In the USA, a “B-Corporation” or “benefit corporation” is a for-profit corporation that has been authorized by 30+ states, including the District of Columbia, that focuses on positive impacts to society, community, workers and the environment, in addition to shareholders, as its legally defined purpose. B-corporations are different from traditional corporations by design, e.g. in transparency and accountability, but not with regards to taxation. As of 2015, Italy has introduced a similar type of for-profit corporate entity called “Società Benefit”, an essentially direct translation from english, thus making Italy the second country worldwide to make this status available on its territory. Australia, too, is in the process of allowing their own version as of this year, 2016. Whether or not it will come into law has yet to be seen, but we remain hopeful.
The stated intent of a benefit corporation is creating overall public benefit, not just benefiting the small group of share holders and executives which tend to benefit from traditional companies. “Public benefit” is defined as having a noticeable material impact on society/community and the environment. In economic terms this would be stated as a corporation which seeks to maximize positive externalities while minimizing negative externalities. A b-corporation’s officers and directors operate the business with the same power as in a traditional corporation but must first consider the impact their decisions will have not only on shareholders but also on communities and the environment. In traditional corporations, shareholders alone are left to judge the company’s financial performance, with little say from outside except in extreme situations, e.g. Enron or B.P.
Inside a B-corporation, shareholders evaluate performance by analyzing the totality of the company’s social, environmental, and fiscal attributes. Transparency requirements require B-corporations to make public annual surveys detailing their positive impacts upon social and environmental performance using comprehensive, reliable, independent, and non-corrupt third-party standards. Some states, for example, require benefit corporations to file reports with their local Secretary of State, or merely to publish said surveys publicly another way. Either way, neither the Secretary of State, nor any other outside body, has control over the content of the “benefit report”.
Depending upon the state, shareholders retain their private right to action, often times called a benefit enforcement proceeding, to effectively enforce the company’s mandate when the business has not sufficiently pursued or created a public benefit worth mentioning. However, as of this date, no benefit enforcement proceeding has been enacted by benefit corporation shareholders in any U.S. jurisdiction.
There are around a dozen third-party rubrics that satisfy the mandated reporting requirements for b-corporation statutes. B-corporations need not acquire certification or be audited by a 3rd party standard. Instead, they utilize 3rd party standards merely as a rubric to measure performance. While we would prefer there be an objective and absolute criteria for these corporations, we understand that we cannot allow the perfect to be the enemy of the good. That a company attempts to live up to one of these rubrics is, we believe, a wonderful step in the right direction.
We wish more would do it and believe the larger battle, in fact, is getting more corporations to become B-corporations, not further policing the existing B-corprorations which have already, to a certain degree, demonstrated a responsibility to their community. Now, if a company used the B-corporation designation to further their own ends, without believing in what it stands for then we would be upset. As it stands, Etsy, has gathered some controversy. Some claim it doesn’t uphold a perfect standard. What do we think? Etsy isn’t perfect, but neither is the world. We are just glad they are trying.