Working Toward a Better Bottom Line?

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A better way of doing business is catching on, as more and more companies adopt a new corporate structure intended to create greater public good.

Across the nation, a better way of doing business is catching on, as more and more companies adopt a new corporate structure intended to create greater public good. It’s called a Benefit Corporation (B Corp for short), and unlike its conventional counterparts that have one bottom-line goal—to create profits for shareholders—a B Corp is obligated to adhere to a triple bottom line: people, planet, and profits.

The new corporate class marries nonprofit ideals with for-profit motives, according Richard Edlin, public policy director at the American Sustainable Business Council, a nonpartisan advocacy group representing more than 100,000 businesses nationwide. “Profits and social responsibility are not mutually exclusive. Any well-managed company can only do what they can afford, but the idea behind the Benefit Corporation is to induce for-profit companies to find better ways of doing business—to maximize profits while growing opportunities in environmental stewardship and community investment,” Edlin says.

A B Corp is identical to a conventional corporation with a few exceptions. A B Corp writes socially conscious goals, of their choosing, into their articles of incorporation and agrees to make measurable progress toward those goals. Such progress must be reported annually in “benefit” reports that are audited by an independent third-party chosen and paid for by the company. A company can adopt the B Corp model either through legal incorporation in states where it is recognized, or by certification from a third party. One third-party is B Lab, the Philadelphia-area nonprofit that developed the B Corp framework and brought the idea to the marketplace through its certification program.

To become a certified B Corp, a company must earn a minimum of 80 points (out of 200 available) on an annual assessment that scores the company’s accountability, employees, consumers, community, and the environment, and pay an annual certification fee that is based on the company’s annual net sales. Once certified, B Lab randomly selects 10% to 20% of B Corps companies for an on-site review every two years. Failure to uphold the standards results in the loss of certification. Consumers and investors can track a company’s annual progress by checking scores on B Lab’s website.

“Measuring a company’s bottom line is easy—either they’re making money or they’re not. It is not as easy to evaluate other areas of performance. That’s where B Lab comes in. We distinguish the companies with truly good practices from those with just good marketing,” says Erik Trojian, B Lab’s policy director.

Since the program’s launch in 2007, the organization has certified 518 private companies in 60 industries—including a number of leading renewable energy outfits like Sungevity, Namaste Solar, and Southern Energy Management. And the program is expected to continue growing, especially now with B Corp legislation gaining ground in several states.

In 2010, Maryland became the first state to pass legislation that recognizes Benefit Corporations as a legal corporate structure. California, Hawaii, New Jersey, New York, and Vermont followed suit. Bills are now pending in Colorado, Michigan, Pennsylvania, and North Carolina. This year, Georgia, Illinois, Oregon, and the District of Columbia are slated to introduce similar legislation.

The general legislation is the same from one jurisdiction to the next, with some variation in the fine print. Fundamentally, the law establishes a fiduciary duty to create both social and shareholder value, and better protects the company’s social and environmental mission through changes in management, capitalization, and ownership. Currently there are no tax breaks or procurement incentives for B Corps, with the exception of a $4,000 tax break in Philadelphia—though there’s talk of incentives in Portland, Oregon, and Washington, D.C.

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