To be or not to B Corp?
Why some companies are choosing to become benefit corporations
For Ted Castle, founder of Rhino Foods in Burlington, VT, becoming a benefit corporation just made sense. He had always tried to run his company along sustainable lines, and B Corp certification, which verifies a company’s social and environmental performance, gave him a way to approach that challenge in a more systematic way.
Rhino is in good company. A 100-employee ice cream ingredient firm perhaps best known as the supplier of the dough in Ben & Jerry’s cookie dough ice creams, Rhino is one of over 2500 companies in 140+ industries and 50+ countries that have gotten their B Corp certification, including Rhino’s marquee customer, Ben & Jerry’s; Patagonia, the sports apparel company; Cabot Creamery Cooperative; and Danone, the yogurt maker.
To become certified, companies let analysts from the non-profit B Lab audit their business practices with respect to their governance, treatment of employees, community contributions, environmental sustainability, and social impact – a tough 200-point standard that remains a distant aspiration for most companies, a score of 80 being enough to certify a firm as a B Corp. Yearly certification fees paid to the–organization, which is headquartered in Berwyn, PA, run from $500 for a business with $149,000 or less of annual revenue to $5000 for a $10-million-a-year business.
For Castle, the biggest advantage in becoming a certified B Corp has been bringing Rhino further into a network of companies that have a similar focus. “It’s a very supportive community,” he says.
This larger network, which online revolves around a social platform known as B Hive, has given him access to many new ideas about sustainable practices that he had not considered before. “You don’t need to think everything through all by yourself,” he says.
B Corp certification also seems to be attractive to some employees who like the idea of working for a company with a commitment to sustainability. “I think it does help you internally a little bit,” says Castle. “Your employees are proud of what the certification means.”
B Corp v Benefit Corp?
Castle has also made Rhino a benefit corporation in a second sense as well, by changing its articles of incorporation under Vermont law. “We’re a privately held company, so frankly that was very simple…you just need to change your articles of incorporation, which is almost no effort at all with a lawyer,” he explains.
Benefit corporations are a specially developed category of for-profit company that requires the company’s directors to consider not only the firm’s shareholders but its overall impact on society, workers, the community and the environment. The first benefit corporation legislation passed in Maryland in 2010. Now, 37 states and the District of Columbia and Puerto Rico offer companies the option of incorporating as a benefit corporation, including such major business hubs as New York, Delaware, Texas, and California.
Theoretically, benefit corporation status might prevent a company that is sold from engaging in business against the founders’ philosophy – an organic dairy, for instance, might get to stay an organic dairy after the sale – but in practice, the benefits tend to be less concrete, according to Ellen Berrey, an assistant professor of sociology at the University of Toronto who has written on the sociology of benefit corporations.
Although the legal status offers few quantifiable advantages for most of the estimated 4750 companies that have become benefit corporations companies, Berrey says that owners seem to benefit from it as a way to demonstrate their interest in sustainability to their customers and investors. “It’s a way to facilitate a conversation on values,” she says.
Either way, certification does seem to do companies good in several respects. Samantha Taylor, a New York-based specialist in corporate reputation, says that B Corp certification and benefit corporation status raise “the bar on standards of social and environmental performance, accountability and transparency.”
Consumers also seem to see this status as a seal of approval. “In our low-trust marketplace, B Corps and benefit corps help consumers identify more trustworthy brands,” Taylor says. By signaling to customers that they are doing good, B Corp and benefit corp status helps these companies do well.
In the end, some economists believe that B Corps may prove to be an opportunity for investors as well: B Corps had greater revenue growth than comparable-sized public firms between 2006-2011, according to a recent report on B Corps from the Yale Center for Business and the Environment.
Nobel Laureate Robert Shiller, Sterling Professor of Economics at Yale University, is bullish on B Corps. “Through greater appreciation of the real motives that drive and excite people, B Corporations provide a significant new opportunity for investors.” he wrote in the Yale report. “I think they could make more profits than any other types of companies…”