The traditional corporate structure, where profit margins and shareholder returns have long been the yardsticks of success, is being challenged by a new metric: social responsibility. At the forefront of this shift are Benefit corporations, commonly known as B corps. This relatively new corporate structure aims to rewrite the corporate rulebook by balancing profit with purpose to prove companies can do well by doing good.
Beyond corporate philanthropy or marketing, becoming a B corp is a structural change that affects how businesses operate. So what exactly is a Benefit corporation, and why are some of the world’s most prominent companies making the switch?
The Genesis
A Benefit corporation is a legal structure allowing companies to consider social and environmental impact alongside
financial profit. Unlike traditional S and C corporations, which are primarily accountable to shareholders and focus on maximizing shareholder value, Benefit corporations must consider the impact of their decisions on all stakeholders, including employees, customers, and the community.
This new business model was formalized in the U.S. in 2010 when Maryland became the first state to enact legislation allowing B corp registration and providing legal protection against shareholder lawsuits, which could arise when companies prioritize social or environmental concerns over profits. Since then, 36 states and Washington, D.C. have followed suit.
Differences
Benefit corporations differ from traditional ones primarily in their purpose, accountability, and transparency. The concept of a triple bottom line—people, planet, and profit—is integral to the B corp ethos. While traditional corporations are under increasing pressure from investors and shareholders to deliver immediate returns, the B corp model allows companies to balance profit and purpose, creating a more sustainable and equitable form of capitalism.
The triple bottom line is not merely a tagline but a guiding principle that shapes a company’s operations and decision-making processes. By integrating social responsibility into their core business practices, B corps represent a shift towards a more holistic approach to business.
Primary Tenants of B Corps
One of the unique aspects of Benefit corporations is the emphasis on employee well-being and participation. Many B corps adopt profit-sharing models, allowing employees to benefit directly from the company’s success. This not only serves as an incentive for employment but also fosters a sense of ownership and responsibility among staff, enhancing job satisfaction and retention rates. In a labor market that continues to face challenges, including high turnover and worker shortages, the Benefit corporation model offers a compelling solution for attracting and retaining top talent.
Environmental stewardship is another cornerstone of B corps, with many going beyond legal requirements to adopt sustainable practices. This not only benefits the planet but also resonates with a growing consumer base that prioritizes sustainability in their purchasing decisions.
The triple bottom line also extends to the company’s supply chain, encouraging ethical sourcing and fair labor practices. This comprehensive approach ensures the company’s impact is positive across a broader ecosystem.
Transparency is another important area for Benefit corporations. Companies must publish an annual benefit report detailing the company’s efforts to achieve its social and environmental goals using a comprehensive third-party standard. This requirement ensures that stakeholders clearly understand the company’s impact and operations. Some states also require companies to appoint a benefit director responsible for preparing the annual report.
There are roughly twelve standards that satisfy the reporting requirements, which vary by state. While third-party auditing is not currently required, companies can use the standards as benchmarks to measure their performance.
Unfortunately, few states have instituted consequences or fines when companies fail to publish compliant benefit reports. A 2018 report1 showed very low reporting rates in Oregon, Colorado, and Delaware, ranging from eight percent to fourteen percent. A 2022 report2 found only six states—Minnesota, Nevada, Florida, Massachusetts, New Hampshire, and New Jersey—have penalties.
Transition Process and Taxes
Becoming a Benefit corporation involves both a philosophical and a legal commitment. The transition process differs from state to state, but certain steps should be followed.
First, a company should outline one or more specific public benefit projects it will pursue. These will form the core of the company’s guiding principles.
Second, companies should perform a due diligence review of their business contracts, affairs, and status to avoid any unforeseen liabilities associated with changing the form of the entity. This process may take time, possibly years, depending on the complexity of the company’s business dealings.
Third, transitioning to a Benefit corporation involves amending the company’s governing documents to reflect its expanded responsibilities. This usually requires a two-thirds majority vote from the shareholders.
Additionally, if the business entity is an LLC or partnership, articles of incorporation and related bylaws must first be prepared and filed with the state before transitioning into a Benefit corporation.
Once the transition is complete, the company is subject to the legal requirements and provisions applicable to Benefit corporations.
Tax-wise, B corps are generally treated the same as traditional S and C corporations, which includes federal income and state corporate taxes. However, some states offer tax incentives to encourage companies to adopt this socially responsible business model.
Costs and Benefits
The financial implications of becoming a Benefit corporation are often a point of contention. Critics argue that the additional reporting and auditing requirements can be burdensome, particularly for smaller companies. However, the long-term benefits often outweigh these initial costs.
For instance, B corps are increasingly attractive to a growing segment of investors focused on Environmental, Social, and Governance (ESG) criteria. According to the US Sustainable Investment Forums’ biennial Trends report,3 ESG assets reached $17.1 trillion at the start of 2020, representing one-third of the total U.S. assets under professional management.
In addition to tax incentives offered by some states, B corps are generally more eligible for government grants aimed at promoting sustainable business practices.
Consumer behavior is also shifting in favor of responsible businesses. A 2018 study found that 63% of global consumers prefer to buy from companies that reflect their values and beliefs.4 This consumer preference often translates into brand loyalty, repeat business, and higher profit margins.
In the U.S., about 68 million consumers make purchasing decisions based on a sense of environmental or social responsibility. When price and quality are constant, 87% of customers would switch from a less socially responsible brand to a more socially responsible competitor.5
Some individuals even go as far as using their purchases to punish companies for bad corporate behavior. Nearly 49% of Americans have boycotted firms whose behavior they deemed not in the best interest of society.5
Another benefit of switching to the B corp model is companies often find it easier to attract and retain top talent, reducing the costs associated with high employee turnover. The new generation of workers is looking for more than a paycheck. They want to be part of organizations that align with their values and contribute to society.
Critics point out that the Benefit corporation model is not a one-size-fits-all solution. Companies in certain industries may find it more challenging to meet the stringent social and environmental criteria. However, the growing number of B corps across diverse sectors suggests that these challenges are not insurmountable.
Global Perspective
The Benefit corporation movement is not limited to the United States. The majority are located outside of the U.S. across more than 70 countries. This global reach is fostering a more unified approach to tackling pressing challenges such as climate change and social inequality.
Internationally recognized brands, including Patagonia, Nespresso, and Ben & Jerry’s, have joined the B corp movement, demonstrating that this alternative business structure is a viable alternative to traditional ones. Their participation has also improved their sustainability credentials, attracting more customers and investors.
Certification
While Benefit corporations are a legal business structure, companies can further their commitment to the movement by becoming a Certified B corp. The certification process is administered by B Lab, a nonprofit organization founded in 2006.
The key mechanism for achieving certification is the B Impact Assessment, a rigorous scoring system that evaluates a company’s performance in five areas: governance, workers, community, the environment, and customers. Companies must score at least of 80 out of 200 points to earn certification. There are also annual fees based on the company’s revenue, ranging from $1,000 to $50,000.
Currently, more than 6,400 businesses worldwide have achieved certified status.
B Lab is finalizing new standards scheduled to take effect in 2024 to address criticisms that the current system doesn’t require a minimum score in each of the five core areas.
Local Spotlight
Several businesses in Northeast Ohio have embraced the B corp model and chosen to become certified.
Harness Cycle, an indoor cycling studio, has been certified since 2018. The company focuses on community wellness and engages in local philanthropic efforts.
Prosper for Purpose, certified since 2016, is a strategic public relations and brand development firm promoting organizations that do good. The company scored 109.4 on its B Impact assessment, more than twice the median score for ordinary businesses.
Epoch Pi, certified since 2017, is an investment bank. The company focuses on purpose-driven mergers and acquisitions, aligning capital with social responsibility and sustainability.
OverDrive, a digital reading platform, has been certified since 2020. The company is dedicated to social impact in education and literacy.
Peaceful Fruits produces all-natural fruit snacks and employs adults with disabilities, reflecting the company’s commitment to social inclusion and environmental sustainability. They became certified in 2018.
Catalyst for Change
The rise of B corps, both globally and locally, is more than a trend. It exemplifies a sustainable shift in how businesses think about their role in society and what is possible when companies prioritize a triple bottom line.
The Benefit corporation model pushes companies to consider the broader impact of their actions and adhere to ethical principles and social responsibilities. As more companies join this movement, a new standard for what it means to be a successful business may supplant old ones.
The journey to becoming a B corp may be challenging, but the rewards—both tangible and intangible—are immense.
In a world grappling with challenges, from global warming to social inequality, Benefit corporations are a catalyst for meaningful change, proving that it is indeed possible to do good while doing business.
Sources
- Public Reporting by Benefit Corporations: Importance, Compliance, and Recommendations, Maxime Verheyden.
bit.ly/BCorpReport2018. - Enforcing Benefit Corporation Reporting, J. Haskell Murray. bit.ly/BCorp2022.
- US SIF Trends Report. ussif.org/trends
- he rise of the purpose-led brand, Accenture. bit.ly/44wE3wN.
- How Benefit Corporations Are Redefining the Purpose of Business Corporations, William H. Clark Jr. and Elizabeth K. Babson. bit.ly/BCorp2012.
- Data based on listings gathered from bcorporation.net.
