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Society - Written by on Monday, November 16, 2009 11:15 - 0 Comments

Gautam Lamba
Incorporating Social Benefit

With the proliferation of corporate scandal in the past decade or so, today’s enterprise finds itself facing consumers who demand that it be more transparent, accountable and be considerate of the environment in which it operates. These demands have traditionally been made of governments and corporations have the added responsibility to continue to generate a profit and provide positive return for its shareholders. All in all, it is a trying time and companies are struggling to find the balance between what is profitable and what is socially acceptable.

However, the silver lining is that the new demand broadens the scope of competitive factors as any corporation that can convey its commitment to social good in a measurable form holds a serious advantage over its competitors. And the B Corporation initiative seeks to provide just such an option. An idea formulated and crafted by B Labs, the B Corporation initiative allows companied to be certified as a ‘B Corp’ – a social benefit corporation. Why might this help enterprises in building trust with consumers you ask? Well, for starters, an entity that seeks to be certified in this manner needs to adopt the charter of a B Corp, which includes an extended shareholders model, and adopt a holistic measure of organizational success. The extended model and novel scorecard that takes the environmental, leadership community impacts of the business are all an effort at distinguishing a ‘good company’ from ‘good marketing’.

Although still quite a nascent movement, 220 companies have become B Corps and together represent about $1.1 Billion in revenues. The members are from varied industries – banks, clothing companies, CPG’s, charities, media and advertising, even venture capitalists are present.

But if the movement is to thrive, it needs some refinements and legitimacy. As of now, B Labs – the organization behind it – is lobbying to get B Corporation classified as a legal option when incorporating your organization. With help from 2 national law firms(Linklaters and Jones Day), they have settled on rules and amendments that work within the laws of all 50 states and even give interested managers a guide to highlight the changes they need to make according to their state and type of incorporation.

However, in my opinion, B Corp should remain a certification. This is mainly for the reasons below:

  • For existing organizations, re-incorporating as a B Corp would be a hassle and consumer time and money at a stage when most are reluctant to do so.
  • Also for existing corporations, the reshuffling would cause disruptions in the daily operations while the new decision model would reduce productivity in the short-term as managers learn to consider the new decision criteria.
  • In being a voluntary action, B Corp certification would be a point of distinction for companies (like ISO certification) and something concrete consumers could ask for when pushing companies to be more accountable.
  • Volunteering would mean an annual audit on the state of operations, which means, the company would have to ensure that it adheres the new model on an on-going basis to maintain the certification.
  • Being a new initiative, allowing companies to see the incremental benefit from certification before diving in head first is likely to be an easier ‘sell’ to managers and shareholders.

That’s all for me, what are your thoughts? Should B Corps be recognized as legal incorporation option or remain a certificate? Is it even relevant given the rise in prosumerism and industry watchdog agencies?

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