Why B Corporations are at a crossroads

The B Corporation movement, which certifies companies that meet rigorous standards of social and environmental performance, has made enormous progress since its launch in 2006 by nonprofit B Lab.

Well-known brands that have embraced the B Corp label include Ben & Jerry’s, Patagonia, New Belgium, Seventh Generation, Warby Parker and Etsy. At last count, some 2,076 B Corps have been certified in 50 countries. That’s impressive.

But the B Corp movement is at a crossroads. If B Lab is to achieve its bold vision — "that one day all companies compete not only to be the best in the world, but the best for the world" — then publicly traded, mainstream companies, the companies  that dominate the U.S. economy, need to become B Corps.

Otherwise, B Corporations will remain a niche, albeit a valuable niche, like the Fair Trade or Organic certifications, to which the label is often compared. Less than 1 percent of U.S. cropland was certified organic, as of 2011. Fair Trade is a blip in the global trade marketplace.

Recently, I wrote about the challenges facing the B Corporation movement for B Magazine. My story focused on Etsy, the online marketplace based in Brooklyn, N.Y., one of just two publicly traded B Corps in the United States. The other is Laureate Education, a chain of for-profit colleges.

For reasons explained at some length in the story, Etsy must decide by August whether to ask its shareholders to change the company’s legal structure to become what is known as a "benefit corporation." If the board declines to do so, which seems likely, Etsy will lose its B Corp certification, and the B Corps movement will lose one of its high-profile adherents.

The story explains:

If this sounds confusing, well, it is. The confusion arises because B Corporations and benefit corporations are not the same thing. To become a B Corp, for-profit companies submit to a voluntary, third-party verification of their social and environmental impact, a process administered by the nonprofit B Lab. To become a benefit corporation, a company’s shareholders must approve the benefit-corporation legal structure, which requires the company to consider the interests of society and the environment when making decisions.

In a nutshell, companies that become benefit corporations put the force of state law — typically, Delaware law, because most public companies are incorporated there — behind the performance and transparency requirements of B Corp certification.

Jay Coen Gilbert, a founder of B Lab, told me that B Lab’s decision to require certified B Corps to eventually re-incorporate as benefit corporations is "the single biggest impediment to the growth of the B Corp community." But he said the movement needs "an underlying legal structure that makes it explicit that business has an expanded sense of citizenship" to its workers, the broader society and the planet.

Most labeling and certification schemes face similar tradeoffs. How strict should their requirements be? Often, choices must be made between a weak standard with potentially broad appeal or a set of stricter requirements that are harder to meet. B Lab took the latter path, and it’s facing the consequences.

Along with Etsy, 80 or so certified B Corps incorporated in Delaware have to decide this year whether to legally reincorporate as benefit corporations. Among them are Warby Parker and Revolution Foods. Losing all three would be a setback for the movement.

My story ran as the cover story in B Magazine. Sadly, the print magazine suspended publication after four issues. B the Change Media, its parent company, now produces content for Medium.

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