I’ve written about B corps before. These are conventional, for-profit entities- kind of. Kind of, because they are supposed to be ‘Benefit Corporations’. Instead of being totally capitalistic entities, they use their profits for the good of the community, their employees, and others, as well as their owners.
This really has more application to public entities- the corporations that sell stock and are owned by the public. After all, a privately held company only answers to the stockholders that formed or funded the entity- typically friends and family of the founders. And, it can operate in any legal fashion it desires.
But, a public corporation is required to maximize the financial gain for its stockholders. (Dodge v. Ford Motor Company, 1919- but a more recent case, eBay v. Newmark [Delaware Chancery Court] decided on my birthday 2010, stipulated that maximizing the economic value of a for-profit [Delaware] corporation is the fiduciary duty of a director.) Milton Friedman (New York Times, 13 September 1970) also declared that there is no social contract between corporations and their employees or their communities. That became ensconced in public policy by the time Ronald Reagan became President. It has led to the diminished middle class and the excessive CEO salaries that now prevail, instead of excessive profits to the stockholders. (But, that’s a discussion for another post.)
Not so a B corporation. There are five pillars upon which they operate. The first is to generate profits- because without profits, the entity won’t survive, nor can it accomplish the other four tasks. The four pillars that BLab, a certifying entity, examines- the workers, the community, the environment, and the social mission.
B Lab, a certifying authority of sorts, is involved with three initiatives. The first is to produce a community of B Corporations so that others can see why they are “superior” to other entities. The second is to implement their ratings and analytics platform. And the third is to insure that all 50 states afford the existence of B Corporations.
As I have written before, not all states allow the formation of B Corps. The list is growing, but not as fast as many are demanding. (A list of states with B entity approvals is found here: http://benefitcorp.net/state-by-state-legislative-status. )
B Lab has built upon the IRIS system. The Impact Reporting and Investment Standards are arranged into five areas- the organization, the products or services, financial performance, and the impacts of the operation and products on the community. These criteria are available here.
More than a few B Corporations found the voluntary rating system of the IRIS wanting. As such, many of them have agreed to be scored by B Lab. Some 859 have scored at last 80 points on the 200 point GIIRS scale. GIIRS- the Global Impact Investing Rating System- is an invention of B Lab. The rating system is meant to assess how well firms achieve the goals of pillars 2 through 5. After all, the goal is to develop socially responsible investing – to do good while receiving financial rewards.
The scale seems to be range as high as 200, with 80 being the minimum score to be included among the “approved”, or be provided a ‘3 star’ rating. Those achieving 125 or more points are in the top echelon (‘5 star’). The bulk of the awarded points are associated with the community pillar- with some 70 points involved in the local supply chain, local involvement, and socially beneficial products, among other criteria.
Of course, treating your employees fairly- with fair wages, fair treatment, training programs, and the potential for worker ownership- is a prime pillar. As is minimizing waste produced by the enterprise and how one deals with the waste produced. (That’s the environmental pillar.)
Assuming your entity meets the bar- or exceeds it, there are annual fees- ranging from $ 500 to $ 25000, depending upon the size of the firm. Right now, the prime goal of this rating system seems to be obtaining the best possible employees for the enterprise. And, data indicates that the millennials (those ranging in age from 21 to 32) are highly motivated to join such entities.
The rating system does not seem to have as much impact with the investing set. And, that’s the audience that will make the ultimate case for the existence of such entities.