B Corps: To Be or Not to Be?

11 May 2015

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Being a good corporate citizen is an effective way to stand out in the eyes of your customers, employees and investors. But how do you prove your commitment to corporate responsibility to skeptical stakeholders? B Lab, a not-for-profit organization, awards its prestigious “B Corp” certification to businesses that meet its rigorous standards of social and environmental performance, accountability, and transparency.

Numbers Don’t Lie

According to B Lab’s website, compared to other sustainable businesses, B Corps are:

68% more likely to donate 10% (or more) of their profits to charities,

47% more likely to use on-site renewable energy,

18% more likely to use suppliers from low-income communities,

55% more likely to cover at least some health insurance costs for their employees, and

2.5 times more likely to give employees at least 20 hours per year of paid time off to participate in community volunteer activities.

So far, there are more than 1,000 certified B Corps from 33 countries in over 60 industries, including baby food manufacturer Plum Organics, outdoor gear retailer Patagonia and online bazaar Etsy, which made its initial public offering earlier in April. If you’re interested in joining this elite group, here are some FAQs about B Corp certification:

1. What Are the B Corp Certification Requirements?

The first step in earning your B Corp certification is to complete the B Impact Assessment located on B Lab’s website. This application evaluates the overall impact a business has on its employees, investors and community. It generally takes about 1 to 3 hours to complete, and questions vary depending on your size, industry and geographic location.

Helpful Hint: Before you sit down to take the assessment, gather up your most recent financial statements, a vendor ledger, and a product bill of materials or a customer list.

Based on your answers to the assessment, the company will be scored between 0 and 200 points. Any score above zero indicates that your company is having a positive social and environmental impact. Companies with at least 80 points may be eligible for B Corp certification.

In addition to this assessment, B Corp applicants are reviewed over the phone by a member of B Lab’s staff to clarify ambiguous answers and more closely evaluate the company’s ethics, community involvement, supply chain and employment practices. The staff will select about eight to 12 socially responsible answers and ask for detailed documentation about your company’s specific policies and procedures. Certified B Corps also must meet B Lab’s disclosure and legal requirements.

Each year B Lab randomly selects 10% of B Corps for on-site reviews. Every two years, B Corps must reapply for certification if they want to continue using the B Corp seal on their products and marketing materials.

2. How Much Does It Cost To Become a B Corp?

Obtaining a B Impact Assessment is free. However, if you want to use the official B Corp seal on your products and marketing materials, you must pay a certification fee that varies based on the company’s size. For example, companies with less than $1 million in annual revenue pay only $500 annually. Companies with revenue between $10 million and $19,999,999 pay $5,000 per year. Those with revenue above $1 billion pay $50,000 or more per year, depending on the structure of the company.

3. What’s the Difference Between a B Corp and a Benefit Corporation?

B Corp is a certification award by B Lab. It’s not to be confused with a benefit corporation, a legal business structure recognized in 27 states and the District of Columbia. When businesses incorporate as benefit corporations, management has a responsibility to make decisions that benefit not only shareholders but also employees and society at large. In some cases, benefit corporation status could protect businesses from shareholder or creditor lawsuits, if management chooses to forgo profits in pursuit of their social missions.

B Lab is a strong supporter of the concept of benefit corporations, however. So, in most states, B Corps are strongly encouraged to become benefit corporations or to modify their shareholder agreements to mirror the way benefit corporations are set up. Converting may be difficult for publicly traded B Corps, however, depending on the state laws governing shareholder consent to changes in legal status.

4. Why Does B Corp Certification Matter?

The B Corp label is more than a marketing gimmick. Earning the certification is also a strategic decision to look beyond enhancing shareholder value merely in terms of higher profits. B Corps strive to make money — and make a difference. For start-ups and small businesses in particular, B Corp certification can legitimize the company’s commitment to socially responsible business practices and provide a network of similar-minded business owners to interact with.

Today, B Corp certification is a global phenomenon that’s quickly gaining momentum and can help differentiate your business. Eventually, it could become a requirement to remain competitive in a more socially responsible marketplace.

About the Author

McClanathan, Burg & Associates, LLC. is a full service accounting firm. Our team members provide services including: Tax, Audit, Assurance and Accounting, Estate and Trust, Forensic Accounting, Litigation Support and Business Valuation.