July 17, 2010; Source: Times Herald-Record | New York State hasn’t yet joined Vermont and Maryland, which have enacted legislation authorizing the creation of “B corporations”. What are B corporations? According to the group that appears to have originated the idea, authorized B corporations incorporate public purposes such as comprehensive and transparent social and environmental performance standards into their corporate charters.
The purpose is to allow certified B corporations to pursue social responsibility goals which could potentially, in theory, reduce profitability, but give them protection against shareholder derivatives lawsuits for having failed to maximize shareholders’ bottom line interests. Some 300 corporations nationwide have been certified as B corporations, which advocates suggest will account for 5 percent to 7 percent of the nation’s gross domestic product in a generation—roughly what the nonprofit sector does today.
Most of the B corporations currently in existence are tiny, such as the two mentioned in the Times Herald-Record that provide “strategic and communications advice to socially responsible businesses” (one of them uses a wind-powered website vendor). Are B corporations like “low profit limited liability corporations” (L3Cs) looking hungrily at resources that are currently identified with the nonprofit sector? If the motive of B corporations were simply to allow them to pursue social responsibility goals immunized from shareholder lawsuits, many more might have changed their charters. But profit-making corporations aren’t going to forego alternative angles for profit.
The Certified B Corporation website mentions the expectation that these entities will eventually be “tax preferred by the IRS.” No surprise there. In Pennsylvania, the City of Philadelphia in 2009 created a tax incentive program for the years 2012 through 2017 authorizing tax credits of $4,000 against the gross receipts portion of the Business Privilege Tax for 25 “certified sustainable businesses” corporations. To qualify as one of the 25, a business would have to get a B corporation certification.
As an advocate noted, Philadelphia’s tax credit gives “institutional credibility” to the concept. Another suggests that the next step for the B corporation concept is advocacy for “tax, procurement and investment incentives.” As many as ten states are toying with B corporation authorizing legislation. B corporations and L3Cs are attractive ideas on their face value, but what are they really capable of accomplishing, and what do they mean for the nonprofit sector?—Rick Cohen