TOPICS > Economy

Benefit Corporations Aim to Make a Profit — and a Positive Impact

February 29, 2012 at 12:00 AM EST
Seven states have passed legislation officially recognizing companies with a conscience. Called benefit corporations, or B Corps, the firms strive to make a positive impact on society while also turning a profit. Economics correspondent Paul Solman reports as part of his Making Sen$e of financial news series.
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JUDY WOODRUFF: Next, companies that are making social and environmental change a part of their legal business mission, one that goes beyond profits.

The NewsHour’s economics correspondent, Paul Solman, looks at what’s behind the small wave of companies signing on.

It’s part of his ongoing reporting Making Sense of financial news.

(CHEERING AND APPLAUSE)

PAUL SOLMAN: Celebrating the passage of a new law in New York State that will officially recognize companies with a conscience.

DANIEL SQUADRON, D-N.Y., state senator: There’s no reason that you can’t care about the world and also care about your own business.

PAUL SOLMAN: The folks at the Tribeca offices of non-profit B Lab are behind the law which creates a new corporate class called a benefit corporation, firms that make money and a positive impact on society.

Seven states have already passed Benefit Corp legislation.

B Lab co-founder Andrew Kassoy.

ANDREW KASSOY, co-founder, B Lab: Existing corporate law was built for maximization of shareholder value. And so the legal innovation here is that idea that the directors and the officers of the company are now protected to be able to consider a broader set of interests.

PAUL SOLMAN: The law protects firms that file as benefit corporations from shareholder lawsuits that could otherwise charge they didn’t maximize profits.

B Corps are legally mandated to maximize social benefits as well. Long before any laws were passed, Kassoy, along with his former Stanford University roommates, Jay Coen Gilbert and Bart Houlahan, concocted B Lab to certify B Corps, making sure that companies officially doing good actually were.

JAY COEN GILBERT, co-founder, B Lab: Every company today markets itself as one of the good guys. The thing that B Lab does as a nonprofit is do a lot of that vigorous research and independent verification on behalf of all those consumers that want to know about the company that stands behind the product.

PAUL SOLMAN: B Lab rates firms on how well they care for employees, the environment, the community. If they get a score of 80 or more out of a possible 200, they’re certified B Corps and can market themselves as such.

In five years, some 500 companies have been certified, like countertop maker IceStone. Its factory in the Brooklyn Navy Yard day-lit to stint on electricity, its product made partly of glass diverted from landfills and made using recycled water.

IceStone’s workers are paid $15 an hour minimum in a low-income area to do environmentally friendly manufacturing.

CEO Dal LaMagna founded, and later sold, the socially responsible bathroom accessorizer Tweezerman.

DAL LAMAGNA, CEO, IceStone: I would argue this is even better for the shareholders. For instance, I sold Tweezerman for a lot more money than I would have sold it had I operated the traditional way, to just be an exploitive operator.

PAUL SOLMAN: But LaMagna realized firms like his needed some protection when his friends Ben and Jerry had to sell their iconic ice cream company to the highest bidder, for fear of shareholder suits.

DAL LAMAGNA: The B Corporation has arrived to give us cover, in effect, legal cover, so that we can operate this way, without having some shareholder saying, hey, wait a minute, you can’t be selling your company for a dollar less than the most you can get.

PAUL SOLMAN: And even the foulest of the fowl are treated well here.

What’s the owl for?

DAL LAMAGNA: The owls got rid of the pigeons. When I got here, there were 20 or 30 pigeons in the factory and we couldn’t get rid of them. And, you know, we’re a B Corp, so we’re humane. So, I hung owls all over the factory. The pigeons lined up and they walked out the door.

PAUL SOLMAN: IceStone is one kind of B Corp, Revolution Foods another.

Co-founder Kristin Richmond.

KRISTIN RICHMOND, co-founder, Revolution Foods: We’re serving 120,000 healthy meals a day, 80 percent of which are served to students on the free and reduced lunch program.

PAUL SOLMAN: Cooks at seven culinary centers around the country prepare fresh school meals daily, using no artificial ingredients, with fresh fruit and vegetables galore.

Each morning, the meals are trucked to schools like Potomac Lighthouse in Northeast D.C., where kids get low-fat, low-cal alternatives to today’s traditional fare, though this day’s health food wasn’t instantly recognizable.

STUDENT: Milk, butter, squash?

STUDENT: The squish — the squish. I forgot the name of it.

KHALA VALENTINE, Student: We had pasta, and it was really good, and the butterscotch. It was good. I ate some of it.

PAUL SOLMAN: The mystery veg? Butternut squash.

Khala Valentine said she knew the value of eating well.

KHALA VALENTINE: You want to keep healthy because you don’t want to get sick because you’re eating all this fast-food and die. So that’s why you should eat healthy.

PAUL SOLMAN: For the B Corp vision to be long-lasting, it may depend on young people starting new businesses to embrace it. Warby Parker, for instance, a hip eyeglass maker in Manhattan’s SoHo, that’s broken the big company stranglehold on the prescription market, selling designer specs for $95.

Co-founder Neil Blumenthal.

NEIL BLUMENTHAL, co-founder, Warby Parker: The dirty little secret in the eyewear industry is that glasses aren’t that expensive to manufacture. The power is concentrated in a few large companies that are keeping prices artificially high.

And we thought that we could come in, undercut them just by doing it smarter. And we thought that that was an inherent good to sort of transfer billions of dollars from these large multinational corporations to normal people.

PAUL SOLMAN: Warby Parker now has a staff of 50. They buy carbon credits to offset their power use, keep an eagle eye on customer satisfaction. But perhaps the most appealing angle here? The firm donates prescription eyewear throughout the developing world.

Co-founder Dave Gilboa.

DAVE GILBOA, Co-Founder, Warby Parker: We have a buy a pair, give a pair program. So, for every pair of glasses that we sell, we distribute a pair to someone in need.

PAUL SOLMAN: As for the daunting selection of fashionable frames.

What would I be saying if I were wearing these?

NEIL BLUMENTHAL: These?

(LAUGHTER)

NEIL BLUMENTHAL: You might be saying that you’re a hipster from Williamsburg.

(LAUGHTER)

PAUL SOLMAN: A hipster from Williamsburg, Brooklyn?

NEIL BLUMENTHAL: Yes, so we’re not sure if these are the exact right frame for you.

PAUL SOLMAN: And this look would be?

NEIL BLUMENTHAL: This would be intellectual.

PAUL SOLMAN: Intellectual.

NEIL BLUMENTHAL: A reporter at a world-famous TV show.

PAUL SOLMAN: Yeah, right.

Look, like all B Corps, these guys need to hawk their wares if they can hope to do anything else.

B Lab co-founder Jay Coen Gilbert.

JAY COEN GILBERT: What B Corps are doing is they’re saying, we’re going to redefine what it means to be successful in business. We’re perfectly happy to make money. We recognize that that’s important, but we’re not here to make money. We’re here to make a difference. And the money that we make helps fuel the difference we can make.

PAUL SOLMAN: But wait a minute. Socially responsible firms have been about to make the difference my entire career.

So why is this year different?

B Lab co-founder Bart Houlahan.

BART HOULAHAN, Co-Founder, B Lab: You have all the elements of a marketplace, yet it wasn’t quite accelerating. And then you put on top of it, you put on top of it the financial collapse. When the broader public started to really doubt business, and you create a positive alternative, all of a sudden, we’re preaching to the choir.

PAUL SOLMAN: Back at the B Lab party, lawyer Allen Bromberger was skeptical that social-mindedness spelled success.

ALLEN BROMBERGER, Perlman & Perlman: If you have to pay 39 cents more for a widget to buy it from a company that doesn’t use child labor, you’re not going to be able to have the cheapest price in the marketplace necessarily. And ultimately this stuff is all going to be decided in the market.

PAUL SOLMAN: So the movement could be successful.

ALLEN BROMBERGER: It could well be that in 10 years, this is just a standard part of doing business in America, and nobody thinks anything special about it.

PAUL SOLMAN: Or it could be?

ALLEN BROMBERGER: Or it could be a fad that came and went. It could be the miniskirt of the — 2012. Who knows?

PAUL SOLMAN: At the moment, though, the movement looks lively enough, with bills making business with a conscience legal pending from Colorado to North Carolina.

___

UPDATE | Mar. 2, 2012: Thanks to commenter FlavorCom for pointing out a distinction between our use of “B Corp” and “benefit corporations.” We checked back in with B Labs, the third-party certification organization. Here’s what spokesperson Heather Van Dusen told us:

The commenter is somewhat correct. Benefit corporations and Certified B Corporations are often, and understandably, confused. Both are sometimes called B Corps by mistake or as shorthand.

Certified B Corporation is a certification conferred by the nonprofit B Lab.  Benefit corporation is a legal status administered by the state. Benefit corporations do not need to be certified.

From the perspective of the general public the major difference is verified performance. A summary of the differences, taken from our site, is summarized below.

Performance: Each Certified B Corp has achieved a verified minimum score on the B Impact Asessment (80/200). While benefit corporations are required to publish an annual report assessing their overall social and environmental performance against a third party standard, that report is not required to be verified, certified or audited by a third party standard organization.

Support: Certified B Corps have access to a portfolio of services and support from B Lab to help them with marketing, sales, raising money, saving money, learning from and doing business within the community of Certified B Corps.   

Availability: Benefit corporation is a corporate status legally recognized by 7 states as of Dec. 15, 2011. Certified B Corporation is a certification available to businesses in all 50 states and around the world. As of Feb. 1, 2011 there are 500 Certified B Corps from more than 60 industries.

Importantly, the legislation would not have moved forward without the support of the existing community of Certified B Corporations in each state.