As you’re likely aware, the Benefit Corporation and B Corporation movement is growing rapidly. In discussing the technicalities of the legal entity and certification, sometimes the purpose and rationale for the two get lost in the mix. So I’ll define here the unique problem this duo sets out to solve, and map out how the duo is uniquely suited to solving it.
The Problem: Companies Are Forced To Be Selfish
Companies that want to do good for the sake of doing good can’t within traditional legal structures.
Traditional LLC and Corporation fiduciary duties prescribe that the managers of a firm ought to maximize shareholder wealth. If the managers intentionally take an action that will reduce shareholder wealth, the managers may be in breach of their fiduciary duties.
At surface level, this makes some sense – you don’t want people wasting the money you gave them to help build a business. At a deeper level, this breeds short-sightedness, selfishness, and wastefulness.
It precludes humans from exercising their altruistic capabilities in the business context. It constrains creativity in how to solve the world’s pressing social and environmental problems. It creates selfish, hedonistic, and destructive workplace environments. And it relegates spirituality and morality to a separate realm – do well for yourself, and then do good, if you have some left over.
Now, I don’t want to over-state the claim here: you can do good while doing well – namely, as long as doing good helps your bottom line. But where helping others doesn’t help the corporation’s economic interests, the law is clear that, in a traditional corporation, you must bow to the profit interest.
This is antithetical to many spiritual and moral doctrines.
Companies That Claim To Do Good Can’t Be Held Accountable To That Claim
Because companies are only allowed to do good insofar as it is beneficial to the company in the economic sense, there is no way to hold a traditional corporation or LLC accountable to accomplishing any sort of moral purpose outside of generating a profit. (I don’t, by the way, claim that productivity or industriousness or profit are inherently evil, by any means.)
Consumers Are Left To Be Selfish
Consumers cannot objectively discern between good companies and bad.
Consumers lack confidence in companies’ claims of doing good because consumers understand that companies have an economic incentive to appear to be doing more good than they are in fact doing.
Because customers lack the time and interest level necessary to fully research each and every purchase decision they make on a given day, customers rely on third-party certifications, and are more likely to believe company claims when they are backed by a third-party standard: with a third-party standard, there is disinterested, objective validation behind the company’s claim. This is why consumers are willing to pay more for Organic and Fair Trade products – they’re paying for certainty that the product is what it says it is.
Customers Can’t Compare The Amount Of Good Done From One Company To Another
Wal-mart donates $X to charity per year. The local general store pays its employees a living wage and supports local suppliers. Which is doing more good?
Before B Corporation metrics were introduced, the public lacked a clear, measureable, and comparable way to evaluate purchase decisions based on how responsible companies were with regard to how they operated their business.
Customers’ inability to easily compare companies based on their social and environmental performance leaves consumers to buy based primarily on selfish desire because their altruistic motives lack any solid ground for traction in purchase decision-making.
The Benefit Corporation solves the first two problems stated above.
The benefit corporation legal entity contains the following attributes that are uniquely suited to both allowing companies to do good, and holding them accountable to doing good.
- A statute-mandated corporate purpose of creating public benefit
- An option to state an additional purpose of creating a specific public benefit
- A duty to consider your stakeholders
- A shareholder right of action to enforce the purpose of creating public benefit
- Mandated annual reporting according to a third-party standard
- Asset-locking by way of supermajority voting
Unlike nonprofits, benefit corporations also have a purpose of generating a profit, and can distribute that profit to shareholders. So, unlike traditional corporations, benefit corporations actually allow and require their owners and managers to pursue benevolent activities. Businesses can therefore stop imposing a selfish work culture and start caring for their employees, communities, and environment as they should.
The B Corporation solves the latter two problems stated above.
The B Corporation certification analyzes a business along approximately 140 points of analysis, including:
- Supply Chain
- Impacts on the Environment (local and global)
- Impacts on the Community (local and global)
- Impacts on Employees
- Stakeholder Relationships and Engagement
- Charitable Giving
- Business Model Impacts
The B Corporation certification synthesizes that comprehensive analysis into a score out of 200. The scores are weighted according to business size, and the assessment is adjusted based on the industry and type of business. This allows the metrics to be as flexible as possible with regard to different business models and operating environments, while still retaining apples-to-apples comparability.
By breaking the score down into three concrete impact focus areas: employees, the environment, and the community, the B Corporation metrics allows consumers – and investors and employees – to evaluate potential buying, investing, and employment opportunities with regard to the comprehensive impacts of the business. So we can exercise our interest in supporting the conscious economy without all the confusion and less time-cost.
This article was originally published on CSRwire
Dirk Sampselle is Founding Partner at B Revolution Consulting, a benefit corporation consulting firm that helps social entrepreneurs structure, fund, and market their social enterprises.