As consumers become more socially and environmentally conscious, for-profit corporations are looking for ways to “do well by doing good.” Today, in Wisconsin and many other states, they may do so by becoming “benefit corporations.” Under this relatively new type of corporate structure, companies are free to pursue positive social impact, prioritizing the interests of their employees, community and environment alongside shareholder value without fear of shareholder lawsuits.
Lots of companies now seek (or claim) to be transparent, ethical and sustainable. But for benefit corporations, those values are built into the bottom line. Since the category was introduced in 2010, 34 states and the District of Columbia have passed legislation allowing businesses to incorporate as benefit corporations. Wisconsin recently passed its own benefit corporation bill, which went into effect last month.
Wisconsin State Representative Dianne Hesselbein (D-Middleton), who co-authored the state’s benefit corporation bill, says she hopes this option will help Wisconsin businesses meet a growing consumer demand. “I think people are looking for corporations that are doing the right thing,” she says, “and I think the more corporations there are that do the right thing and take care of their friends and neighbors, the more people will respond.”
Responsible Business
Over the last 50 years, Americans have become more conscientious about what they’re buying and where it’s coming from. Amelia Baxter, CEO and co-founder of Madison-based architecture company WholeTrees, traces this trend back to the environmental movement of the 1960s. “People started talking about the connection to supply chains and sourcing, especially in food, agriculture, energy, things that are major pollutants in the world,” says Baxter. “Once you start asking about your own role in ecology and the environment, then you start demanding that companies source things in certain ways.”
In recent decades, the internet has provided more public access to information about corporations’ practices and policies than ever before, heightening demand for accountability. Millennial consumers, who grew up in this ultra-informed era, tend to favor ethical brands and businesses that “give back,” like eyewear retailer Warby Parker, which has donated millions of pairs of glasses and gives part of its proceeds to nonprofit groups.
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Despite the trend toward altruism and accountability, corporations still have the same primary objective: maximize returns for shareholders. Traditional corporations that “do good” at the expense of “doing well” can be held liable for breaching fiduciary responsibilities. “If a company decides to put scrubbers on its smokestacks or decides to pay its workers more and the dividends for shareholders go down, investors can sue the corporate directors,” says Jane Collins, a professor of community and environmental sociology at UW-Madison. “The guys who started benefit corporations saw that this was an impediment.”
The “B movement” was launched in the 2000s by Jay Coen Gilbert, Bart Houlahan and Andrew Kassoy. After selling their footwear and apparel company AND1, the entrepreneurs founded the nonprofit B Lab, with the goal of helping businesses become tools for social and environmental change. Through B Lab, they created a B Corp certification for companies that practiced responsible and sustainable business. “They also realized they needed a legal vehicle to give directors permission to behave in the way they encouraged through the certification,” Collins says. For that, the B Lab founders partnered with Philadelphia law firm Drinker Biddle to draft model legislation for benefit corporations.
A New Corporate Structure
In 2010, Maryland became the first state to enact legislation recognizing benefit corporation legal status. Dozens of other states quickly followed suit. The Wisconsin benefit corporation bill introduced in spring 2017 (earlier versions introduced in 2012 and 2015 failed to move forward) was co-authored by lawmakers on both sides of the aisle, passed in the Republican-controlled legislature and was signed by Gov. Scott Walker last November. That sort of bipartisan support has been common for B Corp legislation.
“This was an initiative that was started by progressive people with progressive goals in mind, but it’s really been taken up by conservative Republican legislatures in many parts of the country,” Collins says. And according to Hesselbein, the bill has broad appeal because it’s not a requirement or regulation; it just creates an alternative option. “Republicans always say that they’re business-friendly,” she says. “In this way, they can be. It’s important that we don’t drive people away from our state because they want to have this special category of business.”
Hesselbein adds that the bill is not prescriptive, allowing participating companies to make their own decisions about how to help their communities. It also doesn’t offer tax breaks to benefit corporations, as other states’ versions of the law do. “It doesn’t cost the state anything if you want to be a benefit corporation,” she says.
Collins says the left and the right may have different ideas about what this new category could mean. For conservatives, she says, the notion of a for-profit entity with moral or ethical values could be a “Trojan Horse” for corporate personhood arguments. She points to the 2014 Hobby Lobby case, where Supreme Court Justice Samuel Alito, writing for the majority, referenced benefit corporations as an example of how for-profits could pursue “nonprofit goals.” “It’s kind of a feel-good bill, because it doesn’t make anybody do anything,” Collins says. “But it does open that door.”
B Corp Certification
In addition to the benefit corporation legal status, the B Lab founders created a new “B Corp” certification system. To become a certified B Corp, companies must meet the nonprofit’s high standards for sustainability and social impact. There are now thousands of B Corp-certified companies—many of them mission-driven enterprises looking for a way to set themselves apart. “When we heard about the B Corp certification, it was like a lightbulb going off, says Matt Earley, co-founder of Madison roastery Just Coffee Cooperative, which became certified in fall 2017. “It addressed all of the core things that we were trying to do.”
To be certified as B Corps, companies must first gain approval from their board, investors and leadership and then undergo an in-depth audit covering every aspect of the business—from their use of local or renewable resources to their treatment of workers, and community service and involvement. Also, a staff member is designated to oversee the process and make sure everything meets B-Lab’s stringent standards. Earley says that the assessment process required the cooperative to take its longstanding commitments to the next level. “We kind of knew instinctively the things we do that make us a more sustainable business, but we’ve never quantified them,” Earley says. Overall, it took months for Just Coffee to complete the grueling process, but Earley views the difficulty as a good thing—adding credibility and forcing businesses to really walk the walk.
WholeTrees, which became B Corp-certified in 2017, builds with unmilled round timber from sustainably managed forests. Since its product already appeals to environment-conscious businesses, the B Corp certification has allowed WholeTrees to distinguish itself in that self-selecting market. Baxter says the certification is also helpful shorthand for showing current and future investors that they are as committed to sustainability as they are to financial success.
The Future of Benefit Corporations
A few well-known national brands, like Patagonia and Method, have obtained B Corp certification and incorporated as benefit corporations. But most of the pioneers of the B movement have been smaller, newer companies that aren’t publicly held. These companies have the agility to update their practices to meet B Lab’s standards and don’t have shareholders to account for. Supporters predict that, as these smaller companies succeed (by attracting customers and socially conscious investors), larger companies will start to take notice.
Baxter notes that, while consumer interest in transparency and sustainability is growing, the companies that are really driven by those values are still a niche. “Of the billions of dollars made by companies each year, I doubt that most of those dollars are pressured by transparency,” she says. “I hope the B Corp movement can slowly change that.” As consumer priorities change, Baxter hopes that adopting these principles will become profitable for all companies, not just those that cater to the eco-friendly or community-minded. “Walmart didn’t start selling organic and putting solar panels on its roof until consumers knew to ask for that,” Baxter says.
For designations like “organic,” “green” and “fair trade,” mainstream interest may increase their impact, but can also water down their meaning, especially if standards are lowered to accommodate larger corporations, which co-opt the terms without making substantial changes. This type of “greenwashing,” Earley says, makes it harder for customers to distinguish real commitments from cynical marketing moves. “I’m hoping that, because of the diversity of things that B Corp measures and the way their organization is structured, it won’t be as susceptible to that,” he says.
Seven Wisconsin businesses have obtained B Corp certification since the option became available. Now that the state recognizes legal benefit corporation status as well, Hesselbein hopes more companies will take the opportunity to be a force for good. “It’s easier when it’s a new company, but it’s doable for a company that’s been around, too,” she says. “I would encourage all companies to take a look and see if this would fit within the framework of what they want to do.”
