Certified B Corps are for-profit companies recognized by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency. Today, there is a growing community of more than 2,600 Certified B Corps from 60 countries and over 150 industries working together toward one unifying goal: to redefine success in business. Collectively, B Corps lead a growing global movement of people using business as a force for good.
MBI, Inc. is an American multinational software company which provides open-source enterprise IT products and services. It is currently one of a very few software companies with annual revenue of over USD 2 billion, with nearly 100 worldwide offices in almost 40 countries. This case discusses MBI’s efforts to obtain B Corp certification. The primary objective is to introduce the benefit corporation business model, and to offer insights into corporate social responsibility practices of large public corporations. Additionally, the case highlights the barriers toward certification and means to overcome these barriers.
B Lab is a U.S. nonprofit organization founded to support private enterprises, aimed at providing social and environmental benefits to stakeholders (e.g., employees and their community) in addition to their equity shareholders. Headquartered in Berwyn, PA, it provides B Corporation certification to companies seeking to verify their focus on business for social good. A vision of a legal entity that could conduct business for good without having to only focus on profits inspired B Lab’s founders, Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy, to lobby for the infrastructure necessary to build an economy where nonprofits and the public sector play the central role in solving some of society’s greatest challenges. They felt the traditional legal structures of the market were forcing companies to ignore their social and environmental responsibilities to maximize financial returns, but that given the right structure, the market itself could be a powerful tool to achieve social and environmental impact at scale.
B Lab made its first official day of work July 5, 2006, which became known as Inter-dependence Day. B Lab certified its first B Corp on June 8, 2007; in the same year King Arthur Flour became the first B Corp to put the certified B Corp logo on its products. However, it wasn’t until 2010 that the first company could legally gain benefit corporation statutes. On April 23, 2010 Maryland became the first state to sign Benefit Corp legislation into law. The new law addressed a long-time concern among entrepreneurs who needed to raise growth capital but feared losing control of the social or environmental mission of their businesses. Benefit corporations have the additional rights to hold directors accountable for failure to create a material positive impact on society or to consider the impact of decisions on employees, community, and the environment (B Lab, 2010). Vermont shortly followed Maryland with its own legislature and California Governor Jerry Brown signed benefit corps into law on October 9, 2011. In 2012, the first African, Indian, Brazilian, and German companies received certification. In 2013, Plum Organics, a wholly owned subsidiary of Campbell’s Soup Company, became the first Delaware benefit corporation.
For more information see: https://bcorporation.net/about-b-lab
The objectives of this technical note for the case is for students and other readers of the case who might not be familiar with the business-for-good model and the benefit corporation legal structure.
In April 2019, Deloitte Insights reported that the social enterprise was becoming more important over time (Volini, Schwartz, Indranil, Hauptmann, Van Durme, Denny, & Bersin, 2019). This includes nonprofits, benefit corporations, L3C entities (a.k.a. “flexible-purpose corporations”) and other social companies that may not be incorporated. Well-known social enterprises include Ben & Jerry’s (a B Corp which is a subsidiary of Unilever, a profit-driven conglomerate), Patagonia (a B Corp), the Red Cross (a nonprofit), MOO Milk (L3C dairy farmers’ cooperative), TOMS Shoes (profit-driven “one-for-all” 1 company), and Newman’s Own (private company that gives away all its after-tax profits to charities, founded by late actor Paul Newman). There are a variety of philosophical and legal reasons a company may choose one business model over another.
Nonprofit corporations often known as 501(c)(3) corporations (a reference to the section of the Internal Revenue Code) are organizations whose primary goals are charity, education, religious, literary, or scientific work, without focusing on making a profit. They are exempt from state or federal tax and any income taxes on the profit they make since their work benefits the public. The nonprofits follow the specific Internal Revenue Service rules for the profits they earn. For example, they are not allowed to distribute profits to members or political campaigns (“Choose a business,” n.d.). Another chief difference between a nonprofit corporation and a benefit corporation is the ownership factor. There are no owners or shareholders in a nonprofit company. A benefit corporation, however, does have shareholders who own the company (Bell & Scott, 2018). The mission of a nonprofit is to serve its stakeholders, usually by providing “Relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of government; and promotion of social welfare by organization designed to accomplish any of the above purposes, or (a) to lessen neighborhood tensions; (b) to eliminate prejudice and discrimination; (c) to defend human and civil rights secured by law; or (d) to combat community deterioration and juvenile delinquency” (IRS, 1980).
The L3C is an impact-driven company that bridges the gap between nonprofit and for-profit. Their primary mission is social impact over profit maximization; they are for-profit companies with a stated goal of performing a socially beneficial purpose. They are sometimes called hybrid, flexible-purpose or low-profit companies. L3C allows owners to accept donations and program-related investments, or PRIs; but the donations and PRIs are not tax deductible. As a hybrid structure, they combine the legal and tax flexibility of a traditional LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise. The L3C is obligated to be mission-driven so there is a clear order of priorities for its fiduciaries. The model makes it easier for a purpose-driven company to attain capital funds from foundations and private investors (Arneal, 2015). Unlike a straight nonprofit entity, L3C businesses can access conventional capital markets in addition to philanthropy when seeking funding and can potentially offer their investors returns on their investments. L3C requirements vary by state but, in general, require:
- Fulfill an educational or charitable purpose
- Have been formed specifically to further that purpose
- Have a primary purpose other than profit-earning
- Have no legislative or political purpose
L3Cs can operate in all 50 states. However, incorporation is allowed in only eight states and in the federal jurisdictions of two Native American Indian tribes. North Carolina had been a state allowing L3C incorporation, but this legislation was repealed in 2013. As of August 1, 2018, there were 1,531 registered L3C companies in the United States, with 78 of those incorporated in North Carolina prior to 2013. The adoption of L3C legislation has slowed since the advent of alternative social ventures, such as benefit corporations and certified B Corps.
Benefit corporations and certified B Corps are often confused. They share much in common and are complementary but have a few important differences. Both business models address the global movement to use business as a force for good current in the U.S. climate in the mid-2000s that has a focus on sustainable manufacturing and social enterprises. Both benefit corporations and certified B Corps meet higher standards of accountability and transparency than other types of incorporations. Both create the opportunity to unlock full human potential and creativity to use the power of business for the higher purpose of solving society’s most challenging problems. Both are of great PR value in attracting and retaining employees, investors, and customers and are a superb method to illustrate key differences with competitors. Both require a genuine commitment to giving back and represent alternatives to the classic 501(c)(3) nonprofit status taken by many social enterprises (Love, 2015).
Differences lie in that a certified B Corp is a voluntary certification that can be dropped at any time, whereas benefit corporation is a permanent legally binding corporate structure. B Corporation certification is available to any business around the world regardless of corporate structure, state, or country of incorporation whereas benefit corporations are only legal structures in 30 U.S. states, DC, and Italy (“English Information,” n.d.). Moreover, certified B Corps are required to achieve a minimum score of 80 in the B Impact Assessment and must go through recertification every two years. After filing its articles of incorporation, the benefit corporation does not need to report to any entity that it is upholding its fiduciary responsibility. It only remains beholden to its stakeholders. Only one organization currently provides B Corp certification, B Lab, which is a nonprofit headquartered in Berwyn, Pennsylvania.
1. In a “one for all” business model, companies will give away one product to those in need for one product sold. For example, Bombas gives a pair of socks to a homeless shelter. Their motto is “one pair purchased = one pair donated.”