Wondering what all that B Corp talk is about? SEE Change contributor and legal advisor, Natalie McFarlane, breaks it down for you here.
There has been much ado south of the border about recent developments with B Corps (B stands for “Benefit”) and the concomitant legislative amendments to state corporate laws, which give birth to a new type of legal corporate form: the Benefit Corporation. This piece will serve to clarify the difference between “B Corp” and “Benefit Corporation,” highlight the benefits and responsibilities of becoming a Certified B Corp for social entrepreneurs, and touch on Canadian developments of Benefit Corporation legislative proposals.
The Benefit Corporation legislation provides another corporate form for companies to consider adopting rather than replacing existing legal forms. The legislation has the effect of expanding corporate fiduciary duties and providing legal protection to directors and officers to consider the interests of constituencies beyond shareholders. To date, Hawaii, Virginia, Maryland, Vermont and New Jersey have passed Benefit Corporation legislation. Further, Colorado, New York, North Carolina, Pennsylvania, California and Michigan have introduced legislative proposals. B Corp differs from the Benefit Corporation in that it is not a legal form. Rather, it is a certification that is conferred by B Lab, a nonprofit organization dedicated to using the power of business to solve social and environmental problems.
It is important to note that Certified B Corporations are not practicing CSR, neither are they responsible businesses, nor green businesses. They are corporations that meet B Lab’s standards of social and environmental performance, transparency, and accountability, and are legally required to consider the impact of their decisions on their employees, suppliers, community, consumers, and environment. Currently, there are more than 440 B Corps from over 50 industries, representing $2 billion in collective revenues and $6.5 billion in capital under management.
Given that Canadian corporate law already obliges the directors of a corporation to consider several stakeholder and non-financial interests (e.g. shareholders, employees, creditors, consumers, governments and environment) in carrying out their fiduciary duty of determining what is in the best interests of the corporation, the question then becomes, “Why would a Canadian corporation choose to become a Certified B Corp?” To my mind, the rationale includes considerations that can be broadly categorized asfollows: (i) Intra-relational; (ii) Inter-relational; and (iii) Directional.
The intra-relational reasons that may lead a Canadian corporation to consider becoming a certified B Corporation include:
- formalizing the essence of the corporation’s raison-d’être;
- adhering to third-party accountability standards; and
- increasing profits.
Formalizing the corporation’s blended-value purpose involves amending the corporation’s Articles to include the consideration of employees, consumers, the community and the environment. This critical step creates the legal foundation that will support and inform operational function, strategic development, and business growth that reflect the corporation’s values.
Adhering to ongoing independent and transparent third-party assessment creates a built-in system for the corporation to maintain the authenticity of its corporate DNA, or increase its social and environmental impact. Concerning the impact on corporate profits, recurring annual savings are among the benefits of B Corp service partnerships, which have reported immediate improvements on the financial bottom line of certified companies.
The inter-relational reasons for consideration include market identity, investor interest, and talent attraction. Beyond the level of product output, the B Corp certification has the effect of distinguishing the company itself in the marketplace. A clear effect of this is facilitating the matching of the corporation with consumers that have shared values. In the same vein, B Corps are well-positioned to stand-out in the eyes of paradigm-aligned and mission-aligned investors inside and outside of the B Corp partner community, as well as potential employees and partners.
The directional rationale includes the idea of building momentum for the enactment of Benefit Corporation legislation, which has the effect of creating a new legal corporate form, and the idea of catalyzing the emergence of a new asset class to support its growth, known as “impact investing.”
As it relates to the associated responsibilities of becoming a B Corp, there is usually a requirement of the corporation to be operational for a minimum of one year prior to being eligible for certification (which requires score of at least 80/200 on the B Impact Assessment survey). The responsibilities that are tied to becoming and remaining a Certified B Corp include:
- knowing how the B-Impact Assessment system works;
- developing comprehensive long-term and short-term strategies in order to preserve the integrity of the corporation’s blended-value DNA, in addition to maintaining or improving the corporation’s B Corp rating; and
- preparing public or internal Benefit Reports.
Some noted challenges include the associated cost of becoming a Certified B Corp; and the special resolution approval by at least two-thirds of shareholder votes, or written special resolution signed by all qualified shareholders, that would be required by law to effect the necessary amendment to the corporation’s Articles.
It is also noteworthy for Canadian companies considering B Corp certification to recognize that, while the right of action against the corporation is limited exclusively to shareholders for U.S. Benefit Corporations, Canadian corporate law grants stakeholders, beyond shareholders, rights of action against the corporation in certain circumstances (e.g. creditors).
Canadian Public policy initiatives for the development of Benefit Corporation legislation have commenced with the leadership of Social Innovation Generation (SIG) at MaRS. A Benefit Corporation Legislation Working Group and Steering Committee has been convened to create a policy proposal for drafting legislation that would recognize a new corporate form for social purpose businesses in Ontario.
For social entrepreneurs in Canada and internationally, it is a dynamic time on the legal landscape, as corporate law moves to support the development and growth of businesses that create positive impacts in society.
Natalie McFarlane is the founder of Positive Impact Law Group, a law firm for social enterprises. She obtained her LL.B. from the University of Windsor in 2004 where she served as an elected Faculty Council Representative, Vice-President of the Black Law Student’s Association of Canada (Windsor Chapter), and Editorial Assistant of the Windsor Review of Legal and Social Issues. Natalie was called to the Ontario Bar in 2005. Her professional legal experience includes serving the role of In-house Counsel and Assistant Corporate Secretary at multinational institutions in the financial services sector.
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