B Corps – what are they and how to become one?

Becoming a B Corp

For a number of years there has been a renewed focus in the UK, and elsewhere in the world, on the obligations of businesses towards other groups in society. This is evidenced by the increasing prevalence of social enterprise and community interest companies operating across many sectors and regions, and by the increased enthusiasm for ethical investment priorities. Over 15 years ago, a concept developed of ‘stakeholder capitalism’, which would benefit not simply shareholders, but all stakeholders — including workers, employees, customers, communities - and the environment. One privately funded initiative from 'B Lab' is for like-minded, for-profit businesses in the UK, and across the world, from sole traders through to multinational listed companies, operating across a variety of sectors, to commit in a formal manner to stakeholder objectives by becoming certified B Corporations (B Corps).

How to obtain B Corp status

B Lab, the not-for-profit organisation behind the B Corp movement, can award certified B Corp status to those businesses that meet their standards in social and environmental performance, transparency and accountability.

Well-known, established B Corp certified businesses include innocent, Patagonia and Ben & Jerry’s, while in the South West, the likes of Origin Coffee, Finisterre, and Bird Eyewear are all B Corp companies.

Most businesses that have been in operation for at least a year can seek B Corp certification by undertaking and completing three steps:

1. Carry out the B impact assessment and achieve a verified total score of 80 points or more;
2. Incorporate the B Lab UK legal update into their constitutional documents; and
3. Sign the B Corp agreement and the declaration of interdependence, which includes a commitment for the business to aspire to do no harm and to benefit its stakeholders through their products, practices and profits

B impact assessment

The B impact assessment is a set of 200 questions that evaluates the impact of a company’s day-to-day operations and business model. It is designed to help measure and manage a company’s positive impact on its workers, community, customers and the environment. This process is known to be challenging and a company is not expected to achieve 80 points on the initial impact assessment. That said, the impact assessment is designed to assist a company in improving its policies, procedures and practices and, once implemented, those changes can be reflected in an updated impact assessment. Companies are required to submit data and documents to accompany the impact assessment, and Doyle Clayton can assist by reviewing and advising on suitable updates to a company’s policies and procedures. Once a company reaches a score of 80 points or more, the impact assessment can be submitted to B Lab UK for it to undertake the process of review, evaluation and verification.

B Lab UK legal update

The B Corp legal update is wording in the form specified by B Lab UK that a company must incorporate into its articles of association which, by including a specified set of ‘Objects’, amends the duty of directors set out in section 172 of the Companies Act 2006 so that consideration of stakeholder interests is equivalent to that of shareholder interests.

The practical effect of incorporating the B Corp legal update ‘Objects’ into the articles of association is that wider stakeholder interests are elevated to an equal footing with shareholder interests. It means demonstrating a commitment to a "triple bottom line" approach to business, which focusses on social, environmental and financial performance – the “people, planet and profit” approach – as well as returning value to shareholders. This approach needs to be reflected in all strategies pursued and decisions made by the board.

B Corp agreement

The B Corp agreement is a contract provided by B Lab UK at the end of the certification process which sets out the terms on which B Lab UK will certify the company as a B Corp and the company’s ongoing obligations. The declaration of interdependence, which is signed alongside the B Corp agreement, is a statement of belief signed by all companies as part of the final step towards becoming a B Corp.

How we can help

At Doyle Clayton we have assisted companies and contacts by advising on the impact assessment, implementing the legal update, and by considering the ongoing company requirements and obligations once certification has been achieved. Such obligations include producing an impact report each year. The impact report must describe the way in which the company has promoted its success for the benefit of its members as a whole and how it has sought to have a material positive impact on society and the environment, taken as a whole, through its business and operations.

Practical tips

For companies contemplating seeking B Corp status, the following are practical tips provided by businesses which have been through the process:

• Ensure the senior management is fully supportive of the B Corp certification goal and is prepared to spend time facilitating the process and explaining it to all stakeholders.
• As a considerable amount of detailed data from all areas of the business is required, it is crucial to collate this data on an ongoing basis in order to understand the route towards certification and which improvements or changes may need to be made.
• Perform a self-led impact assessment for the company to provide an indication of the potential score, which areas rate highly and where there is opportunity for improvement.
• Consider running directors’ duties training alongside implementing the B Corp legal update and updating the company’s articles of association, to understand the implications of the legal update on directors’ duties, potential liabilities and day-to-day decision-making procedures.
• Establish a B Corp lead and potentially a working group, to focus on each of the five pillars of the impact assessment: governance, workers, community, environment and customers. The lead can then provide regular updates to the board and employees, as applicable, on progress and challenges, and can receive direction and input from stakeholders.

The process is no doubt time-consuming, costly, involved, and not easy. How a company can practically, and successfully, introduce such wide-ranging adjustments to its decision-making and management processes will also need to be closely considered.  A company which recently attained B Corp status described the road to certification as “challenging”, and said it “required us to look at ourselves with a renewed sense of purpose and rigour”.

Once certified, a B Corp company will need to renew its certification every three years and while B Corp standards are not legally enforceable, and neither the board nor the company are liable for damages if a company fails to meet them, the company itself may decide that being a B Corp is no longer the right decision and relinquish its certification. Etsy, the online market retailer, did this in 2017. Once a company has stopped being a B Corp, it will also need shareholder approval to remove the B Lab UK legal update from its articles of association.