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To B Or Not To B
April 10, 2012
In the last six months, California and New York followed in the footsteps of five other states and enacted a law authorizing benefit corporations. The social enterprise world cheered, and press releases flew like confetti. Virtually every reporter referred to the new corporate form as a “B” corporation. But they made a mistake: a benefit corporation is not a B corporation. And neither is a must-do for budding social entrepreneurs.
So what’s the story?
Let’s start with the “benefit corporation” and “B corporation” distinction. Corporate law governs the former, trademark law the latter. The benefit corporation is a distinct legal form, recognized in law as a separate legal “person” (and, yes, that designation should have large quotation marks around it). Under both California and New York law, the entity must, among other things, confer a broad benefit upon the public as measured by an independent third party standard (specific social purposes may be included but are not required), and report annually on what it has done to achieve it. The board of directors must take the interests of a wide set of stakeholders (not just the owners) into account when making business decisions, and they may not place the interests of any one group over the others. This is not your grandmother’s corporation.
A “B corporation,” on the other hand, is a trademark—a certification. All kinds of companies regardless of their legal organizational form can be certified. As a certified B Corporation, companies are entitled to use the brand-enhancing B Corporation logo and to participate in the B Corp network with its various privileges, such as marketing campaigns and peer-to-peer discounts.
To be certified, the company undergoes a rigorous assessment by the non-profit B Lab. The resulting score (and payment of a small fee) determines whether or not you get B corporation status. As it happens, some benefit corporations are also B corporations, and some B corporations are also benefit corporations, but neither is a requirement of becoming the other.
Confused? Hey, we’re just getting started!
When the legal entity benefit corporation was first introduced, third party certification of authenticity was a central feature. However, due to concerns that the non-profit B Lab organization might amass too much power as the default, primary certifier of benefit corporations, the statutory language was broadened and the certification requirement was de-emphasized. The practical result is that there are now two overlapping options—legal “benefit” status and trademark “B” certification.
Despite the similarity in nomenclature, the team at B Lab, the nonprofit that created the B corporation and also advocated for the benefit corporation, doesn’t believe the separate designations create confusion. The organization has turned its attention to launching a sophisticated system for the evaluation of global companies and their societal impact (Global Impact Investment Rating System or “GIIRS”) for prospective investors. So B Lab may be moving on in terms of its strategic focus. Meanwhile things are still quite early-stage and very much in flux. And the confusion, while real, may not really be detrimental. After all, if your goal is to help companies establish an identity as “different,” who but lawyers will really care about this stuff?
So where does this leave social entrepreneurs?
Legal benefit corporation status is new and has lots of sex appeal. It’s flashy. More often than not, though, it will not be mission-critical. There are other ways to secure your social mission—formal benefit corporation status is optional. It’s also the case that other “new” legal models may in time be just as influential. The case can be made that it’s still too early to place your bets.
Many observers believe that the advantages benefit corporation status deliver are brand-related. In this regard, it’s no different from B Corporation status, where the benefits also involve image and reputation.
In both cases, there are reporting requirements that require a commitment of time and resources. Are the trade-offs worth it? There’s no single right answer to this. Appropriateness must be determined on a case-by-case basis.
One thing is certain, though. Whether to go “benefit” or “B” is an important business decision that requires careful deliberation. Don’t just plunge in because it seems like the right or cutting-edge thing to do. One of these options may be just what your brand needs.
And maybe not.