B Corps: Capitalism with a soul

BCorporation.net

A year and a half after the first state authorized the creation of Benefit Corporations — a new type of corporate structure that requires a company’s directors to consider more than the interests of shareholders when making decisions — the movement to tinker with America’s corporate DNA bagged its biggest prize when California Gov. Jerry Brown signed a B Corp law a couple weeks ago.

New York could be the next state to follow Maryland, Vermont, New Jersey, Virginia and Hawaii if Gov. Andrew Cuomo signs legislation waiting on his desk, but Colorado might have to wait a while before the law catches up with an already thriving business culture in the state.

Until then, Colorado companies are making do with a certification system run by the same group that has steered the legal approach.

Philadelphia-based nonprofit B Lab, launched in 2007, has given its Certified B Corporation stamp of approval to 465 companies — corporations and LLCs — that boast $2.21 billion in revenue and span some 60 industries covering everything from catering and jewelry makers to insurance companies and construction firms. Companies apply for B Corp certification and have to complete a rigorous assessment that’s subject to audit and has to be renewed every two years.

Current law in most states requires corporations to put shareholder interest above all, but B Corp status would let a business consider a range of interests — including employees and suppliers, plus the impact on the environment and on communities — in addition to shareholder value. The way the Benefit Corporation laws have been written, a company’s articles of incorporation would have to state that directors have a fiduciary duty to consider other stakeholders, not just shareholders. Companies would be able to create themselves as Benefit Corporations from scratch or convert from existing organizations by rewriting their bylaws.

It’s a sort of hybrid of the traditional corporation and a nonprofit — except that, unlike nonprofits, B Corps can raise money from investors and don’t face the same limits on employee compensation and other requirements that keep nonprofits distinct.

So far, B Lab has certified 15 Colorado companies, including Vedante Corp, which manufactures a line of reflective clothing for people and pets, and Rally Software, developers of Agile and Lean software.

Blake Jones, an employee-owner and CEO of Namasté Solar, which won its B Corp certification last August, is an avid fan of B Corps and helped push legislation to establish the corporate structure in Colorado earlier this year.

“We support it,” Jones says, “but the devil is in the details.” The Colorado legislation’s initial backers pulled their support for a bipartisan bill introduced in January after lobbyists representing the state’s traditional corporations demanded changes to the bill.

With the backing of the Alliance for Sustainable Colorado, state Sen. Bob Bacon, a Fort Collins Democrat, and state Rep. Tom Massey, a Republican from Pagosa Springs, introduced SB11-005, which was initially based on model legislation developed by B Lab.

“It was more of a ‘create jobs, create a new sector of the economy to expand technology’ thing,” Massey says, adding that folks “didn’t seem to have a particular problem with it, they wanted to know more about it.”

But by the time it got to a Senate committee for mark-up in April, the bill was getting bent into a shape that didn’t leave anyone happy, and lawmakers killed it on a unanimous vote.

Bill Callison, a partner at the Denver office of the international law firm Faegre & Benson, wrote last month at The Conglomerate blog that Colorado’s corporate community doesn’t have a problem with the notion behind establishing B corps in the state, just with the top-down, one-size-fits all approach peddled by B Lab.

Callison says key flaws in the proposed legislation include:

• the absence of rights for dissenting shareholders in corporations that vote to turn themselves into the new kind of entity

• potential problems with tying legal status to third-party standards rather than letting companies decide for themselves what should constitute a “public benefit”

• and overly strict requirements against putting shareholder interests ahead of other concerns in all cases.

While Callison says the business community doesn’t have a problem with “a bottom-up, grass roots, shareholder-driven approach” that would achieve the same basic goals as the B Corp movement in Colorado, he sounds skeptical anything workable will emerge soon because “national forces [want] a top-down, paternalistic approach.”

Jones dismisses the fears that led to the bill’s demise.

“It would require a stockholder vote, so I don’t think any company should feel threatened by it,” he says. “If done the right way, we would absolutely appreciate this passing in Colorado.”

A spokesman for B Lab told Tekhne earlier this month that the nonprofit probably won’t be focusing energy on a Colorado law in the next legislative session, preferring instead to fight on more favorable playing fields.

The local B Corp community, though, might not want to wait so long.

“We do intend to do something again next year,” Jones says. “We’re in total support of it, and when the time comes, we’ll get involved in strategy.”

The reason, Jones says, is that a state law would only help grow a business community he believes is waiting to explode.

“I think there are a lot of companies that are not becoming Certified B Corporations because there is not good support for it in existing Colorado statute,” Jones says, admitting that there’s some legal risk for companies that pay sufficient attention to social and environmental factors to earn B Corp certification.

(As an employee-owned company, Namasté doesn’t face the same chance of a lawsuit from a disgruntled shareholder — if the directors reject an offer from “Evil Corporation” wanting to buy the firm and lay off all the employees, for instance — as companies with other ownership structures might and decided the rewards far outweighed any risk, Jones points out.)

But until the state establishes the new corporate form, Jones says, Namasté is reaping the benefits of Certified Benefit Corporation status.

“It’s a wonderful community of like-minded companies,” Jones says, ticking off a long list of advantages while acknowledging it can mean different things to different companies.

“Once the brand gains awareness, the way LEED certification has for buildings,” he says, it can become a powerful draw for customers, though he admits it probably means more in some states than it does yet in Colorado.

It can also help draw investors, he says.

“It hasn’t applied to us yet, but we’ve heard there are a lot of investors looking at it. They’re able to quantify, they’re actually able to measure to what level you’re a good B corporation” using the B Lab scores, he says. In addition, Jones adds, a number of investment funds are Certified B Corporations themselves and want to invest in others within the community.

Another B Lab project, the GIIRS — or Global Impact Investing Rating System — rating tells investors about the social and environmental performance of certain companies and investment funds. Companies that get a B Corp certification also automatically get a GIIRS rating.

Getting the B Corp certification also activates the B Corp network, which can be a “huge financial benefit” for some businesses, Jones adds.

“Another benefit we get from it is that we love meeting other B-corps,” Jones says, either at gatherings sponsored by B Lab or by bumping into like-minded companies at more traditional business get-togethers. “It’s a great way to compare notes, compare best practices, and we have found tremendous value in that.”

But one of the greatest benefits could be one of the least tangible, he adds. Beyond all the effects in the marketplace and in the business community, the company actually does all the good things that add up to getting certified. And that’s a benefit that Namasté feels every day.

“It’s important to our employee owners,” Jones says. “This is a source of pride.”