Many believe that traditional, publicly-held organizations prioritize profit above all else and are often associated with corporate greed and corruption. As a result, society tends to be skeptical of these corporations, even if their intentions are good. However, a relatively new classification of organizations known as B Corps” or Benefit Corporations has emerged and can change this perception.
The B Corp status allows organizations to mix shareholder demands with social consciousness and factor in their bottom line and the public good when making decisions. However, while B Corp’s label and process can be valuable for for-profits pursuing the public interest, it’s expensive and might only be suitable for some. Here are some of the pros and cons of becoming B Corp Certified to see if it’s right for you.
B Corp Status and the Shareholder Factor
Publicly traded organizations are obligated to act in their shareholders’ best interests. That means they must utilize every earned dollar to benefit the organization and its stakeholders.
Consider this scenario: You invested in a company that made a profit of $15 million by the end of the year. However, the company decided to donate it to charity instead of distributing that profit among shareholders. Unfortunately, this charitable act is unlikely to increase the value of your shares. That is why the concept of “shareholder primacy” was established by laws, which hold that a corporation’s primary goal is to maximize its shareholder’s financial gain.
While B Corp organizations are still considered for-profit entities, there’s a caveat: their evaluations are not based only on their financial performance. Instead, they’re also assessed on their impact on society. Their B Corp status simply allows them to initiate projects that benefit their community without fear and retribution from their shareholders. It also allows them to allocate some of their profits for public benefits, such as charitable causes.
Contrary to what the name might imply, an organization does not need to be a corporation to attain the B Corp status. Any organization, including sole proprietors and limited liability corporations (LLCs), can become B Corp certified if it meets the requirements.
To become a B Corp, you must undergo a comprehensive evaluation by an impartial governing body known as the B Lab. Moreover, your organization also needs to be a for-profit organization that has been running for at least 12 months.
The evaluation process scrutinizes various aspects of your organization to ensure it meets a strict set of social and environmental standards. However, while startups with less than 12 months of operations are ineligible for this certification, they can apply for the “Pending B Corp status.” This status shows clients, employees, and investors that the startup organization has a public benefit purpose and will be run in a way that balances that purpose with stockholders’ value.
The Pros and Cons of Becoming B Corp Certified
B Corps preserves your mission. If you formed an organization with a mission or dream that’s bigger than just making a profit, then earning a B Corp status will hold you accountable to that dream. B Corps’ governance structure and framework dictate an organization’s direction and allow you to act on your environmental and social mission without caving to your shareholders. Even if you sell or transfer the organization’s ownership to someone else, its environmental and social focus must be maintained, and all future shareholders and owners must abide by this rule.
It is a powerful marketing tool. Earning the B Corp certification is an effective marketing tool on its own. It instantly lends your organization’s credibility to the cause you want to support. Many organizations claim to be “supporting the environment” or “going green,” using various accreditations that may or may not be genuine. Your B Corp status shows your clients that you take your mission seriously and can support your claims with real evidence.
It can help you attract and retain employees. According to the Harvard Business Review, millennials, who comprise a large portion of the global workforce, prefer working for organizations connected to a larger purpose.
Talented individuals passionate about a cause are often drawn to jobs with organizations that share their values. Of course, anyone can work for a paycheck, but you might find recruiting and retaining talents easier if your potential employees believe they’re contributing to the greater good.
It allows you to connect with like-minded organizations and investors. When you become B Corp certified, you join a global network of over 2,600 organizations that share your values. B Lab also organizes networking events for B Corps, which can be quite beneficial if you need suggestions, suppliers, potential partners, or anything else.
Needless to say, socially responsible organizations attract many investors. Of course, investors love to invest in organizations with a profitable business model, but some may also prefer to invest in projects that will advance society. Your B Corp status may be what sets you apart from the competition. Moreover, your B Corp status may allow you to collect fundraising, charge annual fees, or engage in other non-profit activities that entice investors.
Getting accepted is challenging. Becoming B Corp Certified is not a walk in the park. You must achieve an overall score of 80 or above on the B Impact Assessment test, which contains more than 200 points. Attaining this score may take a lot of time and energy. Maintaining adherence to them may as well.
You must evaluate the non-financial impact of your actions. As a recognized B Corp, you are legally required to consider your stakeholders’ interests when making decisions.
Let’s assume you can switch your packaging material to a less expensive option. However, the alternative is not eco-friendly, and the manufacturing process would expose your staff to harmful chemicals. If you take this route, your shareholders and employees can sue you and your directors for failing to uphold your organization’s social goal.
B Corp certification opens your organization to ongoing scrutiny, and a wrong decision or action can kickstart the process of stripping away your B Corp status. That means you may always need to be prepared for a crisis. Listen to episode 43 of Messaging on a Mission, “Crisis Communications,” with David Oates, for insight on the best things to do during pre-crisis, crisis, and post-crisis situations.
There are no tax breaks or additional tax benefits. If you think earning the B Corp status might get you a tax boost or federal tax breaks, think again. Your tax structure will remain the same as opposed to traditional corporations like an LLC or an S Corp.
B Corp is not available in every state. Only a few states recognize the B Corp as a corporate classification. You may need to check with your local state officials before filing your incorporation articles to see if they are available.
Earning the B Corp status might not be suitable for everyone. However, for all the reasons above, you need to consider its decision’s impact on your stakeholders.
Of course, you do not need to have B Corp status to have a positive social impact. Need help determining how? We can help!