For students looking at organizations in the “real world,” whether for employment or in order to bring about an idea they have, the split between nonprofit corporations and “traditional,” or for-profit, companies is clear. Nonprofit must serve a societal need, often (but not solely) in a charitable, religious or research capacity. For-profit corporations can solicit investors and shareholders, but generally the law sees their primary mission as maximizing shareholder returns. This means that a for-profit company’s social or environmental missions often become secondary to its profit-seeking motive, if they exist at all. In a “middle ground” between these extremes a new type of corporation is emerging, with California the latest but surely not the last state to legally enshrine so-called “B Corp” status.
The B Corp, or benefit corporation, is meant to give firms a way to prioritize social and/or environmental goals without imposing all the restrictions of nonprofit status. California’s legislation, which is similar to laws in Maryland, Vermont and a few other states, requires B Corps to have a “specific public benefit,” which is generally taken to mean a social or environmental mission. They must also take into account the interests of their workers, their customers and the community, and the environment in addition to shareholders, and they must publish reports on their societal or environmental impact in addition to financial results. One of the best-known companies to have since applied for legal B Corp status is Patagonia, a maker of outdoor clothing and equipment, which has a long history of supporting environmental causes. In fact, although legal B Corp status is still nascent, the nonprofit organization B Lab that developed B Corp certification and promotes states’ adoption of benefit corporation status has certified more than 400 companies as such (even ones that are not legally registered as benefit corporations). The organization sees B Corp status as a corporate social responsibility equivalent to the U.S. Green Building Council’s LEED status for environmentally sustainable design and aims to support more transparent standards for companies claiming to do good.
Detractors argue that it is not clear that legal B Corp status is needed at all. Legal precedent suggests that for-profit corporations must maximize shareholder value but no laws actually state that social or environmental missions must come second. Furthermore, some argue that some of the B Lab certification procedure is cumbersome and does not actually guarantee any real social or environmental impact on the part of the firms involved, defeating its stated purpose. Lastly, the relative newness of the legal status means that many questions remain as to how the B Corps will actually be treated in the context of bankruptcy, layoffs or other socially difficult, but sometimes economically necessary, events.
Nevertheless, it would seem that the development of B Corp status offers several benefits and few real compromises for potential socially conscious entrepreneurs, including those at Stanford. There is no doubt that firms that want to run themselves as a business (i.e. not as a nonprofit) but do see their role as fulfilling primarily a societal beneficial function do not currently have any unique recognition. At worst then, the B Corp registration offers a niche for a few firms to occupy. At best, it allows numerous firms that are currently constrained to legally work towards enriching numerous stakeholders rather than solely their shareholders and encourages further social entrepreneurship. It does all this without restricting the rights of other corporations or giving B Corps any readily apparent unfair advantage. Blurring the line a little between the categorical extremes of for- and nonprofits with the introduction of benefit corporation status appears to be a win-win.