B Corporations: What They Are And Why They Are Different

Here in Massachusetts, the local news media has reported extensively about the confrontations at Market Basket, a regional, low-price supermarket chain. Perhaps, you have heard about it.

The first confrontation was between family members for control of the company. The company's board of directors fired Arthur T. Demoulas in June 2013 and replaced him with two new managers. After that event, workers and managers at the stores banded together to demand Arthur T's return. That led to the current work stoppage and boycot by many customers. Store sales have declined and shelves in most stores are largely empty. During the last few days, hours for many on-the-job workers have been cut.

Former Labor Secretary Robert Reich explained how Arthur T. Demoulas managed Market Basket:

"... his business model. He kept prices lower than his competitors, paid his employees more and gave them and his managers more authority. Late last year he offered customers an additional four percent discount, arguing they could use the money more than the shareholders. In other words, Arthur T. viewed the company as a joint enterprise from which everyone should benefit, not just shareholders. Which is why the board fired him."

In his article, Mr. Reich concluded, perhaps most importantly:

"... interestingly, we’re beginning to see the Arthur T. business model pop up all over the place."

Mr. Reich explained Arthur T's managerial approach was similar to the "B Corporations" (a/k/a "B Corps"):

"That’s a for-profit company whose articles of incorporation require it to take into account the interests of workers, the community and the environment, as well as shareholders. The performance of B-corporations according to this measure is regularly reviewed and certified by a nonprofit entity called B Lab. To date, over 500 companies in sixty industries have been certified as B-corporations... 27 states have passed laws allowing companies to incorporate as “benefit corporations.” This gives directors legal protection to consider the interests of all stakeholders rather than just the shareholders who elected them."

Take a moment for that to sink in.

Benefit corporations intentionally structured themselves to provide benefits for several groups: workers, the community, the environment, and shareholders. That means other types of corporations focus only on benefits for shareholders. They may provide benefits for groups besides shareholders, but they don't have to. In fact, the dominant, traditional business structure provides incentives to benefit primarily shareholders. Mr. Reich explained how this dominant corporate structure happened:

"In the 1980s, corporate raiders began mounting unfriendly takeovers of companies that could deliver higher returns to their shareholders – if they abandoned their other stakeholders. The raiders figured profits would be higher if the companies fought unions, cut workers’ pay or fired them, automated as many jobs as possible or moved jobs abroad, shuttered factories, abandoned their communities and squeezed their customers. Although the law didn’t require companies to maximize shareholder value, shareholders had the legal right to replace directors. The raiders pushed them to vote out directors who wouldn’t make these changes..."

You're probably wondering if any brands or companies you know are B Corps. Maybe you are curious, or maybe you want to shop only at businesses that are B Corps. Maybe you want to invest in B Corps, or socially responsible corporations.

The folks at B Labs developed a nifty mechanism to search their database. You can search by name, industry, city, state, and/or country. I ran several searches and found:

• Amazon: no
• Ben & Jerry's: yes
• Breckinridge Capital Advisors: yes
• Etsy: yes
• Hobby Lobby: no
• King Arthur Flour Company: yes
• McDonald's: no
• Tech Networks of Boston: yes
• Trillium Asset Management: yes
• Whole Foods: no

After searching, you can click through to a detailed report about each company and how it performs against B Corps criteria; often for both the current and prior years. The B Labs site explained it:

"B Corp is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk. B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency. Today, there is a growing community of more than 1,000 Certified B Corps from 33 countries and over 60 industries..."

This search tool allows consumers to learn whether your favorite brand walks the talk, or not. Any corporation can hire an advertising agency to develop ads, taglines, slogan, websites, and/or apps that say their company provides benefits to groups beyond shareholders. But do they really? Are they structured to do so? How have they performed? You can use the B Labs site to start answering these questions. You can find corporations that are walking the talk.

It is important to remember that there is a difference between "B Corps" and "Benefits corporations." The Cullinane Law Group emphasized the difference:

"B Corps and Benefit Corporations are distinct terms that are often used interchangeably, but there are clear differences. In short,
- B Corp: a certification or “stamp of approval” by a third-party certifying company.
- Benefit Corporation: is a specific legal corporate structure within a state."

The states that provide the "Benefit Corporation" structure:

"... Arizona (effective December 31, 2014), Arkansas (effective August 2013), California, Colorado (effective April 1, 2014), Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Nevada (effective January 1, 2014), New Jersey, New York, Oregon (effective January 1, 2014), Pennsylvania, South Carolina, Vermont, Virginia, and Washington D.C."

Will Market Basket workers or its board prevail? That remains to be seen. Will Market Basket restructure as a Benefit Corporation? That, too, remains to be seen. Perhaps, if it did the company could have avoided the pain it is now experiencing.

What are your opinions of B Corporations? Of the B Labs search tool? Should more states enact legislation for benefits corporations?