Understanding B Corporations

What comes to mind when asked about the acronym “BC”?

If you’re an historian, you might say “Before Christ”.  If you’re a traveler, you might say “British Columbia”.  If you’re a doctor, you might say “Board Certified”.  If you’re a politician, you might say “Bush-Cheney”.  If you’re a plumber, you might say . . . well, I probably shouldn’t go there.

But, if you’re a socially responsible business lawyer like me, “Benefit Corporation” should be top of mind.  For the past year or so, I’ve been reading up on B Corporations, as they’re more commonly known.  It was not until last month that I finally had the privilege of helping one of my clients, an urban farming cooperative, to become one.  I trust that I’ll have many more such opportunities in the months ahead.

The B Corporation movement is rapidly gathering momentum.  Pundits predict that, within the next decade, B Corporations will be legally recognized by a majority of states, tax preferred by the IRS and other taxing authorities, and valued by both investors and consumers, and that, within a generation, the B Corporation marketplace will reach between 5% and 7% of our gross domestic product – roughly the size of our non-profit sector today.

To help you better understand this emerging business phenomenon, let’s make use of another acronym familiar to us all – the FAQs.

What are B Corporations?

Benefit corporations are exactly as they sound.  They are companies that dedicate themselves to benefit society.  They are companies that are willing to commit to socially responsible agendas.  They are companies that are willing to account for the best interests of their shareholders as well as the best interests of their employees, suppliers and consumers, and the best interests of the community and the environment.  They are companies that are willing to make their operations transparent so investors, consumers and regulators can see that they are, in fact, acting in the socially responsible manner they’ve promised.  They are companies that are willing to sacrifice certain profits for the sake of their principles.

Who originated the concept of the B Corporation?

In 2006, two basketball shoe and apparel executives and a private equity investor – with a shared vision to create a new sector of the economy that uses the power of business to solve social and environmental problems – founded, developed, incubated and funded B Lab Company, a Pennsylvania not-for-profit corporation responsible for certifying those socially responsible companies able to satisfy certain legal and business criteria, and auditing such companies to ensure their continued adherence to such criteria.

How many B Corporations exist in the United States?

Since its inception in 2006, B Lab has certified more than 300 companies in 54 different industries in 30 different states.  California has 90 such companies.  The combined annual revenue of these 300 plus companies is over $1.1 billion.

How can a company become a B Corporation?

A company must achieve a passing score on the B Ratings System, which is a comprehensive rating tool employed by B Lab to assess a company’s social and environmental performance.  The company must also agree to legally expand the responsibilities of the company to include the interests of not only its shareholders or other owners, but its employees, suppliers, consumers, community and environment as well.  This is done by incorporating appropriate language into the company’s governing documents.

Why are B Corporations important?

The B Corporation certification process is meant to distinguish between companies that say they are doing good things and companies that can prove they are doing good things.  To become a B Corporation, a company can’t just talk the talk, it must pass a rigorous standards evaluation and essentially re-write its own mission statement to reflect the B Corporation community culture and its principles.  The B Corporation certificate helps us tell the difference between a “good company” and simply a company that did a good job of marketing and public relations.

What are the benefits of becoming a B Corporation?

According to recent Bloomberg statistics, interest in socially responsible companies by investors and entrepreneurs has grown so much in recent years that over $2.7 trillion – about 11% of all assets under professional management – are in some kind of socially responsible investment.  Also, as the B Corporation community grows, its members stand to benefit from billions of dollars of collective market presence created by thousands of B Corporations speaking with one consistent and powerful voice and millions of dollars spent each year promoting B Corporations through B Lab.  B Corporations gain access to resources and information to improve their social and environmental performance, as well as to a community of fellow business people sharing best practices, consumers looking to support “good companies” and investors aligned with their mission.

How would you know a B Corporation if you saw one?

72% of them use renewable energy.  51% of them have public-transit or carpooling incentives.  They are 30 times more likely to be located in green buildings.  82% of them have programs for volunteering in their local community.  74% of them are affiliated with local charities.  They are 30 times more likely to donate at least 10% of their profits to charity.  9 out of 10 of them are locally owned, and they are three times more likely to be owned by minorities or women.  44% of them offer some form of employee ownership.  They are twice as likely to offer health insurance and retirement plans.

Have B Corporation concepts been institutionalized?

On April 13, 2010, the state of Maryland enacted this country’s first B Corporation legislation.  This law was modeled after proposed legislation created by B Lab.  Under this law, “benefit corporations” must spell out their values in their charters, report annually on activities that benefit the public and submit to third-party auditing of their societal impact.  To become a “benefit corporation”, or to shed that status, this law requires two-thirds shareholder approval.  This law also gives these companies and their directors greater protection from shareholder lawsuits  Ten other states—including Vermont, California, Oregon, Washington and Colorado—are currently considering similar statewide legislation.  Equally noteworthy, in December of 2009, Philadelphia became the first city in this country to offer tax incentives to companies that pass the B Lab’s Rating System for Sustainability.  It is no coincidence that Pennsylvania currently houses 41 B Corporations.

Where can I learn more about B Corporations?

For the best overview, visit www.bcorporation.net.

Commenting on his state’s new “benefit corporation” law, the governor of Maryland remarked: “For the first time, entrepreneurs and investors who want to make money and make a difference have the legal protection to do so. Maryland will benefit by attracting these kinds of business leaders who create higher quality jobs, strengthen Maryland communities, protect Maryland’s environment and serve Maryland’s underserved”.  Here’s hoping that California will soon follow in Maryland’s footsteps.  In the interim, I hope to help more and more companies move into the B Corporation community.

David Adelman

David Adelman is a partner at Greenberg & Bass LLP and a LEED Accredited Professional. Mr. Adelman practices in the areas of corporate, real estate and sustainability law. He can be reached at 818-382-6200.

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