Balancing positive impact with corporate successBenefit corporations and certified B Corporations (or B Corps for short) are types of social ventures: companies that combine commercial enterprise with mission-driven ideals. Since the model is designed for businesses, it’s not applicable to nonprofits — though for nonprofits looking for partners in the private sector, it's a helpful indication of a company's commitment to doing good.
Benefit corporations exist as a legal form only in the U.S. (currently in 30 states plus Washington D.C.) and in Italy so far, with pending legislation in some other countries. A for-profit company in these places that aims to have a positive impact on society can designate itself a benefit corporation at the time of incorporation. Once up and running, the company can earn certified B Corp status — similar to Fair Trade certification, but for business — by meeting rigorous standards for social and environmental responsibility.
In other countries, mission-driven businesses of various legal forms can also attain B Corp certification. There are B Corps in 50 countries to date, representing over 130 industries.
Why become a benefit corporation or certified B Corp?
For entrepreneurs who want to balance positive impact with commercial success, benefit corporation and certified B Corp status offer innovative market models, possible marketing advantages and the opportunity to join a growing movement to do business responsibly. It’s also a business model that appeals to certain investors and attracts purpose-driven staff, while keeping the company firmly focused on its social mission.
What are the characteristics of a benefit corporation?
Traditional corporations are obliged to maximize benefits to their shareholders. What makes benefit corporations different is the ability to prioritize their mission and work for the benefit of all stakeholders — such as employees, volunteers and the community — not just their shareholders. The legal status of benefit corporations protects this mission when companies go public, change ownership or raise capital. In some cases, short-term shareholder profits are sacrificed for long-term social benefits.
Benefit corporations are required to deliver a "general public benefit," which is typically measured against an external third party standard. This general benefit includes treatment of workers, environmental stewardship and positive community impact. Benefit corporations can also declare a specific public benefit. Benefit corporations such as TOMS and Warby Parker, for example, donate one pair of shoes and one pair of glasses, respectively, for every pair purchased.
Specifically, benefit corporations must meet the following three requirements:
- Purpose. Benefit corporations must declare their purpose through statements of mission and vision that describe how the business will create a positive impact for all stakeholders.
- Accountability. Benefit corporations are accountable to both shareholders and stakeholders. They must consider the impact of corporate actions on workers, the community, the environment and the continued ability to accomplish the intended public benefit.
- Transparency. Benefit corporations are required to publish an annual impact report that assesses their social impact and reaffirms their commitments to the community, their workers, and the local and global environment.
Perhaps surprisingly, the legal status of a benefit corporation doesn't impact taxation — U.S. benefit corporations must follow standard IRS guidelines for corporate tax filings.
How does a company become a benefit corporation?
In the U.S., benefit corporations are incorporated as standard "C" or "S" corporations in states that have passed benefit corporate legislation. (Check your state's status with this interactive map.) To become a benefit corporation in one of these states, a company must simply include a statement about being a benefit corporation in their articles of incorporation. Existing companies that want to transition to benefit corporation status can amend their articles of incorporation by adding a statement to the same effect.
Becoming a benefit corporation can set the stage for also becoming a certified B Corporation, since the mission is baked into the company's foundation.
How does a company become a certified B Corporation?
To earn certified B Corp status, a company must undergo a rigorous evaluation process conducted by the nonprofit organization B Lab.
The three stage certification process (performance requirement, legal requirement, signing of term sheet and payment of fees) is the same for U.S. and international companies, although the legal requirements can vary from one country or region to the next depending on legislative infrastructure. Certification fees depend on the size of the company and the number of employees.
For the performance requirement, B Lab uses a scoring system to measure a company's positive impact. This "impact assessment" score communicates the success of a company's social and environmental efforts. It can take up to a year to collect and assemble the required materials, and applications can be 50 pages or more. The specific assessment is tailored to the size of the company and the sector of products or services. Businesses from emerging countries also face some different questions compared to those in developed countries.
Sample assessment questions are as follows:
- Does your company have a social or environmental commitment as part of its corporate mission?
- Does your company provide employee training in the social and environmental mission?
- Does your board of directors review the social and environmental mission?
- Does the company solicit feedback about the mission from stakeholders?
- What metrics does the company use to track progress toward these social and environmental objectives?
To receive certified B Corp status, a company must score at least 80 out of 200 possible points on the impact assessment. Once certified, the assessment must be revisited every two years.
The rigorous certification process sets certified B Corps apart from the crowd, with the B Corp stamp of approval signaling an organization's commitment to doing business responsibly.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.