Modern entrepreneurs, especially millennials, increasingly reject the divide between money-making businesses and society-serving nonprofits. The success of many notable companies that are profitable while also maintaining a strong sense of mission to improve society and protect the environment—Patagonia, Ben & Jerry’s, and Toms Shoes come to mind—has created a model for companies who want to “do well while doing good.” Benefit corporations and B Corp certification are two innovative tools available to entrepreneurs.
B Corp certification has become the leading voluntary third-party standard for social enterprises. Administered by B Lab, a nonprofit organization, the process subjects companies to an intensive assessment process that analyzes a company’s policies in five categories: corporate governance, employees, environment, community, and customers. Companies must score 80 points (on a scale of 200) to be certified. B Lab considers the certification process analogous to Fair Trade certification for coffee or USDA organic certification for milk. There are over 1,600 B Corps in 48 countries and B Lab is inundated with companies applying for certification. Bohlsen Group is the first Indiana B Corp, but several other companies in the states are working on obtaining certification. More information on B Corp certification is available here. Companies can explore a free self-assessment tool at the B Lab website.
On January 1, 2016, Indiana became the 28th state with a special form of corporation specifically designed for social enterprises. The concept, called a benefit corporation, bakes into a company’s DNA several legal requirements to keep it focused on the “triple bottom line” of people, planet, and profits. The Indiana statute requires directors and officers of the company to consider stakeholders (defined as employees, customers, the community, and the local and global environment) in all business decisions, not just the shareholders (owners) of the company. It results in a small but significant shift in the business mentality of those who run such companies—Indiana law previously allowed companies to consider interests other than profit-maximization, but a benefit corporation is required to do so. Benefit corporations are also required to have a benefit director, an outsider whose role it is to keep the company focused on the company’s mission. The benefit corporation must issue an annual benefit report, posted on its website, detailing how the company is fulfilling the statutory goal of having a material positive influence on society and the environment.
It is hard enough to run a successful business. So why are entrepreneurs increasingly taking on the additional complexity of incorporating as a benefit corporation or obtaining B Corp certification? Many B Corp leaders say that the certification itself helps them strengthen their own corporate values and connect with other companies (including suppliers and customers) with shared values. Supporters of the benefit corporation concept cite benefits in attracting and retaining employees, consumers, and investors. Great employees, especially millennials, often want to know they are joining a team that has both a mission and a profit incentive. Consumers increasingly seek out products and services from companies based on their social values. And the growth of a class of impact investors—investors that direct their investments so as to generate both a financial return and measurable social impact—means entrepreneurs increasingly need not fear that baking their values into their business model will prevent them from raising capital.
Both benefit corporations and B Corp certification have only developed in the past decade, and it is too early to tell what long-term effect they will have on business practices. But both innovations may be appropriate for Hoosier entrepreneurs seeking to express their companies’ belief in using business as a force for good.
Russell Menyhart is an attorney at Taft Stettinius & Hollister in Indianapolis and worked to support the passage of benefit corporation legislation in Indiana. This post does not constitute legal advice, and any entity or individual considering registering as a benefit corporation status should consult an attorney before doing so.