Increasingly in America, entrepreneurialism is about more than just making money. More and more businesses are trying to meld their pursuit of profit with a mission to make the world a better place. This trend has spurred the creation of benefit corporations and certified B Corps–two similar, but distinct ways that business can signal to customers, employees and investors that they’re looking to impact more than just the bottom line.
“How do I combine all these things, serving clients and the community while making a living?” attorney Jeff Wolfe, of the Forrest Firm in Winston-Salem said in an interview.
In June 2017, the North Carolina General Assembly declined to act on a bill which would have created a new type of corporate entity in the state known as a benefit corporation.
The idea was to formalize a growing trend taking place throughout the United States and the world to capitalize on a business model focusing on both profits and providing a public benefit.
As a result, while there is currently no formal framework for becoming a benefit corporation in North Carolina, companies can instead pursue a B Corp certification. While this sounds like just another name for the same thing, it’s actually a separate designation. While a “benefit corporation” is used to describe the type of corporate entity recognized by state governments, the term “B Corp” is used to describe for-profit companies which have been certified by a third-party entity, such as B Lab, for having met high standards of accountability and transparency. The idea, in both cases, is to show that the company walks the walk, prioritizing public good in addition to profits.
B-coming a B Corp
Wolfe’s employer, the Forrest Firm, is currently in the process of getting recertified as a B Corp. He said that becoming and staying a B Corp can be just as rigorous as becoming a benefit corporation, as it requires companies to open up their books and provide metrics explaining wages, benefits, bonuses, and ownership opportunities for employees, plus information about the sustainability of their venders and suppliers and what they give back to the surrounding community.
“B Lab provides a thorough assessment,” Wolfe said. “It’s challenging, but that’s the reason we do it.”
With all the effort involved in becoming and staying a benefit corporation, it is it worth it? According to Wolfe, it is.
“Our priorities are our clients, our culture and our community,” Wolfe said. “Our clients appreciate that. When they send us payment, they know it’s going to our employees and to our community. Our stakeholders are our clients themselves … It helps on the client side, on the culture side, and in retaining attorneys and support staff.”
Wolfe said the model draws and retains clients, investors and employees looking for a different way of doing business. But it also provides legal protections.
“The historical approach to a for-profit is that every action must be in the best interest of shareholders,” he said. “If it’s not in the interest of profit, they can sue on behalf of the company in a derivative lawsuit.”
However, since profit is just one of the goals and considerations written into benefit corporations and B Corps’ bylaws, this helps shield the company from these kinds of suits.
Why aren’t they more popular in NC?
According to Wolfe and attorney Craig Morgan of Providence Law in Charlotte, there are several factors that are currently holding both benefit corporations and B Corps back in North Carolina. The obvious reason is that the law formalizing benefit corporations didn’t pass.
“This is getting legitimate interest from business people,” Morgan said in an interview, “but in my mind, this could be made easier if North Carolina had the requisite legislation; if we had the choice of becoming an entity.”
Wolfe agreed that the lack of legislation does present obstacles, even for companies like his that seek the non-legislative B Corp certification. He said that when the third-party certifier B Lab grades companies, it takes into account whether their state has passed legislation or not, and docks them points if there isn’t a law on the books.
“It’s frustrating because it’s outside of our control,” he said. “It’s a pretty high standard, so we just have to make up the points somewhere else.”
Wolfe said another barrier to entry is the amount of work involved in setting up and maintaining a B Corp.
“It takes a fair amount of time to complete the application process,” Wolfe said. “I think it’s important to warn clients that this will take longer than you think.”
While admitting it’s an involved process, Morgan said there are other ways around becoming a certified entity that still protects the company from derivative lawsuits.
“There’s nothing saying we can’t structure the bylaws to require a company to behave in a manner consistent with B Corp goals without them having to become a B Corp,” he said.
Overall, both attorneys say it’s worth it for companies to consider becoming a benefit corporation or B Corp.
“I’m in favor of promoting North Carolina business, as long as we do it in an ethical manner,” Morgan said. “And this is an example of something that we could promote as a state.”
“The B Corp model represents a way to make money, but think about other people while you’re doing that, and that’s important.”
Follow Matthew Chaney on Twitter @NCLWChaney