On January 1, California became the seventh state since 2010 to recognize “benefit corporations,” a legal status that allows companies to include efforts to “create a material positive impact on society and the environment” in their charter, and forces both execs and directors to look out for the interests of employees, the community and the environment – as well as try making a profit for shareholders. Four to five more states are expected to pass similar legislation this year.
Somewhere near the root of this growing movement is B Lab, a nonprofit that for the last six years has been “certifying” as “B Corps” C corps that have elected to meet rigorous environmental, social, and civic standards established by B Lab. (Thus far, 517 companies in 60 industries have receive B Lab’s powerful stamp of approval — roughly half of them before legally protected benefit corporations rolled around.) B Lab is also working hand-in-hand with benefit corporations, which have to rely on third party standards and often use those of the increasingly powerful nonprofit.
Still, there’s plenty of confusion around B Corps and benefit corporations and whether they are interchangeable designations. (They aren’t.) I muddled the two in a recent column. The Economist made the same mistake. To clear up B Lab’s place in the fast-changing landscape, I called up cofounder Jay Cohen Gilbert for a quick chat late last week. Our conversation has been edited for length.
Benefit corporations have transparency requirements that involve publishing a yearly report in which they must measure up to third party standards. Are you the only game in town or are there other standards organizations that benefit corporations can turn to?
The legislation was drafted intentionally to ensure the power was still in the hands of the marketplace, that the government wasn’t picking winners or losers behind this or that standard. It has to be comprehensive, credible, transparent, and independent, but as long as [the standards] meet those criteria, then management, directors, and, ultimately, shareholders, can pick any one of a number of standards that exist out there. You can see a whole list [right here].
And it’s free for benefit corporations to work with you?
Right, we offer a free management tool to benchmark their performance. Roughly 2,000 companies are using it for free right now.
What about when a benefit corporation produces one of those annual reports? Who audits it to ensure that it’s true and accurate?
Registered benefit corporations don’t have to have their reports audited or certified by anybody.
What about C corporations that receive “B Corp” certification from B Labs? How long does that certification last?
You only get certified for a two-year term. Companies have to earn a minimum score on our “impact assessment” tool, and it’s like versions of software [in that] a new standard is released every 24 months, and companies that choose to renew their certification have to get a passing score to renew their certification. We’re working on version 4.0 right now.
What do you charge C corps to get certified?
It ranges from $500 for a company with less than $2 million in sales, up to $25,000 for a company with more than $100 million in sales. The certification fees cover 15 percent of our expenses. The other 85 percent is funded through philanthropy [including from the Rockefeller Foundation and the Rober Wood Johnson Foundation].
Benefit corporation legislation is raising awareness about socially minded businesses. But isn’t it also competing with you, in a sense?
Is it good or bad? Well, there’s a larger B Corp movement, which is about redefining what it means to be successful in business. Companies are no longer competing to be the best in the world but the best for the world, and they’re willing to be measured by a third party. I think that’s a pretty powerful thing, especially at a time when the public’s trust in business has reached an all-time low.
Some will just register as benefit corporations. Others will go a step further and get certified [by us]. Either way, I’m excited to go to work every day because I think both [types of companies] are creating a future that I want to be a part of.
Will we ever see B Labs shift from a nonprofit to a benefit corporation itself?
No, we made a decision when we started B Lab in 2006 that we’d be nonprofit because we’re a standards organization, and it’s important that we’re trustworthy as an independent standards body. We know what happens when ratings agencies are publicly traded. There’s this perverse incentive to give higher ratings or certify more people, because that’s how they make money. It’s very important that companies know we don’t have any interest in lowering our standards to get more or bigger companies to qualify.