As B Corporations Spread, Who Holds Them Accountable?

B Corp

May 2, 2012; Source: Greenbiz.com

Nonprofits of all stripes would be well advised to become more familiar with the “hybrid” corporate forms that are attracting attention from government agencies and foundations as alternative mechanisms for achieving social good. One of those structures is the “B corporation,” companies that are recognized by some states as being able to make decisions that value the concerns and needs of stakeholders, not just shareholders. In other words, a certified B corporation, in states which recognize these entities, could choose to follow an environmentally sensitive policy even if it does not maximize the company’s and the shareholder’s profit.

The nonprofit B lab is the national certifier of B corporations, but who audits the companies to see if they’re really living up to their commitments to social responsibility and environmental protection? Once a B corporation is certified, who or what really holds the B corporation accountable?

Seven states, beginning with Maryland in 2010 (and with the additions of California and New York this year), recognize B corporations, but Greenbiz.com notes that Delaware, where half of publicly traded corporations are incorporated, doesn’t yet recognize them. Do shareholders always accept the lower economic return from a corporation’s socially responsible mission? Greenbiz.com cites the example of Ben & Jerry’s, which spurned an offer from a socially minded purchaser in favor of a higher share price bid from Unilever for fear that shareholders would sue the owners of Ben & Jerry’s for having chosen the less profitable offer. In theory, according to this article, the B corporation status “widen(s) the corporation’s responsibilities beyond the board’s traditional fiduciary duties to shareholders, requiring the company to also consider its material positive benefit to society and the environment.”

Of course, as the article notes, there is really “nothing in corporate law that states that companies exist solely to maximize profit to shareholders,” but the notion that profit maximization is part of what corporations do constitutes what one observer called “the myth of shareholder value,” a myth that many corporations and shareholders believe to be true and operational. Are B corporations a nice but destined-to-be-tiny slice of the corporate sector, or do they reflect what John Montgomery, one of the forces behind California’s adoption of the B corporation, called, “the very front end of a global paradigm shift to having corporations that exist to optimize good and profit?”

For nonprofits, if B corporations become more widely accepted and recognized in more states, what does that mean for the line, if there is one, between what nonprofits do and what B corporations can do to promote the societal good?—Rick Cohen

About

Rick Cohen

Rick joined NPQ in 2006, after almost eight years as the executive director of the National Committee for Responsive Philanthropy (NCRP). Before that he played various roles as a community worker and advisor to others doing community work. He has also worked in government. Cohen pursues investigative and analytical articles, advocates for increased philanthropic giving and access for disenfranchised constituencies, and promotes increased philanthropic and nonprofit accountability.

  • Shelly Alcorn, CAE

    Excellent article and all good questions.

    This is one of the reasons we believe the third sector (not-for-profit trade and professional associations and charities) cannot sit on the sidelines but should actively be involved in setting standards for benefit corporations that are meaningful, credible and transparent. We have set up a 501(c)(3) the Benefit Corporation Standards Institute to directly engage in answering these questions using our association experience and knowledge of standard setting. BCSI can act as a collaborative platform to engage all sectors – public, private and third – in a collective effort to improve outcomes for both consumers and investors.

    We invite all interested third sector folks to get in touch with us and join in the effort to create a more socially and environmentally conscious capitalism in the United States and internationally. For more information please visit our website at http://www.bcorpinstitute.org. We welcome input and feedback.

    Shelly

  • Mary Stelletello

    As a certified B Corporation, I think that 10% of B certified Corps are audited each year and the certification must be renewed every 2 years. I spent 25 years of my career in the nonprofit sector. When I started my consulting firm, I wanted to demonstrate my commitment to societal good, that is why I certified as a B Corp. Indeed the blurring of corporate legal structure has been in play for several years. If the pressure on charitable contribution tax deduction continues to tip the scales away from nonprofits this blurring will become even stronger. In 2009, La Piana Consulting and the Irvine Foundation conducted a study on the trends facing the nonprofit sector http://lapiana.org/downloads/Convergence_Report_2009.pdf

    As the blurring continues, the sector will need to think about how to appeal for attracting capital beyond the charitable tax-deduction and use the same kinds of arguments as hybrids. It is good for all stakeholders (beneificiaries, community at-large, staff, economy).