Can B Corp be the next Fair Trade for socially-minded corporations?

The B Corporation movement, which certifies companies that benefit society as well as their owners, is gaining momentum. Last month, Laureate Education, a global education company with $4.5bn in annual revenues, became the largest certified B Corp, joining Ben & Jerry’s, Patagonia, Seventh Generation and Warby Parker, among many others.

B Lab, the nonprofit that administers the B Corp certification, is also raising its own profile, with plans to help launch a media company that will spread the word about the movement. B the Change Media, which recently raised $2m in startup capital, will launch a quarterly print magazine and website this summer, and plans to organize events for socially and environmentally responsible firms.

All this is part of an effort to drive “a culture shift to redefine success in business”, according to Jay Coen Gilbert, chair of B the Change Media. B Lab, founded in 2006, wants to become for business what Fair Trade is to coffee or Leed is to buildings – a signal to consumers of a more sustainable way of doing business.

“We want all companies to measure and manage their impact – all companies,” says Gilbert, who met me recently at B Lab’s headquarters, in Wayne, a small town outside Philadelphia. “We’re thrilled to work with a local farmers’ market. We’re thrilled to work with the Fortune 500.”

From this unlikely hub, the B Corps idea has spread far and wide. There are now 1,498 certified B Corps companies in 42 countries, including Australia, Bulgaria, Ghana and Taiwan. To gain the certification, all have had to meet “rigorous standards of social and environmental performance, accountability and transparency”, according to B Lab. They answer questions about energy, waste and water use, worker compensation, diversity and transparency.

Most B Corps are small to mid-sized privately-held companies, but bigger firms are showing interest. The French food company Group Danone said it would work with B Lab to develop ways to make B Corps certification more manageable and meaningful for large, publicly-traded multinational corporations that are engaged in a variety of businesses in different geographies.

B Lab also works with private and public companies that want to become “benefit corporations”, a legal status that requires them to serve not only shareholders but also stakeholders such as workers and consumers. The terminology is unavoidably confusing, but here’s one way to think about it: B Corps must eventually meet the same legal standards as benefit corporations, but benefit corporations need not meet the same verified performance standards as B Corps.

The start of a big idea

Like most big ideas, B Lab started small. Gilbert and Houlahan, who previously worked together at a startup footwear company called AND 1, co-founded B Lab with Andrew Kassoy, a private equity investor a decade ago. The first 19 B Corps, which were announced a year later in Berkeley, included Method, New Leaf Paper and King Arthur Flour.

To become certified as a B Corp, companies must complete an assessment of their impact in five categories: environment, workers, customers, community and governance. They must also earn a verified minimum score of 80 out of a possible 200 points. That may sound low, but 53 is the median score for a typical business, according to Gilbert. The assessment has evolved over time, with input from companies and an independent advisory council. Certified B Corps make their scores public.

Once companies clear the social and environmental review by B Lab, they have a year or two to take whatever legal steps – a reincorporation as a benefit corporation or change to their bylaws – are necessary to require their directors and officers to consider all stakeholders, and not just shareholders, when making decisions. Under the new structure, shareholders have the right to hold directors and officers accountable to this broader mission. This legal requirement has, so far, been a roadblock for public companies in the US.

“A public company has unique challenges,” says Rick Alexander, a veteran corporate lawyer who joined B Lab last year. “Traditional corporate law, especially in the Anglo-American system, is really an obstacle.” Large, conventional firms, usually structured as C Corporations, are required by law to owe their primary allegiance to shareholders, Alexander argues – although others disagree.

To help create support for publicly-held B Corps, Alexander has been meeting with institutional owners such as Black Rock, Fidelity and T Rowe Price, and trying to make the argument that being a benefit corporation will over time build more value for all stakeholders, including stockholders. He notes that venture capitalists have been willing to invest in privately-held B Corps – a sign that they believe that B Corps status won’t put their returns at risk.

How institutional investors will respond to B Corps should become more evident soon. Laureate, which is certified and privately-held, has an initial public offering planned this year. Etsy, which is certified and went public last spring, needs to get shareholder approval to change its legal status if it wants to remain a B Corp. Meanwhile, Unilever, with Group Danone, has agreed to work with B Lab and others to make the B Corp status workable for multinational companies with numerous lines of businesses, products, subsidiaries and workers in different countries with different wage scales, among other things.

No green washing

Companies point to several advantages of becoming B Corps. Jeff Mendelsohn, the founder of New Leaf Paper, which makes environmentally-friendly paper goods, says his connections to others in the B Corps community have helped drive sales.

Santiago Halty, whose company, Senda Athletics, makes Fair Trade soccer balls, also cites the value of the B Corps community, saying he has turned to other B Corps leaders for advice on sales, marketing and distribution. “B Lab has done a wonderful job of connecting people,” he says. Halty also believes his certification as a B Corp helped get him access to Target’s Made to Matter program, which showcases companies with social missions. “In a time of green washing, having that third-party verification is key.”

As for B Lab’s new venture into media, Gilbert and Bryan Welsh say it will be independent of B Lab but will serve as a hub for people who care about how business can change the world for the better. No other outlet focuses exclusively on the social and environmental impact of business, they say.

“We’re not about B Corporations,” Welsh said. “Our goal is to tell credible, authentic and compelling stories about businesses that make a positive difference.”