A B Corp or, in this case more properly called a benefit corporation, is a new class of corporation for companies seeking to blend both profit and purpose.
The B Corp is a new type of corporation for a new type of entrepreneur, the social entrepreneur, who creates business models that benefit society, the environment, employees, customers, and investors. These social entrepreneurs believe that business can serve both shareholders and society, considering the impact of their decisions on multiple stakeholders rather than maintaining a singular focus on short-term maximization of financial profits.
At times the pursuit of a social / environmental impact can have a negative impact on profitability, which can create tension between the investor and social entrepreneur.
Under a traditional corporation, the investor has the right to sue the entrepreneur if their purpose has a negative financial impact. So, social entrepreneurs are often stuck between a rock and a hard place. She is forced to choose between pursuing their purpose and risk possible personal liability if those decisions do not maximize shareholder value. Or even compromising on their purpose to please the investor.
The B Corp solves that dilemma.
SHIFT IN FOCUS
The benefit corporation shifts the mandate of the company from a narrow focus on pure profit maximization to a broader focus of creating a positive impact on people and planet while still making a profit. At the same time it explicitly removes the legal liability for choosing purpose over profit. In fact the legal duty flips from a mandate to maximize profit to a mandate to create purpose by operating the company in a socially and environmentally conscious manner.
INCREASE TRANSPARENCY & ACCOUNTABILITY
Beyond the shift in focus, the B Corp is designed to increase transparency and accountability regarding their social and environmental impact. Every year B Corps are required to measure their social and environmental performance and share that in an annual benefit report to shareholders, the state and the public.
If you are interested in learning whether or not your company would be a good fit, check out our 5 minute quiz: Should I Be A B Corp?
Lastly, there is a little confusion between the benefit corporation and B Corp certification. Both are often referred to as “B Corps”, so I thought I’d mention the difference.
Above is a brief description of a benefit corporation, but B Corp certification is a consumer-facing certification, like organic certification for food or LEED certification for architecture, for companies socially responsible and sustainable business. Regardless of legal structure, any company that meets the requirements can become B Corp certified. To learn more about certification, click here.