Need to Know: Rise of the B Corps

A class of companies is emerging with a mission to make a positive social impact — but it’s prompting debate about directors’ duties, writes Narelle Hooper.

It’s an eclectic group that stretches from wealth manager Australian Ethical and ASX-listed hospitality equipment supplier Silver Chef to global health provider Aspen Medical and the Melbourne hipster founders of Who Gives a Crap — companies that have been established, and certified, for their positive social and environmental impact and ethical standards. This small but growing community of “B Corporations” (or B Corps) also includes outdoor clothing manufacturer Patagonia, peer-to-peer ecommerce site Etsy, and crowdfunding platform Kickstarter.

Certified B Corporations and international “benefit corporations” are part of a global movement to use business as a force for good (there are more than 2200 Certified B Corps and close to 5000 benefit corporations worldwide). Both meet higher levels of accountability and transparency but there’s an important distinction. B Corps are assessed by the non-profit organisation B Lab on areas such as governance, workers, community and environment. Companies that gain B Corp certification meet verified levels of social and environmental performance, transparency and accountability.

A benefit corporation, on the other hand, has a legal framework that requires it to pursue a public benefit in addition to profit. It is mandated to balance the interests of all stakeholders, including those of shareholders, and is required to have a positive impact on society. Benefit corporations must also publish a public report of their overall social and environmental performance assessed against a third-party standard. (Some benefit corporations are also Certified B Corps.)

Since 2008, 31 American states have implemented specific public benefit corporation legislation; Italy and Puerto Rico introduced it in 2015. The legislation is now being pursued in the UK, Argentina, Colombia, Brazil, Canada, Chile, Portugal and Taiwan.

Rebecca Rozencwajg, government relations and policy adviser for B Lab Australia & New Zealand, says benefit corporations and B Corps are a small class of companies relative to traditional corporates, but interest in the movement is gaining momentum. Australasia is the fastest-growing region for B Corp certification, with more than 200 companies certified and almost 2000 taking B Lab’s B Impact Assessment since 2014.

“We need a credible standard to show that companies are walking the talk and not greenwashing, which is where the B Corp Certification comes in,” says Rozencwajg. But a legal dilemma potentially lurks amid this rising interest. While a B Corp director’s fiduciary duty lies with the company, they must also be mindful of its social purpose.

Are legal and policy setting changes needed?

At a recent B Lab forum in Sydney, discussion focused on the need for legal and policy settings to enable these organisations to grow. To this end, B Lab Australia & New Zealand is seeking changes to the Corporations Act 2001 that would enable companies to opt in and become a benefit company (the Australian equivalent of benefit corporations overseas).

B Lab argues that this change will provide directors with clarity regarding their ability to consider and balance stakeholder interests. Under current laws, says Rozencwajg, there is uncertainty for directors of B Corps.

However, the AICD’s policy position is that the objects of benefit companies are able to be achieved under the current law and that changes are unnecessary. Vincent Stanley, Patagonia’s director of philosophy, says a huge shift has occurred in consumer attitudes and policymakers need to keep up. Boards and management teams contemplating whether this path is for them “have to have a deeper conversation”, he says.

“You can make the business case all the way up the wazoo — you can say it’s more engaging for customers and employees and better for the bottom line. If this is something you value, it’s something you go and do. The business case is actually the weaker case. The social and moral case is stronger.”