February 20, 2018

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Why a B Corp?

February 20, 2018

 We get a lot of questions about Benefit Corporations.  First, what are they?  Second, why would you choose to be one?  To catch everyone up, Good People is a registered New York Benefit Corporation (aka. benefit corporation or b corp) that is using B Labs B Impact assessment to become a certified B Corp (that’s the B in a circle that you see on products and services from certified B Corps).  All of these “Bs” cause no end of confusion in trying to understand what’s what.  But the bottom line is that the b corp movement is about pursuing a higher level of corporate responsibility, transparency, and accountability to all stakeholders, not just shareholders.  The details of the legal form and the third party certification process can get a bit muddled, but they probably aren’t that important (or interesting) to understanding the what and why.

 

What are B Corps?

At the highest level, b corps are a formal commitment to being a fairer and better run company.  It starts with an acknowledgement that a corporation exists not only to serve the shareholders, but public benefit more generally.  While it is the shareholders who put the resources into a particular corporation, the very existence of corporations comes from a notion that their economic power, on balance, serves the public good.  B corps build that commitment to public benefit into the company from the beginning, by formally declaring their intent to serve a public benefit.

 

So, what does that actually mean:

  1. Our legal documents state that we will serve the public benefit and not just our shareholders, always looking to balance the interests of our many stakeholders (employees, community, etc.)

  2. We are required to select a third party standard for evaluating our public benefit (we selected B Labs B Corp certification)

  3. We must file an annual Benefit Report with New York State and post it on our website, so that everyone knows how we are doing against the B Labs standard (it also includes disclosure of ownership interests and executive compensation)

Those commitments are pretty straightforward.  They largely relate to transparency and making sure that people know what we are doing.  Of course, that makes us unlike many traditional closely held corporations that operate in almost complete secrecy.  Transparency alone is good for the public and helps to make sure that corporations aren’t abusing their privileges.

 

But the real details of how we will serve the public benefit is defined by the third party standard and how we, as a company, choose to pursue it.

 

What is Good People’s Public Benefit?

Good People’s public benefit starts with our mission to make energy savings easy while being stewards of energy, communities, and human potential.  This is the path we see to using energy saving products and services to transform communities.  We want to increase employment and participation in a beneficial supply chain that ultimately pays for itself through energy savings and more productive people.  But that’s at a pretty high level, so how do we translate that into day-to-day action?

 

B Labs B Impact Assessment provides a great framework for turning our thoughts into action.  One of the reasons we selected the B Labs standard is that it is a holistic approach to being a better company.  It isn’t just focused on environmental issues or employment issues.  It integrates those issues into a framework for adopting best practices and seeking continuous improvement by learning from the existing certified B Corp community.

 

The B Impact Assessment grades companies in five key areas: Governance, Community, Environment, Customers, and Workers.  Because of the wide variety of businesses that B Labs certifies (from all different industries and of all different sizes), the framework for what each company does to meet the standard are flexible and expected to change over time.

 

Let’s walk through Good People’s current strategies for serving the public good.

 

Governance: Being organized as a New York Benefit Corporation is a great start, because it enforces transparency as described above.  Our next step on governance will be building an independent board.  Ethan and I are currently the only board members, but we would like to get it up to 4-5 board members and include an industry expert, a community advocate, and an employee representative (once we have employees).

 

Community: Serving our community starts with buying local.  We are building a New York supply chain in partnership with existing contract manufacturers to help those businesses grow and employ people.  We also look locally for other products and services we need, like marketing, accounting, insurance, etc.  We are also donating our products to local public schools, libraries, and other organizations.  For every 20 units we sell, we will donate one.  Customers who buy 20 or more will even get to help decide where we donate, so they can support community organizations they care about.  We will also have a more traditional employee-guided community giving program with a target of 20% of company profits being shared back to the community.

 

Environment: We sell an energy efficiency product and are advocates for building energy efficiency.  But much of the B Labs standard focuses on environmental impact of company operations.  Since we work out of thINCubator and use contract manufacturers, there may not be a lot for us to do on this one until we have our own space.  But buying local helps with this too and we also plan to influence the environmental (and employment) choices of our suppliers and partners.

 

Customers: Customer impact is both about the value we deliver and who we deliver it to.  An energy saving product that allows our customers to improve their living and working environment while reducing operating costs is inherently beneficial.  But we are also looking at how we can use our product to strengthen existing small HVAC and energy services companies to strengthen their businesses (and employ more people), as well as looking at how we can deliver the product to low-income housing and involve difficult-to-employ people in our supply chain (through our local ARC) and delivery of assessment and installation services.

 

Workers: This part is probably the most speculative for us right now, since we don’t actually have any employees.  But it is deeply tied to our belief in encouraging people to be their best and strengthening our communities from within.  We are building into our business model that we will pay a salaried living wage and health benefits for all full-time employees, including continuing education and training allowances.  There will be employee profit sharing from day one (well, at least as soon as we actually turn a profit) and our goal is to offer employee participation in ownership as soon as it’s feasible.  Our organizational model is open, entrepreneurial, flat, and fair, so we are going to start with 1:5 salary cap from the lowest paid to the highest paid.  Maybe that will prove difficult to maintain if we reach a certain scale, but it’s at least a good place to start (and much better than the 1:271 average at our largest corporations).

 

So, that’s the nitty-gritty detail of what Good People is doing to use our economic power to promote greater public benefits.

 

So, Really, Why be a B Corp?

B corps are a movement.  They are about doing business the way business should be done.  Right now, the direct benefits are limited.  We are paying more and doing more for the privilege of being openly committed to being a better company.

 

The folks promoting benefit corporations suggest the following advantages:

  • Reduced director liability

  • Expanded stockholder rights (especially for non-financial returns)

  • Reputation for leadership and positive change

  • An advantage in attracting talent (especially Millennials)

  • Increased access to private investment capital (particularly impact investors)

  • Increased attractiveness to retail investors and mission protection (if a publicly traded company)

  • Demonstrating the future of business

I don’t know how that translates into dollar value for our company, since most of those are much more difficult to measure than the extra annual filing and certification fees we pay.  But companies pay a lot more for branding, business consultants, and lawyers in an effort to patch together a business reputation that they hope will work for them.  I can’t see how the b corp path could be worse than the norm even if reduced to a purely financial calculation.

 

To be honest, I think the better question might be, “Why not a benefit corporation?”  Are you hiding something?  Does being held accountable to a standard for good business scare you?  What are entrepreneurs all doing if we aren’t starting businesses committed to doing well by doing good?

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