Six years ago, Matthew Weatherley-White became convinced that his company should stake a claim to sustainability. “I saw a real opportunity from a market perspective to plant a flag around an issue that I felt was going to become increasingly important,” recalls Weatherley-White, a managing director of Caprock Group, an Idaho-based wealth advisory firm. The opportunity was for Caprock to become a Certified B Corporation, or B Corp.
Although B Corps are sometimes equated with benefit corporations, they are different. On the one hand, in many states a company can change its legal structure to become a benefit corporation, a corporate form that requires for-profit companies to consider society and the environment alongside profit when they make decisions. On the other hand, a firm can become a Certified B Corporation if it meets specific standards of accountability and transparency set out by a nonprofit organization called B Lab. Companies can choose to do one or both; some well-known businesses that have checked both boxes are King Arthur Flour, Ben & Jerry’s, and Patagonia.
Although many of Caprock’s business practices conformed to sound environmental and social principles, Weatherley-White knew that sustainability would be a tough sell. The firm’s partners were about as far as they could be from tree-hugging, Birkenstock-wearing, quinoa-eating progressives. “We’re a bunch of Republicans,” he says. “Nobody in our firm had ever used the term sustainability.” Aware that his colleagues would not dream of managing the firm “against some exogenously imposed third-party sustainability benchmarks,” he put together a PowerPoint presentation and proposed that Caprock should become a certified B Corp (Idaho does not have a benefit corporation law). “It was totally rejected outright,” he says.
But Weatherly-White was persistent. For the next six months, he tried to persuade the partners to obtain the B Lab certification. Finally, they agreed—with a few conditions. “If any one of us felt the B Corp mission drifted sufficiently from best business practices, [he or she] could say ‘We’re out’ and the rest of us would have to agree,” he says. “It was very much one foot on the platform and one foot on the train.”
Fast-forward to the present. Today, Caprock consults the B Lab framework before making any significant decisions. For instance, the firm pays for 100% of health care insurance costs for employees and their families, but over the last year, some workers have said they would rather have the cash outright. “One of the first things that came up was what would that look like on our B Corp score,” Weatherly-White says. “It’s not about the PR piece of it. But the B Corp guys believe covering health care costs is a really important part of sustainable business practices. There’s a reason for that.”
Weatherly-White isn’t a CFO, but he sees the business from a finance angle, as do the firm’s partners. Yet, despite the latter’s skepticism and B Lab’s onerous requirements (more on these below), Caprock has bought into sustainability.
The firm isn’t alone. More than 900 firms are certified by Wayne, Pennsylvania-based B Lab (www.bcorporation.net), and more than 16,000 organizations in all use the framework to run their businesses. Nineteen states plus the District of Columbia have passed legislation allowing companies to incorporate as benefit corporations, while a number of other states are considering such laws.
Here’s how certification works. To begin, a company must complete an assessment, created by the Standards Advisory Council, a group of independent experts in business and academia. B Lab grades companies on four main categories: governance, workers, community, and environment.
The questions depend on company size, industry, and country. Here is an example for a U.S.-based manufacturing firm with between 50 and 250 employees: “Does the Board of Directors or other governing body review the company’s social and environmental performance on at least an annual basis to determine if you are meeting your social or environmental objectives? And another example: “What portion of management had a formal written performance evaluation/review in the last year that included social and/or environmental goals?”
After the assessment, a company receives a report card showing how it stacks up against other firms. It can then get certified by agreeing to meet certain legal requirements, participate in random audits if selected, and pay an annual fee. (The fee ranges from $500 to $25,000, depending on company size.) Companies must recertify every two years.
Dansko, a Pennsylvania-based shoe company, has been a certified B Corp since 2007, says CFO Jim Fox. Even though Dansko was already a sustainable company, the certification process took time and thought, he says. It also requires maintenance. “We have to take the survey at least every couple of years,” says Fox. “And you have to keep track of certain metrics a little bit more.”
For example, when a firm changes its structure to become benefit corporation, it takes on a legal responsibility to create a “material positive impact on society and the environment,” along with creating financial value, according to the Benefit Corp Information Center. Shareholders of such corporations could take a benefit corporation to court for not meeting those goals.
Even companies that have followed sustainable business practices for years might find it a hassle to become certified as a B Corp. So why do it? One reason is to tap new markets. In a 2013 consumer survey by public relations firm Cone Communications, 54% of respondents said they had bought a product with a social or environmental benefit in the last year, compared with 41% in 2010. Eighty-eight percent of respondents said they would buy such a product if given the opportunity. Meanwhile, 60% said they were confused by corporate social responsibility messages. Credibility is everything to such customers, and the B Lab stamp of approval might help a firm win their business.
Being a B Corp can also give a company greater clarity in its decision making, says Neil Grimmer, co-founder and president of Plum Organics, a baby food maker. Plum became a Certified B Corp in 2008 and was acquired by Campbell Soup in June 2013. Its mission is to provide children around the world healthy, organic food. “Because the health and well-being of kids is our charter, we won’t make trade-offs where other companies make them,” Grimmer says. “If [a new idea] would compromise the mission in any way, then we won’t do it.”
Grimmer says becoming a B Corp can also be a form of risk management. “It allows us to stay true to who we are,” he says, and to “make sure that we mitigate the risk of losing consumer interest because they feel like we’ve wandered from what they’ve found so special in our company.”
Indeed, some say the biggest selling point of B Lab certification is that it gives investors confidence that a firm will stick to its sustainable knitting. Certification “provides third-party guidance that those companies are actually doing what they say they’re doing,” says Mark Zyla, managing director at Acuitas, a valuation and litigation consultancy firm. “That provides comfort to investors.” Zyla says an increasing number of investors, including J.P. Morgan, Prudential, W.K. Kellogg, and UBS, are allocating funds to sustainable companies.
Gaining B Lab certification or benefit corporation status could also boost a company’s valuation, Zyla says. In particular, a firm’s focus on transparency can reduce risk, which in turn can lower the cost of capital and boost company value. A B Corp’s valuation may also jump if the firm is attracting more customers with its commitment to sustainability, if it can charge a higher price for the perceived value to the consumer, or if it can increase revenues by partnering with other like-minded companies.
Still another benefit of being a Certified B Corp is its effect on the workforce. The framework requires companies to treat their employees well, which in turn reduces turnover, points out Caprock’s Weatherly-White. “These issues around compensation, ownership, transparency, these are all things we take really seriously, because we want to make sure that our employees feel really positive about the firm they work for,” he says. Continuity is critical at a service-oriented company like Caprock. “If there’s somebody new on the phone every time a client calls us, they have to start thinking what’s going on in the firm,” Weatherly-White says.
B Corp certification shows employees that a company is sincere in its intentions, says Dansko CFO Fox. “It confirms to employees that we’re actually doing the right thing and not just talking about it,” he says. As part of its sustainable mission, Dansko is 100% owned by employees through an employee stock ownership plan.
At Satori Capital, a B Lab certified private equity firm in Texas, one of Satori’s portfolio companies suffered from high turnover, in part because it didn’t offer health benefits, says Satori managing partner Sunny Vanderbeck. When the firm switched course and started paying for health care, morale, efficiency, and profitability all went up; turnover and backlog went down. “It unlocked the productivity of the employees,” says Vanderbeck.
Not every sustainable company is ready for B Corp status. Rhode Island hospitality firm Newport Harbor would seem to be an ideal candidate; among the ESOP-owned company’s “guiding principles” is “Do the right thing.” But the company has “a lot of things going on,” says CFO Mick Lamond. “We just underwent a major acquisition this past year and we’re trying to bring that into the fold of our company culturally. Although a B Corp conceptually makes sense and it seems to me like a good fit for us, it’s just not on the radar right now.”
Marielle Segarra is an editor at CFO.