Originally published in Inside INdiana Business.
Authored Sarah Marisa Studzinski.
Read the first article in the series, “Benefit Corporations – It’s Not “Just Good Business Anymore” – It’s Better Business.”
As their names suggest, Benefit Corporations and Certified B Corps do have much in common. They are linked by the overall concept of engaging in socially and environmentally driven business practices. In fact, this fundamental commonality has led to the interchangeable, and incorrect, use of the terms by some parties when describing socially conscious businesses.
Benefit Corporations and Certified B Corps have other parallels in addition to social responsibility. Directors of both must take into consideration more than just the interest of shareholders, which may include employee interests, the local community, and the environment. In addition, the social and environmental goals of each must be assessed against a neutral, third party standard which is made available to the public at large. B Lab, a non-profit organization, is also connected to both types of entities. B Lab is a non-profit entity that certifies and supports Certified B Corps and provides access to the network of other Certified B Corps for support and other services. In addition, B Lab helped develop the model benefit corporation statute that many states have used in drafting their own benefit corporations laws.
Despite these similarities Benefit Corporations and Certified B Corps are in fact different, and the differences are significant enough that a socially driven business should understand them.
Of particular significance is the difference in legal status between the two. A Benefit Corporation is a special entity with its legal status bestowed by the state. As such, Benefit Corporations are subject to the specific provisions of the statute creating their existence. Certified B Corps do not necessarily have this recognition (unless of course a business is a Benefit Corporation and a Certified B Corp). Certification is granted to a business operating under a different business model, such as a regular business corporation, limited liability company, or a partnership. These certified businesses are then subject to the traditional laws governing that particular type of business. Think of it as an endorsement of a company’s business practices–or a third party seal of approval.
The implication of this difference in legal status is important for businesses pursuing social and environmental goals. While directors of a Benefit Corporation are protected under the benefit corporation statute for decisions made in furtherance of a general public benefit (or a specific public benefit for that matter), Certified B Corps do not necessarily have the same protection. Certified B Corps which are not formed as Benefit Corporations are still subject to the traditional view that prioritizes shareholder returns over all other considerations. If shareholders’ interests in a Certified B Corp shift from a social motive to a profit motive, a Certified B Corp designation likely cannot protect the directors or the company’s social mission from changes demanded by shareholders. Only the legal status of a Benefit Corporation can truly help a company’s social mission stay on course.
That is not to say that Certified B Corps do not have their own advantages. Certified B Corps are given opportunities due to their certification status that non-certified Benefit Corporations do not have at their disposal. In order to be certified by B Lab, companies must score 80 out of 200 points on B Lab’s Impact Assessment. Once granted, certification offers certified companies access to the network of Certified B Corps as well as to a range of services and support. These services include help with raising capital, marketing, and business growth. Legal status alone does not give a Benefit Corporation access to these types of benefits.
Therefore, those considering a socially conscious business model should take care not to confuse Benefit Corporations with Certified B Corps. Each offers distinct benefits and disadvantages, but mistaking one for the other could carry future implications. Any business looking at legal recognition and/or certification should be sure to understand the differences between the two before making any decisions on which path to follow.
In fact, dual recognition may provide advantages over identifying with one of these models alone. On a basic level, legal recognition would help ensure the company stays true to its social mission and third party certification would provide access to a series of benefits for companies truly committed to their social goals. For companies truly committed to engaging in socially and environmentally responsible business practices, the combination of legal status and certification may provide an additional level of credibility. Together, both may provide a competitive edge in a market where consumers are becoming more conscious of their purchasing power.
Originally published in Inside INdiana Business.