When 'B' means better
NORWICH, VT. - Considering an expansion of their baking-ingredients plant in historic Norwich, Vt., the managers of King Arthur Flour are asking the hard questions: What are the investment鈥檚 risks? How long before it pays for itself? What about the trees?
Yes, trees.
It turns out that King Arthur 鈥� America鈥檚 oldest flour company 鈥� would probably have to clear some woods to expand its facility. And the company looks out for its 248-year-old community. It does this not just because it wants to, but because it has to.
Nearly two years ago, employee-owned King Arthur changed its company charter to include a promise to make decisions based not only on the interests of its employee-shareholders but also its business partners, and even the environment. It is one of 200 鈥淏 Corporations鈥� 鈥� B as in 鈥渇or benefit鈥� to society 鈥� in the United States that have made their charters more inclusive and, in the process, are creating the foundations for a new kind of corporation.
鈥淚t鈥檚 really asking us to consider something broader than our bottom line,鈥� says Allison Furbish, spokeswoman for King Arthur. 鈥淥nce we鈥檝e said we鈥檙e holding ourselves accountable to this and built this into the guiding principles and documents of our company, then we really do have to be committed to it.鈥�
Along the way, these B Corporations are discovering rewards that seem to come with pushing the envelope. They鈥檙e also grappling with perceived risks that lead some to warn of possible legal dangers down the line. For San Francisco-based Clean Fish, a distributor of sustainably harvested seafood, adopting B Corporation status brought a quick payoff. The firm needed start-up financing. When a socially conscious venture capital fund looked at its charter, committing the company to do right by its suppliers and by the world鈥檚 oceans, it was happy to oblige.
B Corporation status, including an unorthodox charter, 鈥渏ust made us more credible for them,鈥� says company chairman and cofounder Timothy O鈥橲hea. 鈥淲ithin this circle of entrepreneurs and investors, it鈥檚 just kind of a nod that says, 鈥極K, you鈥檙e for real.鈥� 鈥�
Other firms point to different benefits.
Strictly speaking, five-year-old Upstream 21 is not a B Corporation. But the holding company in Portland, Ore., has since its inception aimed to be 鈥渁 new kind of corporation,鈥� according to its website. Its charter includes employees, the environment, and suppliers among the firm鈥檚 鈥渂est interest鈥� considerations. In practice, this means when Upstream 21 considers acquiring a new business, the business owners, their employees, and even local residents will sometimes offer a relatively warm welcome, according to Upstream 21 cofounder and chair Leslie 海角大神.
鈥淭he owners whose companies we鈥檙e interested in have an interest in perpetuating the best of their companies,鈥� Ms. 海角大神 says. 鈥淭hey get reassurance from us. They know long-term ownership is our goal. We say it right in the charter.鈥�
Still others say their new commitments help boost their brand reputations. Changes in the charter only account for part of the bump, says Andrew Kassoy, cofounder of B Lab, the Berwyn, Pa., nonprofit group that certifies B Corporations. That鈥檚 because B Corporations must also earn high marks on a social responsibility score card to qualify for certification.
The three-year-old B Corporation movement began when Mr. Kassoy and two former classmates at Stanford University in Palo Alto, Calif., formed B Lab to encourage alternatives to what they call 鈥渟hort-termism鈥� 鈥� a tunnel-vision focus on generating quick returns for shareholders.
Starting with 21 companies in 2007, the movement has grown to 200 firms and expects to reach 300 by the end of the year. It has also captured attention on both coasts. In June, at the second annual Summit on the Future of the Corporation in Boston, business people working in this arena attested to the value of putting promises in ink.
In California, a working group of corporate lawyers has been developing a bill that would create a new legal structure for companies eager to embrace broad social commitments without fear of recourse from disgruntled shareholders, says Susan Mac Cormac, a partner in the corporate law group at Morrison & Foerster in San Francisco.
Thus far, companies that have pledged to consider wider stakeholder interests are reaping some benefits from other socially conscious businesses. For instance, all B Corporations save as much as 80 percent on SalesForce.com software that helps them manage customer service.
Another perk: B Corporations that conduct transactions through credit-card processor Inspire Commerce are getting a portion of their philanthropy and B Corporation licensing fees underwritten.
鈥淥ne of the most important things that can happen here is a B2B [business-to-business] network, where these businesses start to do business with other mission-aligned businesses鈥� that share a common vision, Kassoy says.
On the downside, observers say, accommodating multiple stakeholder interests could in some cases invite trouble. One scenario: Shareholders might argue that they, as owners, have a right to top stakeholder status under the definition of a corporation and seek damages if a company seems to give preference to another group鈥檚 interests.
鈥淚 would not advise you to put it in your articles [of incorporation] to say, 鈥榃e are choosing these [social and environmental] purposes over shareholder value鈥� ... or to say those purposes are even equal with shareholder value,鈥� says Ms. Mac Cormac. 鈥淏ecause then a court in California or Delaware could find you in breach of your fiduciary duties if a shareholder sues.鈥�
Another risk: Other stakeholders, such as local communities, might try to sue on the grounds that they were entitled to more consideration in a particular decision. To mitigate such concerns, companies are structuring their charters to limit stakeholder recourse. King Arthur, for instance, prohibits nonshareholders from claiming any right to sue.
But critics say such defensive measures make these firms鈥� responsibility claims ring hollow. If companies can鈥檛 be held accountable to named stakeholders, then their professions to be new kinds of corporations amount to little more than baseless public relations, according to Charlie Cray, director of the Center for Corporate Policy, a think tank in Washington, D.C., with a focus on corporate accountability.
鈥楧o those stakeholders have any additional, meaningful leverage as a result of this?鈥� Mr. Cray asks. 鈥淚鈥檓 not convinced that they would. That鈥檚 one litmus test: whether they actually have leverage to challenge management on business activities that would impact on their interests, as a local community or environmental group, or so forth. I just don鈥檛 see a workable model here.鈥�
To date, legal questions remain largely in the realm of speculation since no B Corporation has faced a lawsuit challenging its charter. But if companies need more incentive to amend their charters, Kassoy says B Lab founders are already working on it. Their suggestion, offered to Obama administration officials in a meeting earlier this year: Tax B Corporations at a lower rate.
In the meantime, innovative charters are functioning as a type of insurance against mission drift. At King Arthur Flour, a charter revamp allowed employee-owners to codify long-understood but never formalized principles, according to Ms. Furbish.
鈥淲e鈥檙e really institutionalizing [our commitment to multiple stakeholders],鈥� says Furbish, who is also an employee-owner. 鈥淣o matter who is in charge or who鈥檚 here in the future, that commitment will be part of our company culture and our core beliefs and values.鈥�
