Historically, for-profit business entities have had one ultimate responsibility: shareholder benefit.
Now that doesn’t mean a company couldn’t also care for the environment, diversity, or other issues.
But, the legal structure of the organization itself calls for management and directors to prioritize shareholders.
This basic corporate structure is behind the majority of companies in business today.
But for a growing number of firms, including brand building agency, Oliver Russell, there is another path.
The benefit corporation or its more-rigorous cousin, the Certified B Corporation.
Public benefit doesn’t mean profit-free. And as Oliver Russell’s founder and CEO, Russ Stoddard, likes to say:
No margin, no mission.
By joining a benefit corporation, employees become part of an organization doing business through a “triple bottom line” lens which accounts for people, planet, and profit.
For many PR or marketing agencies, the potential upside—monetary, social, and other—that comes with becoming a benefit corporation is well worth the effort.
The New(ish) Corporation on the Block
Neither brand activism or using business as a force for good are new ideas.
But their codification into a different type of corporate entity is a relatively recent development.
In Idaho, where Oliver Russell has its office, benefit corporation legislation took effect in 2015.
Perhaps the best-known benefit corporation is clothing retailer Patagonia, which became a benefit corporation in 2012.
As of today, there are 34 states which passed laws enabling benefit corporations. And six more are working on it.
Benefits of the Benefit Corporation
Unsurprisingly, recruiting is one of the biggest benefits of becoming a benefit corporation.
Millennials and younger workers are increasingly driven by purpose in the workplace.
So by having benefit corporation status, your company sends a strong signal that it “walks the walk.”
Another benefit is reduced director liability.
This is because financial and non-financial (i.e., social and environmental) interests must be in balance, even in a sale or IPO situation.
Stockholders have more rights under the benefit corporation structure, giving investors certainty the company is held accountable to its mission.
Benefit corporations generally have different (and more sustainable) standards of profitability.
They see less cycles from the short-term roller coaster often characterizing the economy.
Becoming a Benefit Corporation
Only S corporations, C corporations and, with some effort, nonprofit corporations can make the jump to becoming a benefit corporation.
A limited liability company (LLC) isn’t eligible.
And those organizations which are eligible can become a benefit corporation, a Certified B Corporation, or both.
What’s the difference, you ask?
After a couple of years (varies by state), benefit corporations must enlist a third party to validate their public benefit.
This is where the Certified B Corporation comes in.
However, if your agency pursues becoming a Certified B Corporation first, becoming a benefit corporation is an easy and logical step.
Basic Benefit Corporation
First up—the plain-vanilla benefit corporation.
To become a benefit corporation, a company must have language in its charter.
It must also have Articles of Incorporation that mandate any business decisions must take all shareholder and non-financial interests into consideration.
Not only does that include traditional equity holders, but the community, environment, employees, and customers as well.
Most states require the company to provide a “general public benefit.”
The broader definition is:
A material positive impact on society and the environment, taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation.
Other states require the company to create a specific benefit, such as improving the regional environment, although this is optional in most states.
Because these definitions are vague, it is often a third-party standard-setter (usually B Lab) which determines whether a company satisfies a benefit.
There’s no minimum performance requirement for benefit corporations.
Mr. Stoddard, who has written a book on how to build a socially conscious business, says the key is being able to transparently articulate the benefit your company delivers to society, alongside financial profit.
Becoming a benefit corporation doesn’t restrict what kind of capital you can accept.
But, business owners would be wise to choose investors who align with their values and expect sustainable profits over time, not just short-term wins.
Certified B Corporations
The next level is the Certified B Corporation.
You don’t need to be a benefit corporation to become a Certified B Corporation.
However, becoming a Certified B Corp involves a bit more work than a benefit corporation, but provides access to an increasingly recognized certification.
As part of the process, an initial assessment focuses on three areas:
- governance and workers (think mailroom-to-CEO salary ratio, employee ownership, and profit sharing)
- the environment (facilities, water and energy use, and smart commuting incentives)
- community (creating a beneficial product, suppliers, distributors, local economy, and support for underserved communities)
You must score at least 80 points on the assessment to certify, and you must re-certify every three years.
Assessment is moderately intensive. At my agency, it requires about 70 hours, two staffers, and four months to complete.
The cost for filing ranges anywhere from $70 – $200 for a benefit corporation.
While becoming a Certified B Corp will cost at least $500 annually, and as much as $50,000 if your company generates $1 billion in sales.
A Different Way of Doing Business
In an environment where companies are so diverse—from solo consultants to multi-billion dollar consumer package giants touting social awareness—organizing as a benefit corporation or Certified B Corporation can drive market differentiation.
But more than that, it can (and should) change how your agency works.
You’ll be emphasizing a more holistic view of your impact and improvements in the community around you.
The process to get there may be a tad complex, but it’s a small price to pay for creating real public benefit, and not just “good washing.”