Business Horizons (2014) 57, 11—20

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BUSINESS LAW & ETHICS CORNER

The double bottom line: Profit and social benefit

Kathleen Wilburn *, Ralph Wilburn

St. Edward’s University, CMB 1049, 3001 S. Congress Avenue, Austin, TX 78704, U.S.A.

KEYWORDS Abstract There is an important shift in business focus in the United States that is
B Lab; empowering companies to not only declare their intent to be ethical firms which do
Benefit corporations; good while making a profit, but also to submit proof of that commitment for annual
Certified B review by outside evaluators. A new business model is providing structure for non-
Corporations; profits that wish to grow, for for-profits that wish to be socially responsible, and for
Fourth sector; individuals who wish to invest in companies with a commitment to corporate social
Double bottom line; responsibility and sustainability. B Lab has taken the lead in providing the models
Corporate social necessary for this shift to a focus on the double bottom line: profit and social benefit.
responsibility It has created the legal documents for state legislatures to use to pass a new corporate
structure called the ‘benefit corporation.’ In the 3 years of its existence, legislatures
in 19 states and the District of Columbia have ratified the new corporate structure.
Likewise, B Lab offers a performance assessment program to become a Certified B
Corporation, independent of legal corporate status, which also serves as an evaluation
program for benefit corporations. Additionally, it has created a ratings agency and
analytics platform, the Global Impact Investing Rating System (GIIRS), to help
institutional investors evaluate the impact of companies’ corporate social responsi-
bility initiatives. This article discusses the requirements and benefits of the new
models and addresses the issues that have been raised about them. It also identifies
companies that are incorporating the benefit corporation structure and are becoming
Certified B Corporations.
# 2013 Kelley School of Business, Indiana University. Published by Elsevier Inc. All
rights reserved.

1. The double bottom line: Profit and of that commitment for annual review by outside
social benefit evaluators. A new business model creates ‘‘enter-
prises that combine a social mission with a business
There is an important shift in business focus in the engine–—and refuse to compromise on either front’’
United States that is empowering companies to not (Sabeti, 2011, p. 103). Sabeti explains the reasoning
only declare their intent to be ethical firms which do behind the movement to create a ‘fourth sector’ of
good while making a profit, but also to submit proof society based on this business model (p. 104):
Our current model of capitalism has generated
prosperity and improved the quality of life, but
* Corresponding author not without undesirable environmental and
E-mail address: kathleew@stedwards.edu (K. Wilburn) social consequences. Calls for its reform are

0007-6813/$ — see front matter # 2013 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.bushor.2013.10.001
12 BUSINESS LAW & ETHICS CORNER

getting louder, and many approaches have been Muhammad Yunus proposed a legal structure that
put forth. Whatever their labels–—creative capi- could serve for-profit and non-profit businesses
talism, philanthrocapitalism, new economy, alike. It allows non-profits to apply ‘‘many of the
impact investing, blended value, shared value same business principles that are used when devel-
–—these approaches are all rooted in the obser- oping an ordinary profit-maximizing company, while
vation that no genuine reform can take place as not losing sight of the social objective that should be
long as profit-maximizing businesses remain the at the heart of the enterprise’’ (Yunus, 2010,
sole engine of capitalism. Governments and p. 117). At the same time, it allows for-profit com-
markets must recognize and support for-benefits panies to use profit to achieve social good, legally and
as an equally legitimate model. transparently, while still satisfying shareholder de-
mands for maximizing profit. This for-benefit struc-
Their activities go by various names: corporate ture will support ‘‘the emergence of a fourth sector of
social responsibility, sustainability, cause-oriented the economy, interacting with, but separate from,
marketing and purchasing, venture philanthropy, governments, non-profits, and for profit businesses.
social investing, microfinance, civic and municipal The rise of that sector is likely to reshape the future of
enterprise. When the for-benefit model is broadly capitalism’’ (Sabeti, 2011, p. 99).
recognized, all this innovation will constitute a large
fourth sector–—which has been there all along,
though cloaked by conventional adherence to old 2. The traditional view of
categories. As governments, markets, and entrepre- corporations: The profit imperative
neurs adopt the for-benefit model, more light will
be cast on the fourth sector (Sabeti, 2011). The traditional view of corporations is that their
The idea of a social corporation is not new to the only responsibility entails utilizing resources and
United States. In the early history of America, states engaging in activities designed to increase sharehold-
chartered corporations to build infrastructure for er profit within the bounds of the law (Friedman,
public purposes. As articulated by Raskin (2011), 1970). In this for-profit business model, providing
these hired firms ‘‘could earn profits, but their legiti- social benefit or engaging in corporate social respon-
macy flowed from their delegated mission.’’ More sibility (CSR) initiatives is inconsistent with the tenets
recent efforts have emerged in other countries: of capitalism and weakens a market economy (Wine-
‘‘Belgium created the for-profit/for-purpose Société garden, 2006). Indeed, some critics of CSR have
à Finalité Sociale (SFS) in 1995, and the United argued that such initiatives are unethical for publicly
Kingdom followed with the similar Community Inter- traded corporations. Because the funds which propel
est Company (CIC) structure in 2004’’ (Munch, 2012, CSR projects rightfully belong to company stockhold-
p. 184). Several European countries are considering ers and investors, they would have to approve any use
similar laws (‘‘B Corps: Firms with Benefits,’’ 2012). of profit that went toward a social cause (Karnani,
A 2010 survey of almost 1,000 business leaders 2012). Still other opponents have noted that corpo-
representing 13 industries across the Americas, rate leaders could be subject to pressure from share-
Europe, Africa, the Middle East, and Asia revealed holders to focus on profits at the expense of social
that more than 90% of respondents agreed it will be programs, including being sued by shareholders for
necessary for firms to integrate sustainability ini- devoting company resources to socially beneficial
tiatives into corporate strategy within the next purposes: consider, ‘‘for example, providing higher-
decade (Lacy, Cooper, Hayward, & Neuberger, than-market wages to employees from disadvan-
2010). Consumers share a similar desire for socially taged social groups, or offering goods and services
responsible business practices. A research initiative at a discounted price to poor people’’ (Yunus, 2010,
by the Natural Marketing Institute shows an estimat- p. 118).
ed 68 million U.S. consumers prefer making purchas- Some view CSR as an attempt to pre-empt gov-
ing decisions based upon their self-professed ernment regulation of powerful multinational cor-
personal, social, and environmental values (eco- porations (Carpenter, Bauer, & Erdogan, 2009).
officiency, n.d.). This reflects the growing number Others see it as essential to corporate profitability
of people who want to use business to serve a in an era of changing consumer demands. A 2005
‘double bottom line’ by benefitting society while survey of CEOs revealed that only 4% of respondents
earning a profit for owners and investors, and who considered CSR ‘‘a waste of time and money’’ (‘‘The
want to use new assessment tools and transparent Next Question,’’ 2008). The value of CSR, however,
decision making to hold businesses more account- is often viewed in terms of profit rather than social
able for achieving their social and financial goals benefit. Michael Porter and Mark Kramer (2011), two
(Bernardez, 2009). prominent scholars, developed a ‘shared value’
BUSINESS LAW & ETHICS CORNER 13

model that frames social benefit as a means to that we are each dependent upon another and
increase profits. They argue that social harms or thus responsible for each other and future gen-
weaknesses frequently create internal costs for erations.
firms such as wasted energy or raw materials, costly
accidents, and the need for remedial training to B Lab drives change via three initiatives. The first is
compensate for inadequacies in education. Further- to promote ‘‘legislation creating a corporate form–—
more, addressing societal harms and constraints the benefit corporation–—that meets higher stand-
does not necessarily raise costs for firms because ards of corporate purpose, accountability, and
they can innovate through using new technologies, transparency’’ (Benefit Corp Information Center,
operating methods, and management approaches–— 2013c). B Lab has developed a template that state
and, as a result, increase their productivity and legislators can use to draft the benefit corporation
expand their markets (Porter & Kramer, 2011). law, and it lobbies for the law in state legislatures. A
From this view, social responsibility ‘‘is not about second initiative is to build ‘‘a community of Certi-
companies being good or bad, it’s about galvanizing fied B Corporations (B Corps) to make it easier for all
companies to exploit the market in addressing social of us to tell the difference between ‘good compa-
needs’’ (Lohr, 2011). As an example of the shared nies’ and just good marketing’’ (Benefit Corp Infor-
value model, Porter and Kramer (2011) pointed to mation Center, 2013c). A Certified B Corporation is
General Electric’s ‘Ecomagination’ program, which one that has completed the certification process
applied new technology to reduce energy consump- conferred by B Lab. The certification has no legal
tion. Jeffrey Immelt, the company’s CEO, made it standing, but allows a company to make a statement
very clear that CSR was not part of the equation: about its commitment to social goals and to submit
‘‘We did [the Ecomagination program] from a busi- an annual report detailing those goals. Certification
ness standpoint from Day 1. It was never about began in 2007 and may be attained whether or not
corporate social responsibility’’ (Lohr, 2011). the state in which a company is incorporated has
enacted a benefit corporation law. The third initia-
tive is to accelerate ‘‘the growth of impact investing
through use of B Lab’s GIIRS Ratings and Analytics
3. B Lab and the fourth sector platform’’ (Benefit Corp Information Center, 2013c).
Launched at the Clinton Global Initiative in 2011,
Three former corporate executives–—Jay Coen Gil-
the platform is similar to Morningstar ratings, and
bert, Bart Houlahan, and Andrew Kassoy–—created B
helps institutional investors consider the impact of
Lab, a 501(c)3 non-profit organization, to develop
companies’ CSR initiatives with the same scrutiny
structures that could be used to build the fourth
and gravity as they accord financial risk/return. Like
sector. The goal of B Lab is to use the power of
the Global Reporting Initiative’s sustainability re-
business to solve social and environmental prob- porting framework widely used by many large cor-
lems. Its website defines the non-profit’s purpose
porations throughout the world, B Lab’s reporting
as supporting businesses that want to be forces for
framework provides an external measurement
good and developing the market infrastructure that
framework for both benefit corporations and B
is needed to promote the new economic structure
Corps.
described by Yunus and Sabeti. B Lab’s (2013b)
‘Declaration of Interdependence’ states:

We envision a new sector of the economy, 4. The new ‘for-benefit’ business

which harnesses the power of private enter- models
prise to create public benefit. This sector is
comprised of a new type of corporation–—the B The fourth sector, with its double bottom line,
Corporation–—which is purpose-driven, and cre- creates new business models that can bridge the
ates benefit for all stakeholders, not just share- divide between corporate social responsibility and
holders. As members of this emerging sector and profit. Through the benefit corporation corporate
as entrepreneurs and investors in B Corpora- form, the B Corporation certification, and the GIIRS
tions, we hold these truths to be self-evident: platform, companies can declare their commitment
That we must be the change we seek in the to both profit and social benefit, consumers can
world. That all business ought to be conducted identify those companies they wish to support be-
as if people and place mattered. That, through cause they are committed to giving back to the
their products, practices, and profits, businesses planet and people, and investors can hold compa-
should aspire to do no harm and benefit all. To do nies accountable for creating both profit and social
so requires that we act with the understanding good.
14 BUSINESS LAW & ETHICS CORNER

4.1. Benefit corporations Jerry’s poor performance in the stock market.

The Motley Fool complained that ‘‘the company’s
To achieve its first objective–—promoting a new famous program of donating 7.5 percent of pretax
corporate form that meets higher standards of cor- profits to charity. . .may be ‘commendable,’ but
porate purpose, accountability, and transparency–— ‘the program lost its luster when the company failed
B Lab lobbied states to adopt legislation creating the to deliver reasonable results to its long-term inves-
new benefit corporation structure. Benefit corpora- tors’’’ (‘‘The Scoop,’’ 2000). Cohen and Greenfield
tions are legal forms of business aimed at entrepre- were forced by corporate law to sell to Unilever
neurs who want to create companies that are both after a deal Cohen put together with socially re-
profitable and socially responsible: firms that do sponsible investors failed to match Unilever’s bid.
well and do good. Maryland’s legislature created Unilever agreed to let Ben & Jerry’s continue its
the first such law in 2010, and by July 2013 the social mission, but had the legal right to rescind its
benefit corporation structure was available in agreement. However, it did allow Ben & Jerry’s to
19 states, including Delaware and the District of become the first wholly owned subsidiary to be a
Columbia. It allows a company to maximize profit, Certified B Corp in October 2012.
but requires that the company state a social purpose Benefit corporations are required to publish annu-
in its articles of incorporation and–—in most states–— al reports including ‘‘an assessment of overall social
submit an annual report assessing the company’s and environmental performance against a third party
social and environmental performance against a standard’’ (Benefit Corp Information Center, 2013b).
third-party standard. The benefit corporation struc- The third-party standard can come from a variety of
ture meets the growing demand for companies that sources. Examples include the following:
do more than make profits while curbing lawsuits by
investors who want dividends rather than social  B Lab produces the B Impact Assessment, a free
benefits. It provides social entrepreneurs with a tool for assessing overall corporate social and
path to growth that is not available under existing environmental performance;
non-profit structures that do not allow long-term
profit and rely on donations and grants.  The Global Reporting Initiative (GRI), a network-
The benefit corporation is a legal entity founded by based organization, provides a comprehensive
state statute that ‘‘(1) creates a material positive sustainability reporting framework that is widely
impact on society and the environment; (2) expands used around the world;
fiduciary duty to require consideration of nonfinan-
cial interests when making decisions; and (3) reports  The International Standardization Organization
on its overall social and environmental performance (ISO) created the ISO 2600 (or ISO SR) standard
using recognized third party standards’’ (Benefit Corp to facilitate social responsibility in business oper-
Information Center, 2013a). The impact on society ations;
and the environment can be things like ‘‘bringing a
local river back to life, providing affordable housing,  Underwriters Laboratories has a comprehensive
facilitating animal adoptions, or promoting adult enterprise-level sustainability program built upon
literacy’’ (Raskin, 2011). The structure ‘‘redefines third-party verifiable standards such as UL 880;
fiduciary duty, governance, ownership, and stake-
holder relationships’’ by requiring that a social mis-  Food Alliance and the Sustainable Agriculture
sion be tied to fiduciary responsibility so that Network (SAN) both provide certifications for
‘‘limitations on investment returns protect the orga- sustainable farming practices;
nization’s ability to achieve its mission’’ (Sabeti,
2011, p. 103).  Green Seal Business certifies goods and services
Benefit corporation statutes require that employ- that meet the highest standards of environmental
ees be fairly compensated, and that all stakehold- quality and performance; and
ers–—not just shareholders–—be included in
governance of the company. They also protect the  People 4 Earth provides a Sustainability Account-
social purpose in case of ownership transfer. Had the ing and Management System framework for prod-
benefit corporation statute been in existence at the ucts and services.
time, this last requirement would have been helpful
to Ben & Jerry’s when founders Ben Cohen and Jerry Proponents of the new benefit corporation struc-
Greenfield sold the company. They built their busi- ture reject the traditional view of corporations
ness on the ‘triple bottom line’ of profits, people, (a single-minded focus on profit). They argue that
and planet, but criticism arose regarding Ben & the new corporate structure couples the focus on
BUSINESS LAW & ETHICS CORNER 15

profit with a focus on social benefit. The owner of the governor in April 2013, and was voted down in North
first benefit corporation in Virginia, Farm Community Carolina’s legislature in May 2013 (Leslie, 2013). As
Consulting–—which helps small farmers connect with one observer noted, this trend ‘‘makes the benefit
wholesalers, supermarkets, and distributors–—stated corporation arguably the most ascendant innovation
that ‘‘[b]eing a benefit corporation adds an extra in social enterprise organizations today, and one that
layer of legitimacy’’ to his business because this acts is likely to alter the nature of mission-driven corpo-
as ‘‘a public declaration’’ regarding the firm’s com- rations in the United States’’ (Munch, 2012, p. 186).
mitment to both profit and social benefit (O’Brien, Several companies have taken advantage of this
2012). new legislation to restructure as benefit corpora-
Proponents argue that the new structure will tions. Since many states do not track the names or
allow companies to keep jobs that benefit the local number of types of corporations, B Lab keeps a list of
community, even if shareholders would gain finan- self-reported benefit corporations on its website.
cially by outsourcing the jobs (D’Ambrosio, 2012). The website also includes information to assist com-
For example, the first business in the United States panies in becoming benefit corporations. By July
to adopt the new benefit corporation structure, The 2013, B Lab’s list included 201 benefit corporations:
Big Bad Woof–—a pet store in Hyattsville, Maryland–— 71 in California (the most); 22 in Maryland; 17 in
is able to support local suppliers, even though they Pennsylvania and Vermont; 12 in Virginia; 11 in
may not be the cheapest option and could thereby New York; and fewer than 10 in Arizona, Hawaii,
reduce the store’s profit margin. According to the Illinois, Louisiana, Massachusetts, and New Jersey
store’s owner, Penny Jones-Napier, customers are (Benefit Corp Information Center, 2013a). Seven-
willing to pay more for its products because they teen companies registered as benefit corporations
support the company’s social programs. As a result, in Delaware after the law passed in July 2013.
The Big Bad Woof has made $500,000 since opening Included in the list are traditional companies like
in August 2012 and is on track for annual gross pet stores, agriculture, and transportation, as well
revenues of $1.4 million (O’Brien, 2012). as companies focused on sustainability, technology,
Proponents also predict that the benefit corpora- consulting, and developing countries. Patagonia,
tion structure will attract new capital from socially King Arthur Flour, and Greyston Bakery are among
conscious investors. In Washington, D.C., Matt the largest companies to have adopted the new
Kavanagh–—co-founder of diving company Blue benefit corporation structure. They provide good
Planet–—argued that the new benefit corporation illustrations of larger-scale organizations operating
structure would help his firm find investors who sup- under the new corporate structure.
port its commitment to ocean conservation (O’Brien,
2012). New York Assembly Speaker Sheldon Silver  Patagonia Inc. In early 2012, Patagonia became
even predicted that the framework, by creating ‘‘a the first benefit corporation in California. A pri-
new industry of corporations with a ‘double bottom vately owned company that operates as a subsidi-
line’ of profit and socially responsible practices,’’ ary of Lost Arrow Corporation, Patagonia’s mission
would unlock billions of dollars in potential invest- statement is to ‘‘[b]uild the best product, cause no
ments for companies that pursue a positive impact on unnecessary harm, and use business to inspire and
society and the environment (Kulikowski, 2012). implement solutions to the environmental crisis’’
(Patagonia, 2012). It demonstrates its commit-
4.1.1. Where and who are the new benefit ment to the environment via the company
corporations? mantra–—Reduce, Repair, Reuse, Recycle–—and
By July 2013, benefit corporation legislation had through practices of making long-lasting products,
been enacted in 19 states and the District of fixing broken equipment, helping to rehome gear
Columbia, and was pending in 8 other states. States that is no longer needed elsewhere, and accept-
with benefit corporation laws include Arizona, Ar- ing/retooling worn-out consumer items. Patagonia
kansas, California, Colorado, Delaware, Hawaii, Il- works with suppliers that make high-quality ma-
linois, Louisiana, Maryland, Massachusetts, Nevada, terials while reducing their environmental foot-
New Jersey, New York, Oregon, Pennsylvania, print, and inspects factories to ensure fair labor
South Carolina, Vermont, Virginia, and Washington. practices and good working conditions (Patagonia,
Those with pending legislation to create benefit 2012). Since 1985, Patagonia has pledged 1% of
corporations include Alabama, Connecticut, Flori- sales to the preservation and restoration of the
da, Iowa, Michigan, Montana, Rhode Island, and natural environment, and has awarded over $46
West Virginia (Benefit Corp Information Center, million in cash and in-kind donations to domestic
2013d). Benefit corporation legislation was passed and international grassroots environmental groups
by the legislature in New Mexico but vetoed by the (Patagonia, 2012). Patagonia has not yet published
16 BUSINESS LAW & ETHICS CORNER

its inaugural sustainability report for 2013, but its microcredit loans. It doubled its mission-based
website allows access to audit reports for facto- employment positions to 62 in 2012, and opened
ries that make Patagonia clothes, to social audit a second production line to meet increased orders
results from its supply chain, and to a list of its from new business partnerships. Its goals for 2013
factories. It also publishes Footprint Chronicles, include installing LED lights to reduce energy usage
which evaluates the environmental impacts on by over 60% and installing solar panels on its roof to
the supply chain, addresses issues that stake- decrease its carbon footprint (Greyston Bakery,
holders have asked about, and includes a CSR 2013b). The bakery stresses its double bottom line,
section that focuses on Patagonia’s results re- which places a priority on both profit and social
garding human rights, environment, and ethics contributions as a means of becoming ‘‘a sustain-
goals (Patagonia, 2012). able model for inner-city business development’’
(Greyston Bakery, 2013a).
 King Arthur Flour. King Arthur Flour became a
benefit corporation in Vermont in 2012. In business 4.1.2. What could go wrong?
for more than 220 years, it is the oldest flour Critics claim the new corporate structure is unnec-
company in the United States and is 100% employee essary because extant corporate laws do nothing to
owned. It has corporate social responsibility goals prevent directors from considering the interests of
in four areas: ‘‘identifying and implementing ways stakeholders other than shareholders. These oppo-
to improve our environmental footprint, providing nents point out that many states have adopted
funding and service to community organizations, ‘constituency statutes’ to protect the interests of
nurturing an employee-focused ownership culture, non-owner stakeholders. In other states, courts
and maintaining the highest standards for our ‘‘generally require only that a business decision bear
products and services’’ (King Arthur Flour, 2012). some rational relationship to a long-term corporate
To achieve these goals, the firm named a benefit and shareholder interest before applying the busi-
director to oversee its commitment to corporate ness judgment rule to shield the decision from
social responsibility (‘‘King Arthur Now,’’ 2012). In shareholder challenge’’ (Underberg, 2012).
its 2012 benefit corporation report, King Arthur Some analysts foresee possible enforcement prob-
Flour described its efforts to promote public ben- lems with the new corporate structure (Munch, 2012;
efit, including paying a living wage to all full- and Reiser, 2011). They argue that, as currently drafted,
part-time employees, paying more than 80% of benefit corporation laws ‘‘do little to ensure. . .a
family healthcare premiums, and providing each benefit corporation fulfills its social obligations and
employee with 40 hours of paid time off each year that its self-selection and identification as a dual-
to volunteer at an organization of his or her choice. purpose enterprise is more than mere puffery’’
King Arthur Flour has also increased its employ- (Munch, 2012, p. 189). Although they admit that
ment of women–—to 50% of its workforce–—and its there is accountability in undertaking social missions
use of sustainable materials in product and pack- because stakeholders can file suit against directors if
aging (B Lab, 2013d). In addition, the company they fail to meet concomitant legal requirements,
teaches local schoolchildren how to bake bread, some critics recommend additional regulations on
helping students bake one loaf for themselves and internal governance, including oversight of a com-
one to donate to a local food bank (McGann, 2012). pany’s social initiatives by a benefit director and
external regulation to prevent abuse of the structure
 Greyston Bakery. In 2012, Greyston Bakery be- (Munch, 2012). They argue that the integrity of the
came the first benefit corporation in New York. The new benefit corporation structure depends on laws
bakery was started in 1982 by a Zen Buddhist that ‘‘must not only protect these businesses’ pursuit
meditation group led by Bernard Glassman. Its of dual missions, they must keep them accountable as
slogan is, ‘‘We don’t hire people to bake brownies; well’’ (Munch, 2012, p. 195). Despite concerns that
we bake brownies to hire people’’ (Greyston the new laws do not guarantee socially responsible
Bakery, 2013a). Greyston is a model for inner-city decision making, however, commentators have ac-
business development, doing such things as pro- knowledged that the mandatory mission statements
viding training and jobs for people who tradition- and accountability provisions in these new laws ‘‘will
ally have difficulty finding employment–—such as help attract patient capital and thus provide a B Corp
immigrants, older workers, and ex-convicts–—and [Benefit Corporation] with a shareholder base less
using its profits to fund low-income housing, child- likely to apply pressure for short-term results’’
care, and education (Greyston Bakery, 2013b). (Underberg, 2012).
In its 2012 benefit corporation report, Greyston Because the benefit corporation structure is new,
Bakery reported supporting 50 families with it is unclear what legal challenges it may face from
BUSINESS LAW & ETHICS CORNER 17

shareholders. Traditionally, directors and manage- about their commitment to social goals, and is similar
ment receive protection from such lawsuits under to LEED certification for sustainable building con-
the business judgment rule, which provides immu- struction. Susan Adams (2011) explained B Corp cer-
nity to corporate directors for any decisions they tification as follows:
make ‘‘in good faith, with the care that a reasonably
The B stands for ‘benefit,’ as in benefiting
prudent person would use, and with the reasonable
workers, the community, and the Earth. To be
belief that they are acting in the best interests of
certified as a B Corporation, companies must
the corporation’’ (Legal Information Institute, n.d.).
pay an annual fee based on revenues, undergo a
But it is possible that shareholders may file lawsuits
rigorous certification process that measures
challenging directors and managers who choose to
social and environmental impact, and amend
pursue social benefits at the expense of profits on the
its articles of incorporation to adopt B Lab’s
ground that such decisions are not in the corpora-
commitment to sustainability and treating
tion’s best interests. Similar challenges may be made
workers well. B Corps also value profit-making,
regarding the protection traditionally accorded di-
but they pledge to put sustainability and work-
rectors who choose to sell the company to someone
force ethics on a par if not above efforts to
other than the highest bidder, such as when another
improve their bottom line.
party pledges to continue pursuing the company’s
social benefits. Insurers will also need to determine To qualify for B Corp certification, companies must
liability insurance rates for directors and officers in (B Lab, 2013f):
benefit corporations.
Meet comprehensive and transparent social and
Federal regulations may also impede investment
environmental performance standards; meet
in benefit corporations. Pension plans might not be
higher legal accountability standards; and build
able to invest in benefit corporations because federal
business constituency for public policies that
law–—the Employee Retirement Income Security Act
support sustainable business. . .and consider
(ERISA)–—‘‘requires pension plan fiduciaries to maxi-
all stakeholders, not just shareholders, create
mize the financial return of their investments’’
additional rights for shareholders to hold direc-
(Murray, 2012). In addition, benefit corporations
tors and officers accountable to these interests,
are not eligible for federal tax deductions that are
and limit these expanded rights to shareholders
available for charitable organizations and contribu-
exclusively.
tions, though some states are considering allowing
it. Both regulations affect potential investment in Depending on company size and industry, there may
benefit corporations. be as many as 130 to 180 factors a company must
Political concerns also pose an obstacle to the address in the certification process. A business must
adoption of benefit corporation laws. In Delaware, also have goals in five impact areas: accountability,
for example, legislators and special interest groups employee, consumer, community, and environment.
opposed proposed benefit corporation legislation on Finally, a company must score over 80 out of
the ground that ‘‘its goal is to move the corporate 200 total points to qualify for B Corp certification.
system and capitalism in general toward socialism Catherine Clifford talked to entrepreneurs who
by suggesting that there’s a higher, better purpose achieved this feat, asking about their motivation
than maximizing profit’’ (Leslie, 2013). and the certification’s importance. Adam Lowry,
co-founder of Method–—a San Francisco, California-
4.2. The B Corporation certification based eco-friendly company whose biodegradable
cleaning products are sold in more than 40,000 retail
To achieve its second objective–—making it easier to locations–—said that ‘‘earning the B Corp stamp of
identify and build a community of good companies–— approval added credibility to his company’s environ-
B Lab created the B Corporation certification pro- mentally conscious mission,’’ which was very impor-
gram in 2007 to recognize corporations that meet tant ‘‘since Method doesn’t have the resources of its
established standards for social and environmental larger competitors to create fancy reports that pub-
performance, accountability, and transparency. Al- licize initiatives related to sustainability’’ (Clifford,
though the two are often confused, B Corporation 2012). Angela Vendetti, owner of Mugshots, said that
certification is not the same as benefit corporation the questions she had to answer regarding waste
structure. A corporation can be certified by B Lab as policy, environmental activism, and ‘‘cleaning prod-
a B Corp even if it has not adopted the new benefit ucts and energy, everything from what you offer your
corporation legal structure. employees to how you consider your neighbors in the
Although it has no legal significance, B Corp certi- decisions you make’’ made her more aware of how
fication allows corporations to make a statement her company could improve (Clifford, 2012).
18 BUSINESS LAW & ETHICS CORNER

Companies that incorporate under the new benefit Some schools, such as Yale’s School of Management,
corporation structure are not required to become have even begun to offer loan forgiveness to gradu-
Certified B Corps, although many do–—including the ates who work for Certified B Corps, which may allow
aforementioned Patagonia, King Arthur Flour, and Certified B Corps to attract more talented employees
Greyston Bakery. Patagonia was one of the first com- than other companies (Kulikowski, 2012).
panies to become a Certified B Corp, and was named To highlight the success of Certified B Corps, B Lab
by B Lab as ‘Best for the World for Environmental recently named six companies as ‘Rockstars of the
Impact’ among mid-size B Corps in 2013. King Arthur New Economy’ for maintaining a high environmental
Flour became a Certified B Corp in 2007, before and social impact while still achieving extraordinary
Vermont enacted its benefit corporation law, and increases in revenue or job growth: Sungevity, Rev-
scored in the top 10% of all Certified B Corps in olution Foods, Lumni USA, Better World Books, Sus-
2012. Greyston Bakery was named by B Lab as one tainable Harvest, and Warby Parker (B Lab, 2012;
of the ‘Best for the World for Overall Impact’ in 2013. Schwartz, 2012). Sungevity, which leases solar sys-
Other notable companies to earn the B Corp certifi- tems, was named ‘Best Overall Impact’ and ‘Best
cation are Cascade Engineering, a plastics manufac- for Environmental Impact’ in 2013. Revolution
turer with $250 million in annual sales, which Foods, named one of Fast Company’s ‘10 Most
recently began installing solar panels and making Innovative Companies in Food’ for 2012, partners
lightweight plastic water filters designed for devel- with Nest Collective to provide healthy school
oping countries; and Veris Wealth Partners, one of the lunches; it increased its revenue by 100 times over
nation’s leading independent wealth advisors for 5 years, reaching $50 million in 2011. Lumni USA–—
sustainable and impact investors, named to B Lab’s which operates in Chile, Colombia, Mexico, and
list of ‘Best for the World’ companies. the United States–—provides needy students with
As a group, Certified B Corps tend to perform funding for college education and requires them to
better on a range of measures than other sustain- pay back a fixed portion of their income after
able businesses with commitments to corporate graduation; the company grew from $1.5 million
social responsibility. In its 2012 Annual Report, B to $25 million in assets in 5 years, and served 2,500
Lab (2012) noted that Certified B Corps scored 25% students in 2011 (B Lab, 2013g). Better World
higher across 200 metrics used to measure overall Books sells books discarded by libraries and col-
corporate impact on workers, the community, and leges, and for each sale made donates a portion of
the environment. B Lab (2013a) found that, when the profit and a book; it has donated over 5 million
compared to other sustainable businesses, Certified books and increased its revenue by five times in 5
B Corps are: years, growing to $50 million in 2011. In the past 15
years, Sustainable Harvest–—a coffee importer em-
 68% more likely to donate at least 10% of profits to phasizing transparency across its entire supply chain
charity; –—has brought over $200 million to rural coffee farm-
ing communities, reaching $76 million in revenue in
 47% more likely to use on-site renewable energy; 2011. Warby Parker gives a pair of eyeglasses to
someone in need for each pair that it sells, and has
 18% more likely to use suppliers from low-income donated over 100,000 pairs to date (B Lab, 2013g).
communities; Overall, B Lab awarded B Corp certification to 778
firms in 27 countries by July 1, 2013, including com-
 55% more likely to cover at least some health panies in ‘‘60 industries that have over $4.3 billion in
insurance cost for employees; revenues’’ (B Lab, 2013c). Specifically, Canada has 60
Certified B Corps. In addition, B Lab launched a
 45% more likely to give bonuses to non-executive partnership with Sistema B to support over 50 Certi-
members; fied Empresas B in Argentina, Brazil, Chile, and
Colombia. Juhudi Kilimo, a microfinance institution
 28% more likely to have women and minorities in with a $2 million portfolio funded by Grameen and
management; the Ford Foundation and serving 11,000 clients in
Kenya, became the first Certified B Corp in Africa
 4 times more likely to offer paid professional (Muiru, 2013). In March 2013, Eagle Consumables
development opportunities; and became New Zealand’s first Certified B Corp; and
Roshan, a communications provider, became the first
 2.5 times more likely to provide employees at Certified B Corp in Afghanistan. Furthermore, the
least 20 hours paid time off per year to volunteer Community of Australian B Corps is expected to start
in the community. certifying by the end of 2013 (B Lab, 2013c).
BUSINESS LAW & ETHICS CORNER 19

4.3. GIIRS ratings and analytics platform movement that represented the evolving land-
scape of how business ought to be conducted in
To achieve its third objective–—accelerating the the 21st century.
growth of impact investing–—B Lab launched the
Since its inception in 2010, the new benefit corpora-
Global Impact Investing Rating System (GIIRS). A
tion structure has been enacted in 19 states and the
ratings agency and analytics platform similar to Mor-
District of Columbia, and the roster of benefit cor-
ningstar ratings, GIIRS helps institutional investors
porations has steadily grown in a short period of time.
consider the impact of a company’s corporate social
The new laws provide a means by which small com-
responsibility initiatives with the same scrutiny used
panies that have a social purpose can earn profit and
to analyze the company’s financial risk and return.
grow in ways not available to non-profit organiza-
In May 2013, 63 funds and 409 companies from 30
tions. If the federal government allows money spent
countries were in the process of obtaining a GIIRS
on social benefit to be tax deductible, this might
rating, and 21 institutional investors had declared a
persuade large companies to change from the tradi-
preference for GIIRS-rated investments in their
tional for-profit model to the new benefit corporation
impact investment portfolios (B Lab, 2013e). By
form. The number of Certified B Corps is also steadily
August 2013, there were 50 GIIRS Pioneer Funds
increasing in the United States and around the globe,
managing more than $2 billion in impact assets
providing consumers with more opportunities to sup-
in 30 countries (Global Impact Investing Rating
port socially responsible businesses. This trend pro-
System, 2013).
vides further proof of the fourth sector’s viability and
Investors such as Good Capital, Tech Coast Angels,
strength. Increased investment in such companies,
Asset Management Company, New Enterprise Asso-
facilitated by GIIRS, could provide the momentum
ciates, JMI Equity, Simon Equities, Catterton Part-
needed to reach the tipping point that launches the
ners, Pacific Community Ventures, Mohr Davidow
for-benefit business model.
Ventures, Kleiner Perkins, Fontis Partners, and Tiger
Global Management Investors have provided venture
capital to B Corps (Global Impact Investing Rating
System, 2011). ‘‘Support for B Lab from foundations, References
and government and private business also grew by $7
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20 BUSINESS LAW & ETHICS CORNER

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