Can the B Corp Change Business?

Social enterprises seek to make profit while having a positive impact on communities. As a nascent and hybrid form of organization, social enterprises are vaguely defined. Might a certification process provide benefits for such organizations? Andrew Kassoy of the B Lab talks about the potential of the benefit corporation, or B Corp, to change the way business is done.

Naming a hybrid is often a challenge. Liger? Tion?

There are several existing efforts to name the hybrid creation that is the social enterprise, part lean, for-profit company, part do-good nonprofit. The UK has something called the community interest company (CIC). The flexible-purpose company and the low-profit limited liability company (L3C) are hybrids allowed in parts of the U.S. The benefit corporation, or B Corp, is yet another alternative and one that is gaining momentum: it’s now an option in 24 states, with 14 more considering legislation to adopt the designation.

The Economist summarizes benefit corporations this way: “To qualify as a B Corp, a firm must have an explicit social or environmental mission, and a legally binding fiduciary responsibility to take into account the interests of workers, the community, and the environment as well as its shareholders. It must also publish independently verified reports on its social and environmental impact alongside its financial results. Other than that, it can go about business as usual.”

The cleaning products company Method and the outdoor gear company Patagonia are benefit corporations. King Arthur Flour is, too. While many benefit corporations are quite small, the legislation allows flexibility—Plum Organics is a benefit corporation as well as a wholly owned subsidiary of the publicly traded Campbell’s Soup.

Being branded as socially conscious is a key reason that many firms adopt benefit corporation status. The structure may also provide protection for for-profits that seek to pursue a social mission if they run into resistance or litigation from shareholders who want a focus on returns. “Even investors initially committed to the dual mission might change their minds if the entity becomes sufficiently successful,” notes Dana Brakman Reiser in the Wake Forest Law Review. On the other hand, she warns, the proof of social benefit typically required by B Corp legislation is minimal—an annual report explaining how the company has met a standard set up by an undefined independent third party. That vagueness could encourage adoption of benefit corporation status as a form of greenwashing.

One option for making the label meaningful is a widely recognized certification that goes beyond legal requirements in attesting to a company’s social impact. Yale Insights talked with Andrew Kassoy, co-founder of B Lab, a nonprofit that was a major force behind the legislation and aims to be the certifying body for social enterprises—what LEED is to building or Fair Trade is to consumer goods. Since before there was a legal designation, B Lab has been certifying companies that meet the standards they’ve developed. Since 2006, B Labs has certified over 1,000 companies in 35 countries and over 60 industries.

The organization, Kassoy said, aims to “create the norms and institutions that allow all businesses to do business in a different way.” By certifying the efforts of some companies, their examples nudge other companies toward higher standards. The companies that have already been certified, he noted, serve as a source of data on the value of B Corp status on brands and hiring.

At the same time, Kassoy sees the B Corp requirements reshaping internal processes. The standards and requirements of certification help “institutionalize the consideration and interests of stakeholders, not just shareholders.” He added, “The change in fiduciary responsibility drives a change in boardroom behavior.” Rather than being limited to discussions of driving returns for shareholders, conversations that examine the company’s impacts on community, consumers, workers, environment, and supply chain become part of the required process, too.

While the benefit corporation form may be new, Kassoy put it in a larger context. “Historians of the corporation and of business will point to a 19th-century era—when businesses were chartered by the state in return for limited liability, they were meant to have some sort of a public purpose,” he said. “In a sense, this is a return to a more traditional or conservative way of doing business.”

Co-founder, B Lab