations, they’re structured so that doing good often goes hand-in-hand with making money (think of Ben & Jerry’s, a classic example of a successful B Corp). People who choose to attain certification are described as “people using business as a force for good” by B Lab, the nonprofit organization that issues certifications.
Types of Corporations
There are 1,659 B Corporations across 48 countries so far, and they come from a variety of industries. Here’s a look at some of the different companies that show how varied the objectives of B Corporations are:
South Mountain Company
This company develops residential and commercial buildings. The underlying goal is creating affordable housing and utilizing renewable energy. South Mountain Company is employee-owned and the employees also serve on the board of directors. According to the company, “Our governance may sound as if it is not independent, but their involvement allows the people who know the company best (the employees) to make the decisions and hold South Mountain Company accountable to the highest degree.”
Elemental Herbs creates organic body care products, using 100 percent organic certified herbs. One percent of all revenues are donated to a nonprofit organization, while 15 percent of all supplies come from low-income communities. They’ve also created a sponsorship program to work with athletes dedicated to environmental and social causes.
This tech company provides cloud-computing products and services. What sets them apart from competitors is their pro-bono work: ForceBrain provides free consulting to nonprofits and fellow B Corps. They also offer Salesforce.com customer relationship management licenses in the form of grants to organizations in need.
Why This Matters
Attaining B Corporation certification isn’t easy, as there are fairly stringent reporting standards and the need to pay a fee. So why do companies go through the effort?
B Corporations compare favorably to the Fair Trade certification used on foods, and they function in similar ways: the B Corp designation signals to customers that the endeavor is dedicated to goals other than profits, and a certain set of customers will take notice and support the mission. Sustainability matters to consumers, and it seems to be mattering more every year.
Most B Corporations would be classified as “social enterprises,” where the business model is designed to generate profit in order to provide social benefits. These social enterprises are catching on throughout the world, as customers are happy to know the money they’re spending is being used towards good. In the U.K, 80 percent of women and 70 percent of men said they would be more likely to use a company that’s dedicated to good causes.
The same study found that most people didn’t really know what a social enterprise was. That’s why certification, which requires transparency, is especially useful in making social enterprises even more mainstream.
Investors want a return on their money, but many are starting to want something other than seeing their investment increase. Investing in B Corps provides the opportunity to do just that. For example, in 2014, the tech funding startup site CircleUp teamed up with the Collaborative Fund to invest $4 million in B Corps. “We’ve been a fan of B Corps,” said Craig Shapiro, founder of the Collaborative Fund, at the time of the announcement. “We need a measuring stick for corporate social responsibility, for businesses to measure their broader impact.”
B Corporations have been attracting investors on a much larger scale — and not just thousands or millions, but billions. Online retailer Etsy went public in 2015 and has B Corp status. A growing number of large multinational companies are also interested in obtaining B Corp certification. The multinational giant Unilever has some B Corp-certified brands (such as Ben & Jerry’s) and is reportedly considering obtaining certification for the whole company.
Big B Corporations are obtaining interest from big-time investors, but this attention also works on a smaller scale. A new company with a solid business plan and the goal of attaining certification might not attract as many investors as other companies, but it can attract the most desirable type of investor: someone who’s patient and not driven by short-term profit gains.
The Main Benefit: Changing the World While Running a Business
Becoming B Corporation-certified can make financial sense in terms of attracting customers and a certain type of investor, but it’s not the main reason companies seek certification. The important thing is making a difference, and companies with the certification pride themselves on that mission of being significant in the larger scheme of things.6