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What Is a B Corporation?

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There’s more to life than money. With that in mind, many companies have now been exploring a new way of doing business, beyond the bottom line of profit. 

Envato workplace
Providing a great place to work is one of the key areas of focus when a company is assessed for B Corp certification. Image source: Envato Blog

In this tutorial, we’ll look at what a B corporation is, how to become a B corporation, and why it’s important. So, if you’re ready to give your business a new social purpose, or you’re just curious about the concept, read on to discover everything you need to know.

1. What Is a B Corporation?

Let’s start by going through a basic B corporation definition. According to the official website for certified B Corporations:

"Certified B Corporations are a new kind of business that balances purpose and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment."

As you’ll see from the definition, B corporations aren't charities—they're businesses that aim to make a profit. But the crucial point is that they aim to balance that profit with purpose. And they take decisions with a broader community in mind.

To become a B corporation, you've got to go through a rigorous certification process run by a non-profit organization called B Lab. Certified B corporations have made a commitment to run their companies in a socially conscious way, and are regularly monitored to ensure they’re living up to that commitment.

B Corporations vs. Benefit Corporations

You may also come across another type of B corporation. In some U.S. states, a benefit corporation is a special type of legal entity—for more examples of company legal entities, see this post:

Benefit corporations are sometimes also called B corporations, and their purpose is similar. They're companies that have a broader purpose than merely generating profit, aiming instead for a positive social and environmental impact.

Because of this similarity, the two varieties of B corporation often get confused. But the difference is that a benefit corporation is a legal form specific to the U.S., whereas a B corporation is a certification available to any company around the world, with a variety of different legal structures.

In this article, we’ll be concentrating on the global B Corp certification provided by B Lab. Some of the points about the purpose of B corporations also apply to U.S. benefit corporations, but the specifics of how to get set up are different.

2. Why B Corporations Are Important

Traditionally, corporations are structured to focus on “shareholder value”. That means that company directors and managers have a duty to put the shareholder first and try to maximise the profits that they distribute back to investors.

It’s a good aim in some respects, but it doesn’t take account of the impact all companies, big or small, have on the world around them. We see some of the negative aspects of that all the time, with things like environmental pollution, resource scarcity, downward pressure on worker pay, etc. For a company that focuses only on profit, for example, it may be logical to cut costs by laying off workers or using cheap, environmentally harmful raw materials.

The idea of B corporations is to recognise that companies are part of a much larger world and should aim to have a positive impact. A B corporation still aims to be profitable and to serve the interests of its shareholders, but it also takes other interests into account: workers, customers, nature, etc.

To learn more, watch this explainer video:

Envato recently went through the B Corp certification process. CEO and Founder Collis Ta’eed explains why:

“From the earliest days of Envato, we’ve operated with ‘Not Just The Bottom Line’ as a core value. We’ve taken a longer-term view of how our business creates value for our customers, our creatives, our staff and our wider community. While we have a healthy appreciation for our bottom line, we are committed to operating a sustainable business that creates wealth for many, not just for some.”

This year, Envato shared 20% of its profits with employees and 2% with charities in Australia through the Envato Foundation. And the company is coming close to generating US$1 billion in earnings for its community of creators, designers and coders around the world.

But it’s also about more than creating wealth for a broader set of people. It’s about how you define a business and what its purpose is. Ta’eed positions what Envato is doing as part of a much bigger shift in society as a whole:

“That we can play a part, however small, in leading a global culture shift that redefines what success in business looks like is incredibly humbling, but one we are proud to champion.”

3. Pros and Cons of Becoming a B Corporation

So far, so good. Who doesn’t want to contribute to a better world? But now let’s look at the nitty gritty. In this section we’ll look at the practical advantages and disadvantages for companies thinking of following this path.

3 Advantages of B Corp Certification

Here are some of the main advantages of becoming a B corporation:

1. Reputation

There are now 3,500 certified B corporations in 74 countries around the world. That may sound like a lot, but consider that there are 5.6 million businesses in the U.S. alone. B Corp certification marks you out as being part of a relatively small group of companies that really care about their broader social impact and have gone through a rigorous process to prove it. That boosts your reputation, which can help with everything from supplier relationships to employee retention and hiring. Here’s a quote to illustrate that:

Quote on why B Corp membership helped with hiring
Source: B Lab

2. Improvement

Because the certification process is so rigorous, you’ll probably come across plenty of areas where you need to improve. Envato, for example, made improvements to its anti-corruption and bribery policies, switched to green energy in its Melbourne office, etc. The process makes you evaluate everything you do and ensure it's aligned with your values, which can be difficult but is ultimately a good thing for any company that truly cares about doing the right thing.

3. Clarity of Purpose

B Corp certification isn't just a one-off event. B corporations continue to be regularly monitored to see how well they're performing in the B Impact Assessment. It’s a tough scale from 0 to 200, with a perfect score being extremely difficult to achieve, so there’s room for continuous improvement, and the process can keep you aligned with your values and provide an ethical compass for difficult decisions that may arise in future.

3 Disadvantages of B Corp Certification

But it’s not all good news. Here are the main disadvantages of becoming a B corporation:

1. Time & Complexity

The process of becoming a B corporation isn't easy. We’ll go into the details in the next section, but just be prepared for the fact that you and/or some of your staff will have to devote a significant amount of time to the process. You may also need to make changes to the way you do business, so that the certification process ends up having an impact on multiple departments.

2. Cost

There's a cost associated with becoming a B corporation, with annual fees of anywhere from $1,000 for very small companies to $50,000 for larger ones. On top of that, you also need to consider that doing things the right way isn't always the cheapest way. Things like avoiding environmental pollution and treating your suppliers more fairly may add to your cost base.

3. Constraints on Decision-Making

Becoming a B corporation is a very public commitment to things like social and environmental sustainability, transparency, and considering the impact on other stakeholders when making decisions. That shouldn’t be a problem as long as you’re committed to those values, but it’s worth being aware that both B Labs and the watching public will be holding you to those values in future and will question any decisions that don't seem to align with them.

4. How to Become a B Corporation

Now that we’ve covered what B corporations are and the pros and cons of becoming a B corporation, let's look at how the certification process works.

It’s worth noting that the process is quite complex, and we can’t cover all of it in this article, so consider this a brief introduction. You can find full details on the B Lab website or by watching this video.

Here's the process to become a B corporation:

Initial Assessment

The process starts by going through the B Impact Assessment. This is a free online tool that you can use (confidentially) to measure your impact on your workers, customers, community, and the environment.

You answer a series of questions. Then you can compare your results against those of other companies to see where you’re doing well and where you need to improve.

Verification

The initial assessment gives you an idea of how you’re doing, but if you want to be certified, you’ll need to prove that you’re meeting the requirements and provide documentation so that B Lab can verify everything.

To get certified, you’ll need to achieve an overall B Impact Score of 80 out of 200. That sounds like quite a low passing grade, but it’s a tough marking system, so you may need to do some work to get up to 80. The average score for businesses that complete the assessment is around 50.

Making It Legal

Once you’ve met the requirements and had everything verified, it’s time to make it legal. That’s right—if you hadn’t realised it already, this isn't just a PR exercise. You’ll actually need to update your Articles of Association or make other changes to ensure that you're legally required to consider the impact of your decisions on all your stakeholders in future.

You’ll also sign the B Corp agreement and pay your fees at this stage.

Monitor Progress

That’s it! You now get to announce the good news and enjoy all the positive vibes that come your way. But when the warm glow wears off, you’ll also need to start working on all the areas where you still need to improve, so that you can nudge that score up closer to 200. In three years, you’ll get assessed all over again to make sure you’re living up to the commitments you’ve made.

Learn More About B Corporations

In this tutorial, you’ve learned what B corporations are, why they’re important, why your business might want to become a B corporation, and how to go through the process.

If you want to learn more about the subject, head over to the B Lab website to access more resources. You can also watch this video with some more examples of B corporations and the social missions they're pursuing:

You can also read these tutorials about finding a purpose in your business:

Or if you support the idea but aren't in a position to make your business a B corporation right now, why not seek out businesses with socially conscious missions for your purchasing decisions? You can use this certified B corporation list to search by industry and location and find a company you can feel good about doing business with.

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