Certifying Corporate Responsiblity

Somewhere between company and non-profit, certified B Corporations add a new twist to corporate social responsibility.

The folks behind the B Corporation phenomenon were in Toronto this month to launch the Sustainability Leadership Exchange. For those who haven't run into this before (and we have to admit that included us until recently), B Corporations are, in the words of their inventors, "a new type of corporation which uses the power of business to solve social and environmental problems."

Hmmm, doesn't sound very new to us. Sounds suspiciously like corporate social responsibility (CSR), or maybe social enterprise, or social business, as Muhammad Yunus likes to call it.

Well yes, in a way B Corporations are pretty much like these existing forms, but there are a couple of new twists. And it's these new features that account for some of the interest – both good and bad – that B Corps are beginning to stir up.

The first big difference is that B Corporations are certified. As a company. To a single set of standards. Not a ranking. Not a product or site certification. A full company certification. Yes, you heard it right. This is a certification that once and for all seeks to distinguish the good companies from the bad. Or as the B Corporation website puts it, to "distinguish good companies from good marketing."

Second, and this is where things start to get really interesting, B Corps are required to "amend [their] corporate governing documents to incorporate the interests of employees, community, and the environment." Shareholder primacy out, stakeholder governance in:

The B Corporation legal framework specifically expands the responsibilities of the corporation to include these stakeholder interests. By redefining the legal purpose of the company, this framework makes it easier for good businesses to make decisions that support their social or environmental missions. The framework also allows them to attract mission-aligned capital and maintain mission as they grow, scale, and even plan succession. We believe that by creating B Corporations within existing corporate law, we are providing a market-driven solution today for good businesses.

This is a novel idea: working within the legal framework of corporate law to redefine the purpose of a company on an individual basis. So, the logic goes, even if the company draws in outside investment in order to grow, the founding ideals can be institutionalized and protected. Well, that's the plan anyway. As far as we know, the legal status hasn't been tested yet in the courts, but with an amended charter signed off by the board and approved by shareholders/members/partners, it looks pretty compelling.

B Lab, the non-profit behind the initiative, is lobbying for fuller legal recognition of B Corporations and has pushed for legislative changes in a number of U.S. states, with votes on the proposals coming up sometime this year in several jurisdictions. The purpose is to establish some legal recognition for an enterprise that stands somewhere between a company and a non-profit. Yes, a social enterprise, if you will.

From our point of view, the initiative is a much needed one – especially in the U.S. and Canada, which do not yet have formal recognition for alternative organizations of this type. In Canada, it is now easier for non-profit organizations to start up commercial enterprises, but legal changes to establish a genuinely new corporate form have until now failed to excite much support. The B Corporation phenomenon could certainly kick-start a much needed conversation in this respect.

On the downside, B Lab's rating system, however good it might be, is bound to have its critics. In our view, it is just too ambitious to try and rank a whole company in this way. A more focused approach that simply started with whether the product or service had a net social benefit would have been better. However, the legal twist is an exciting development for the CSR movement, which too often gets bogged down in the shareholder-stakeholder battle.

No surprise, then, that more than 285 U.S. companies across 30 or so industries have already joined the initiative and changed their articles of incorporation or partnership/membership agreement. It will be interesting to see how the courts respond. And if you want to hear more about the initiative and the companies involved, CNN recently ran an interesting little video on B Corporations. Or, for a view from a socially-oriented start-up film company that is itself seeking B Corp status, here's a short video on the phenomenon from the Little Films group.