B Lab, a nonprofit organization launched in July, certifies and promotes B Corporations (B for “beneficial”) - companies that meet exacting standards for environmental and social performance. In seven months the program has ballooned to include over 80 certified U.S. companies representing $650 million in revenues. In this SLM interview, B Lab co-founder Jay Coen Gilbert explains what’s in it for companies, employees, communities, and the environment. (And a recent study suggests that shareholders will benefit, too.)

SLM: Why do you think so many companies have certified as B Corporations in such a relatively short time?

Jay: These are companies that are very diverse, from small sole proprietorships to national brands global financial services companies. Each one has a different reason for becoming a B Corporation. Some do it to help differentiate their business from companies that are just "talking the talk" about being sustainable. Some do it because they want to maintain their values and mission as they scale up in size. And others do it because they want to gain access to the range of tools and services that B Lab offers to B Corporations.

SLM: A lot of companies are struggling to keep up with the number and variety of green certifications out in the marketplace right now. From a communications perspective, how much visibility does the B Corporation designation have with consumers?

Jay: My partners and I started out in the consumer products space (AND 1 was a $250 million global basketball brand), so we have a lot of knowledge about what it takes to build a large consumer brand and also a healthy skepticism of empty claims. So far we've been pretty successful, attracting leading companies in the environmental and social sustainability movement across of a variety of industries and getting them to incorporate the B Corporation logo onto their products and most importantly agree to make their B Report (the one-page summary of their performance on the B Rating system) transparent to the public on bcorporation.net.  This puts the power in the hands of consumers to look for the companies whose areas of excellence match their own values.

SLM: Credibility is key, obviously. How do you establish a B Corporation's green credentials?

Jay: It goes far beyond "green." B Corporations meet higher standards of performance and higher standards of accountability.  The reason why these B Corporations have joined together is because they recognize that without creating some set of standards as to what constitutes a sustainable business that the marketplace can be quite confusing, not just for consumers but also for investors. The standards that have been developed to differentiate a B Corporation from a traditional business are standing on the shoulders of a ton of great work that's been done previously - by the Global Reporting Initiative and groups like the Social Venture Network and Natural Capital Institute, for example. We've built on those existing systems to create the B Rating system, a comprehensive, transparent, and comparable set of metrics that allow us to look at a company's performance not just in one area, such as environmental stewardship, but also how it's engaged with its community, how it treats its employees and suppliers, and to what extent its products and services benefit consumers.

The second thing that distinguishes a B Corporation is that each has legally expanded its responsibilities to include the interests of its employees, suppliers, consumers, community, and environment. They've gone to the core genetic makeup of the company - its governing documents - and said, "This company no longer solely exists to maximize shareholder returns. This company is purpose-driven, and its purpose is to create value for all of its stakeholders, not just its shareholders."

So B Corporations have to meet a clear set of performance standards set forth in the B Rating system and they have to legally expand the responsibilities of the company to include stakeholder interests.  

SLM: How do you establish that the company is meeting those performance standards?

Jay: The B Rating system includes a free online assessment tool that then generates a report based on a company's responses. So a company fills out a 60-minute B Survey and receives a one-page B Report that gives them a quick snapshot of their current impact on all those stakeholder groups - employees, community, environment, etc. If that company scores 80 out of 200 then it is eligible to become a B Corporation and they can move on to the legal piece; if not, we offer a host of free tools and resources to help move the company up the ladder. Our assessment tool and other resources are free and available to any company, whether or not they want to become a B Corporation.

SLM: Is this self-reported survey verified by an independent third party?

Jay: Yes, companies that decide to seek certification as a B Corporation must attach documentation to their assessment survey that will substantiate their claims. Secondly, companies that elect to participate must agree to random, independent third-party audits. Finally, it's only a two-year certification, so companies have to re-certify as standards evolve over time. If a company's B Rating goes below the minimum, then they're no longer eligible for certification. (On the flip side, these reports are available to the public, so improvements in score will be noticed as well.)

SLM: As far as the "legal piece," why is it so important that B Corporations amend their governing documents to address stakeholder concerns?

Jay: The current legal environment really limits the ability of corporations - particularly those that need outside capital to grow - to put any interest above those of their investors and shareholders. It's basic math: The best way to get a higher return for your investment dollars is to maximize your profit and minimize the number of people that are sharing those profits. The best way to do that is to externalize all your costs - lower wages, lower benefits, less environmental stewardship, restricted ownership, etc. Until we address the legal DNA of the corporation, progressive entrepreneurs are essentially sailing against a very strong headwind. With the help of dozens of attorneys from two leading global laws firms, B Lab has created a legal framework that enable purpose-driven companies to maintain their mission as they scale, seek outside capital, or plan succession.

SLM: Hard-coding those values into the corporate structure must come in handy when, say, a small progressive company like Burt's Bees is bought out by an international conglomerate like Clorox.

Jay: It certainly offers some protections. One of the neat things about the legal framework is that it actually expands the rights of shareholders to enforce these enhanced corporate responsibilities. Let's say I run Company X and I want to sell it to a major multinational. Today, once I give up majority ownership of the company that’s pretty much it - the other company can do whatever they want with my brand, and consumers are left to wonder if my company's original values are being maintained. If a B Corporation gets sold to a multinational, it can actually retain its existing board of directors and maintain its expanded responsibilities. That company, though now a subsidiary of a multinational, is still legally required to consider the impact of its decisions on all their stakeholders. If the B Corporation to meet the transparent performance standards it may continue with its certification, giving consumers a clear signal that the original values and practices are being maintained.

SLM: How do you see B Corporations performing over the next five or ten years?

Jay: We see an emerging sector of the economy that sits in between the traditional for-profit and nonprofit sectors comprised of B Corporations. In a generation, this new sector may rival the nonprofit sector in size and influence, representing 5% to 7% of the U.S. Gross Domestic Product. And that's only the beginning for its growth and impact, not only in the U.S. but in the global economy as well.