When shares of Etsy, the online marketplace for arts and crafts, began trading for the first time last week, the company became not only the latest hot technology startup for investors but also the best known B Corp to go public.
B Corps commit to upholding high social and environmental standards, even at the expense of easy profits. Certified by a nonprofit organization called B Lab, the companies attain their designation by achieving a combination of workplace wellness, philanthropy and transparency. “B Corp is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk,” B Lab says on its website.
For a company to qualify as a B Corp, it must score a certain number of points on a lengthy questionnaire. Questions on the assessment include what percentage above the minimum wage the lowest-paid workers receive, how diverse the board and executive ranks are, and whether there is a companywide recycling program.
Some evidence suggests that the movement is gaining momentum. Etsy is just one of more than 1,000 B Corps spread across 33 countries. It is among the largest and also the third to trade its shares publicly.
Another public B Corp is the Brazilian cosmetics maker Natura, with annual revenue of more than $2 billion. Last week, Natura’s shareholders voted to approve amended articles of incorporation, reaffirming the company’s commitment to social and ecological responsibility.
Other well-known companies that are also B Corps are still private, like Patagonia, the big apparel manufacturer, and the eyeglasses manufacturer Warby Parker, which may yet go public.
Some B Corps are subsidiaries of larger conglomerates. Plum Organics was acquired by Campbell Soup Co. in 2013 and Method, a soap maker, is owned by Ecover, a Belgian corporation. Ben & Jerry’s was acquired by Unilever, one of the largest makers of consumer goods in the world, which said it was considering becoming a B Corp itself.
The momentum suggests that it is only a matter of time before more big companies join. But the truth is that most B Corps are small businesses, not complex multinationals or even subsidiaries of big conglomerates. A recently released list of top B Corps, titled Best for the World, featured companies that almost exclusively had fewer than 50 employees.
B Lab acknowledges that, for now, it’s not so easy for a big company to become a B Corp.
“It’s easier to make changes if you’re smaller,” said Katie Kerr, who runs communications for the organization. “Big companies are more risk-averse and are slower to adopt.”
“We’re now working with large companies, which takes longer,” she added, “but has a great impact.”
Besides being nimble enough to quickly make changes across human resources, supply-chain management and investor relations, data collection can be challenging.
B Lab requires exhaustive reporting from B Corps and those hoping to attain the certification. For a big multinational, that would mean hundreds if not thousands of hours of work, which could in turn mean additional employees.
“With all the brands that are under Unilever, you’re going to have two or three extra people on each brand just to do the data analysis,” said Kyle Westaway, a lawyer who works with B Corps.
There’s another catch. Being a B Corp is not a legal designation. It has no bearing on a company’s articles of incorporation or the rights of its shareholders. For that, a company must become a benefit corporation.
Benefit corporations, which are legal structures in several states, including Delaware, the cradle of American corporate law, allow companies to consider factors beyond the bottom line when making critical decisions. In theory, this shields them from shareholder litigation over a decision that forgoes near-term profits in pursuit of higher ideals. (There is not yet any case law on the issue.)
Like B Corps, benefit corporations are gaining traction. But no public company has become one, further illustrating the limited reach of these initiatives. One big test is whether Etsy eventually registers as a benefit corporation. If it does not within two years, it will lose its status as a B Corp.
What is more, companies don’t have to pass any stringent test or intensive analysis to become a benefit corporation. They can simply profess their intent to influence society positively and reincorporate with the blessing of shareholders.
Faced with an overlapping morass of voluntary certifications and legal loopholes, it’s understandable that many big companies are reluctant to jump on the bandwagon. Yet for big companies that aren’t yet prepared to become B Corps or benefit corporations, there are other ways to use this nascent movement to make a difference.
Some companies, like Ben & Jerry’s, are encouraging their suppliers to become B Corps. Those that can’t qualify immediately are encouraged to take the B Corp assessment annually and publicly report the results.
In the event of an acquisition of a B Corp, the buyer can pledge to allow the purchased company to remain a B Corp, as Campbell’s did with Plum Organics. And big companies could also simply set internal benchmarks and strive to become better social and environmental actors without bothering with the B Lab paperwork.
But until becoming a B Corp is easier for big companies to achieve, and until there is more coordination between B Corps and benefit corporations, most big companies are likely to remain on the sidelines.
“It’s just a matter of time and commitment,” Kerr said. “Hopefully in 10, 20 or 50 years, this is the way everyone will do business.”