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Commercial Question

B the change: B-corps driving socially responsible business

updated on 26 May 2015

Question

What is the B-corp movement and how do the social and environmental considerations of companies influence the work of lawyers?

Answer

B-corps are companies which have successfully obtained a certification to recognise their commitment to – and good practices in – corporate social responsibility and environmental sustainability. For lawyers, it is important to understand clients’ motivations for taking particular business decisions and the options available to put them into practice.

B-corps

Nowadays, businesses are becoming increasingly committed to driving positive social change as well as generating a profit. B-corp certification provides a mechanism to help businesses to achieve both.

B-corps are for-profit companies which have successfully applied for a certification by B Lab, a non-profit, US-based organisation. The certification represents B Lab’s satisfaction that each certified B-corp has demonstrated sufficient commitment to social and environmental performance, accountability and transparency in its business model.

B-corps generally achieve the required standard for certification by adopting enhanced duties in their corporate constitutional documentation. Directors are also given greater scope to make decisions which are not geared purely toward profit-making, but which aim to achieve wider, socially responsible goals.

Inc. magazine called B-corps “the highest standard for socially responsible business” in 2011. Certified companies benefit from joining a community of like-minded businesses and there is a ‘certified B-corp’ logo for companies to promote their positive message to customers and investors. Several large companies are already certified as B-corps in the United States, including, for example, ice cream giant Ben & Jerry’s.

Origins and aims of the B-corp movement

The B-corp movement has its origins in the United States and has been around since the mid-2000s. Since then, the movement has become global, with active B-corps in over 30 different countries. In September 2015, B Lab UK is officially launching. While some UK companies have already certified as B-corps, the official launch will highlight B Lab’s corporate social responsibility model in the United Kingdom.

One aim of the B-corp movement is to redefine what is meant by ‘success’ in business. Beyond the aspiration to realise a profit, the B-corp movement encourages recognition of the ‘triple bottom line’: profit, people and planet.

The B-corp movement hopes to encourage companies to compete not just to be the best in the world, but to be “the best for the world”. B Lab claims that, as a result of the B-corp community’s collective success, “Individuals and communities will enjoy greater economic opportunity, society will address its most challenging environmental problems and more people will find fulfilment”.

How it works in the United Kingdom

Under English law, the directors of a company are subject to general statutory duties under the Companies Act 2006. Under the act, directors must act in a way they consider would promote the success of the company for the benefit of its members as a whole. For this they must take into account several ‘stakeholder factors’ such as employee interests, environmental impact and the desirability of maintaining a reputation for high standards of business conduct. But in general, it is the benefit to members (ie, shareholders) in turning a profit which is the paramount consideration for directors.

The act has the effect that that where the purposes of the company go beyond simply attaining a benefit for its shareholders, the definition of ‘success’ can be read instead as achieving those purposes. Thus companies can redefine their own purposes to include the responsibility and sustainability ideals to which the B-corp movement subscribes.

In general this means a company adopting, in its constitutional documentation, objects (ie, purposes) which extend not only to promoting the success of the business for the benefit of its shareholders, but also to having a material positive impact on society and the environment.

Differentiation from US benefit corporations

In the United States, a ‘benefit corporation’ is a legal status under state law. This means that benefit corporations are recognised in law as a specific ‘type’ of company. Many states have legislated to permit companies to be incorporated as – or be able to elect to become – benefit corporations. Here is the benefit corporation legislation of two such states, Florida and Delaware.

By contrast, B-corp certification is run by a private organisation (B Lab) and has no statutory underpinning. The Companies Act regime described above is the primary UK legislation regulating the affairs of companies and there are currently no proposals in the United Kingdom to put the B-corp model on a statutory footing. Instead, the B-corp certification for UK incorporated companies is intended to work within the existing Companies Act framework.

However, benefit corporations broadly pursue similar goals to B-corps (ie, they are for-profit companies which aim to operate in a responsible and sustainable manner).

Certification requirements

To become a B-corp, a company must take the following steps:

  • Pass the B Impact Assessment – this questionnaire assesses a company’s policies and practices to determine whether they meet the standard of social and environmental commitment necessary to certify as a B-corp. Applicants must score at least 80 out of 200 points to qualify for certification. B Lab conducts an assessment review and companies submit supporting documentation and a confidential disclosure questionnaire to demonstrate their commitment.
  • Meet legal requirements – there are different legal tests based on where in the world a company is incorporated, but broadly companies must show commitment in their corporate constitutional structures to having a positive overall effect on society and the environment.
  • Sign the B-corp Declaration of Interdependence and Term Sheet – to commit to uphold the B-corp ideals.
  • Pay the certification fee – the amount is determined on a sliding scale based on turnover (ie, sales). Certification lasts for a term of two years, after which the company needs to recertify in order to retain B-corp status. This also enables companies to continually re-assess their own practices and policies and provides them with a clear view of how well the company is achieving its social and environmental goals.

Potential downsides

Some commentators have argued that the B-corp certification requirements result in the overregulation of companies. Moreover, it might be thought that B-corp status is reserved for a niche section of the economy and could only apply to a relatively small number of companies. However, proponents of the B-corp movement argue that the additional transparency and self-regulation afforded by the B-corp regime is beneficial for companies. There are also more than 1,000 certified B-corps from a very wide range of industry sectors.

If a company has a high amount of annual sales, to certify as a B-corp it must expense a relatively large amount (in the region of tens of thousands of pounds, dollars or euro) in order to satisfy the certification fee. Nonetheless, B-corp advocates suggest that the feedback and mission-checking functions of the B-corp certification process are worth the cost.

Tasks for lawyers

Lawyers assisting corporate clients are most likely to get involved with:

  • advising on whether B-corp status is suitable for a particular company, given its corporate structure, aims and values;
  • advising on the certification process;
  • liaising with B Lab to obtain guidance on the relevant legal test, depending on where geographically the company is incorporated;
  • assisting the company to meet the legal requirements for certification by making relevant drafting amendments to a company’s articles of association (ie, its corporate constitutional documentation) if necessary; and
  • assisting the company to prepare its documentation for review in the certification process.

It is therefore fundamental for lawyers to have an excellent understanding of the nature of the client’s business and the drivers for decision-making within the company.

Conclusion

The B-corp movement is neither the first nor the only avenue for companies to pursue goals wider than the accumulation of profit, but it provides an interesting opportunity for companies to demonstrate their commitment to achieving broader social good through running their businesses conscientiously.

In a world in which the social, ethical and environmental policies of companies are of significant interest to customers and investors, it is more important than ever for lawyers to have an understanding of the considerations which drive company directors’ approach to their business model and the options open to companies to showcase good practices.

Natasha Holcroft-Emmess is a trainee solicitor at Slaughter and May.