May 07, 2015
Why is B Lab making all B-Corps become Benefit Corps?
Posted by Usha Rodrigues

I blogged last week about Etsy's IPO, but it took me until now to figure out what bothered me about the story.  It came to me while I was explaining to a local entrepreneur the difference between a B-Corp and a benefit corporation.  A B-Corp can be a for-profit entity, but is certified "to meet rigorous standards of social and environmental performance, accountability, and transparency)"   A benefit corporation is a different kind of corporation--one organized not just for profit, but for some other social purpose as well. If you think that entity choice matters--as I do--then the choice to become a benefit corporation is a much stronger statement than just being a B-Corp, because that choice is baked into that organization's constitutive document.   It's a more credible commitment, if you will, to social values. 

Let me be clear, I'm skeptical of the need for benefit corporations on principle.  Unless you're Craigslist or Henry Ford, I think corporate law gives you plenty of flexibility.  But if you buy into the presumption that benefit corporations do provide value, they matter as signals to investors and consumers.  As I explained to the Athens entrepreneur, currently if you want to show that social enterprise matters to you, you can become a B-Corp. And if you really want to show that it matters, you can become a benefit corporation.  But if B Lab requires certified B-Corps to become benefit corporations within 4 years, entities have fewer modes to express their degree of social commitment.  And I don't think that's a good thing.  

 

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