The 'new normal': how B Corps offer an improved model of capitalism
How can the Covid-19 epidemic offer an opportunity to reshape capitalism towards a kinder, more inclusive economy?
One option would be for more companies to become certified B Corps: a status which enables for-profit organisations to demonstrate their corporate responsibility credentials.
Gone are the days when a company could tack on a corporate social responsibility programme and claim to have met their ethical responsibilities to the wider world. An integrated approach to corporate responsibility is now expected of all companies, with socially and environmentally responsible behaviours built into a company's framework.
B Corp certification acts as a visible marker of a company's commitment to corporate responsibility. It redefines what corporate success looks like, requiring companies to report on a triple bottom line, with social, environmental and economic aims all taken into account. The model is aimed at for-profit businesses, so taps into mainstream demands for more responsible capitalism.
The first B Corps were certified in the USA 2007, and the movement first came to the UK in 2015. There are now over 3,000 B Corps globally and certified companies in the UK include many household names, from Alpro and Ella's Kitchen to Jo Jo Maman Bébé and the Guardian Media Group.
What is a B Corp?
Certified benefit corporations, or ‘B Corps’ require businesses to meet a range of criteria in order to be awarded certification. The criteria are set by the awarding body, B Lab, and relate to social and environmental performance, accountability and transparency.
B Lab wants to create a global economy that uses businesses as a force for good, where corporations are purpose-driven and create benefit for all stakeholders, not just shareholders. The certification is aimed at for-profit companies, rather than charities or other non-profits.
How do you achieve B Corp certification?
In order to achieve certification as a B Corp, an organisation must meet three tests.
Firstly, a company must achieve a minimum score in a questionnaire set by B Lab, which oversees B Corp accreditation. This assesses their performance in the five ‘Impact Areas’ of governance, workers, community, environment and customers.
Secondly, a company must commit to public transparency by having its 'B Impact' score published on bcorporation.net, the B Lab website.
Finally, a company must demonstrate its legal accountability by amending its legal documents in a way which requires its board of directors to balance profit and purpose. This is usually achieved by:
a) incorporating an objects clause in the constitution which refers to promoting the success of the business for shareholders, society and the environment; and
b) including a statement that the board will consider a range of ‘stakeholder interests’ when making decisions (including shareholders, employees, suppliers, society and the environment).
Even if a company's articles already have commitments to environmental and social goals, those articles may need to be amended before certification is achieved, in order to meet B Lab's specific requirements.
How are B Corps different from other companies?
Under the Companies Act 2006, the directors of any company must act in a way which promotes the success of that company for the benefit of its members or shareholders. In doing this, they must take into account the interests of various stakeholders, including employees, suppliers, the community and the environment.
By including a commitment to its stakeholders in its articles of association, a B Corp goes further than the obligations contained in the Companies Act. Directors of a B Corp must not only take stakeholder interests into account when making decisions, they must also actively promote those interests when considering how to ensure the success of the company. It means that corporate responsibility is hardwired into a company's governance framework.
The publication of a company's B Impact score on B Lab's website also demonstrates their public commitment to corporate responsibility. This transparency is maintained on an annual basis, through the requirement to report on their social, environmental and economic performance in the annual accounts. Stakeholders are able to monitor the performance of a company in these three key areas.
Limitations of certification
One limitation we have identified with B Corps is the ability of stakeholders to take action, if the company fall below expected social or environmental standards. In our next article which you can read here, we consider ways in which B Corps could tackle this issue through incorporating additional mechanisms to strengthen corporate accountability, not least employee ownership. By extending the B Corp model in this way, we could hope to move towards a new economic model, where a company's stakeholders have a truly meaningful say over its activities.
If you would like to discuss any aspect of this article further, please contact Laura Moss or any of the Charities and Social Economy team on 0113 243 6100.
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The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.