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.
Is your next one a B? | http://t.co/zRqlYDY6O0 via @Adjuvancy
This is a very enlightening post. Last month I was doing extensive research on corporations and could not decide between an S Corp or an LLC. Eventually went with an LLC. Thought myself pretty savvy for all the research I did but did not know there was a thing called B corp. Thanks for sharing. You’ve certainly enlightened me today.
Well, SavvyFemmepreneur, the choice between a CORPORATION and an LLC involves many decisions. Not the least of which is how many stockholders there may be and whether they are natural citizens (i.e., human beings who are legally allowed to be in the United States).
LLC’s can elect to be taxed as corporations by the IRS and also elect to operate as an S entity as well. So, the discrimination between LLC’s and S entities is truly non-existent. There is a vast difference between an LLC and Corporation, not the least of which is the difference in annual fees that may be imposed by the certification authority (the state or commonwealth of principal and foreign domains) upon the entity.
A B corporation- assuming you are in one of the states that includes them as possibilities- can still elect S status with the IRS. It’s existence as a choice is only to inform stakeholders that not all of its decisions will be rendered to maximize returns to investors. (Not like all public corporations operate in such a fashion, anyway.)
Nice to meet you!
This sounds like a really ethical business concept. I may need to pinch myself to believe I’m not dreaming and that it’s real. Lovely post, Roy!
Lisa recently posted..From Magic Beans by Lisa Brandel
Oh, it’s real, Lisa. And, you and your associates are a prime example why B entities may not always be the solution. You operate your enterprise (and your Ambush entity) with those sorts of principles at the foundation of your efforts. Without the trappings a B provides!
I think B Corporations are an interesting way to encourage social innovation – “do well by doing good”. I work in a co-working space with many for profit small companies with social missions. They do not want to be “non-profits” with all that entails – but the companies do have a social mission greater than just to make money. An example of that is the coworking space itself. The owner makes money (at least I hope she does because I like working there) but here decisions are based on what is best for the coworkers rather than strictly on maximizing her profit. Will be interesting to see how this all rolls out.
Meredith Eisenberg recently posted..Come Play In Traffic: Looking For Trouble
And, it’s my idea, Meredith, that none of those firms are beholden to the public, in that they have sold stock and are publicly traded. As such, they can adopt any charter they desire and not worry about stockholder lawsuits. There would be no reason for such entities to adopt a B charter (assuming the state so affords the possibility)- unless one considers the charter worthy of bragging rights…
Nice to meet you and hear your comments.
Roy
Dear Roy,
Interesting information that I’m sure I would not have even considered looking into if it were not for the UBC! 🙂
That is one of the things I like about the UBC.
You mentioned that the “purpose of the B corps is to prove that their system is “superior”.”
I wonder, do you know? Have they proven that? And if so, how? And who are they?
I won’t mention the company, but a very large privately held corporation in my city does very much good for the community and funds over 70 foundation that help in all areas of the community and they continue to do very, very well, indeed.
From my personal perspective of Universal Laws and that you reap what you sow, it would only make sense that corporations that do good would in turn, do good within.
🙂
Thank you for a post that put my attention on something outside of my norm.
Kathy
Kathy Hadley recently posted..Birds Of A Feather Flock Together – Day 3 of 31 Days of A New Life
So, Kathy-
First, there are always exceptions to prove the rule. Given that- and the fact that the business enterprises with which I have been associated have always employed the philosophy and underpinnings that seem to anchor B(enefit) Corporations- I do believe that they have a purpose worth emulating. However, for those firms that are not traded on the public markets, adopting such a code truly does not require one to be a B corporation. One just has to perform their duties with such a philosophy in mind, choosing directors that won’t try to alter the character of the firm, etc.
But, once one has sold stock to the public, then it is (theoretically) answerable to those stockholders. (Don’t get me started on how public entities fail to perform and feel subject to their stockholder’s interests- it’s all about the short-term gain in stock price to drive the executive compensation northward.) And, unless the stockholders were told in advance that certain decisions may not be made to maximize the return of cash to the stockholders, there could be legal challenges. If the entity were a B corporation, that would stop such a lawsuit in its tracks….
I hope that answers your questions.
And, I’m thrilled you came to visit- and comment. Thanks, Kathy!
Is your next one a B? http://t.co/yOKKTWE9PX via @Adjuvancy
RT @RAAckerman: Is your next one a B?: http://t.co/WfiyZ7EHr5 #in #blogboost #blogtribe #adjuvancy #Bcorporation @smallbusiness