In a capitalist society, it is easy to be cynical about corporate motives, but not every for-profit business is solely interested in maximizing profits. Some businesses are changing up their business models to better reflect the values of their employees and ensure their profits go towards those efforts.
Recently, the CEO of Patagonia made headlines for his unconventional decision to transfer his ownership of the company to a trust designed to preserve Patagonia’s independence and ensure its profits would always go towards efforts it values, such as combating climate change. This isn’t the first step Patagonia has taken to putting the common good ahead of profits. In 2012, they were the first company in California to apply for certification to become a B Corp, joining 500 already certified B Corps around the globe.
So here is what to know about the growing movement of B Corps.
Where did it all begin?
Before we talk about what a B Corp is, let’s talk about where it started – in Pennsylvania, with the non-profit organization B Lab.
B Lab was founded in 2006 by Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy. Gilbert and Houlahan had previously run a shoe and apparel company throughout the 1990s that gave 10% of its profits to local charities. The two of them learned firsthand the difficulties of sustaining their values and mission as the business grew and outside investors put pressure on their business model. After making the decision to sell the company in 2005, the founders were disheartened to see the company’s commitments to employees and the community immediately stripped away under new ownership.
The founders were convinced there had to be a way for a business to grow, raise capital, and liquidate, while still holding on to a mission. Thus, B Lab and B Corps were created.
What exactly does the B stand for?
The ‘B’ in B Corporation stands for ‘benefit’ and refers to ensuring the corporation benefits all stakeholders and not just the investors or shareholders – including customers, employees, suppliers, communities, and the environment. The idea behind the B Corp was to shift the global economy from a system that benefits few to one that benefits all by balancing profit with purpose.
In order to obtain B Corp status a for-profit company must apply for and be certified by B Lab after meeting their high standards of social and environmental performance, accountability, and transparency.
How does being certified ensure a company benefits all?
Unlike a corporate social responsibility report, becoming a certified B Corp is more than a mere declaration or certification, it establishes a legal framework that allows the company to protect their mission during capital raises and leadership changes. Under U.S. corporate law, as well as cultural expectations, companies generally run under the concept of ‘shareholder primacy’ where maximizing profits for shareholders takes precedence above all other stakeholders. A B Corp instead is able to integrate a concept called ‘stakeholder governance’ which ensures the company stays legally accountable to all of its stakeholders and not just shareholders.
Therefore a B Corp is able to recognize success as something much more broad than profits and relieves the company from shareholder lawsuits. Similar to a B Corp, a Public Benefit Corporation or PBC, is a legal status that is recognized in 35 states and D.C. the same way LLCs are. B Corps and PBCs are not mutually exclusive and some companies may have both designations.
Do I even know any B Corps?
Patagonia is one of the largest B Corps certified through B Lab, but they are among thousands of companies around the world and odds are you probably even shop at one of them. Earlier this year, Insider published a list of 19 B Corps that ‘make great products while using their profits for good’. Included are Bombas, Athleta, Cotopaxi, and The Body Shop.
According to the B Lab’s website, there are currently 2,148 certified B Corps in the United States alone with new companies being added each month. You can use their search tool to filter companies by location size, and even ownership type.
B Lab also releases Best For The World lists each year in five categories: Community, Customers, Environment, Governance, and Workers. See if any of your favorite companies made this year’s list.
What happens with B Corps in the coming years is up to journalists to report. Recently, Abigail Disney (yes, that Disney) was on a podcast discussing her documentary and asked the thought-provoking question, “what if you shifted Disney to becoming a B Corp… imagine the size and power of that company and how many companies might follow?” Journalists should imagine it and start talking to the companies who have already made the shift, follow up with what they are doing, and ask other companies if they are considering joining the movement.