Business With Benefits Brand Seeks Publicly Traded Backers

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By Andrea Vittorio

A label that helps for-profit businesses brand themselves as benefiting society and the environment is seeking publicly traded adherents.

Almost all of the more than 2,000 companies worldwide that have become certified Benefit Corporations are privately held like Patagonia and Warby Parker. Now B Lab, the nonprofit that issues the B Corp certification, is working on ways to get more public companies involved.

It’s put together a think tank that includes representatives from Unilever, Morgan Stanley, and others to figure out how performance standards and legal requirements could apply to public companies, particularly multinationals. The advisory council plans to issue a set of recommendations in the fall.

“In order for public companies to embrace this, there’s a lot of legal history and statutes and regulations that you have to think through and perhaps have changed,” Margaret Foran, chief governance officer and corporate secretary at Prudential Financial Inc., told Bloomberg BNA. Foran, who sits on the council, said it was formed to think through issues like a B Corp board’s need to weigh the interests of both shareholders and other stakeholders such as workers and local communities.

The B Corp certification is like a Fair Trade certification for coffee or an organic certification for milk. Certified companies must follow standards for measuring and managing their impact.

Raising Profile

Paris-based yogurt maker Danone SA, also a council member, wants to become the first multinational to certify as a B Corp, CEO Emmanuel Faber said at its annual shareholder meeting in April.

“That’s a big deal in terms of raising the profile of this and normalizing this as a conversation among institutional investors,” said Jay Coen Gilbert, who helped start the benefit trend when he co-founded B Lab in 2006 with business partner Bart Houlahan and private equity investor Andrew Kassoy.

But Danone has since become the target of an activist investor. So has Etsy Inc., which became a certified B Corp before it went public.

A company like Etsy that carries a B Corp label and wants to keep it has to legally convert from a regular corporation into a benefit corporation. One of the biggest differences is that a benefit corporation’s board of directors can get sued for failing its duty to shareholders, just like at regular corporations, but it can also get sued for failing to consider the interests of other constituencies.

The only other company listed on a major U.S. exchange that is certified as a B Corp and structured as a benefit corporation is Laureate Education Inc., a Baltimore-based operator of for-profit universities around the world. Unlike Etsy, Laureate was already structured that way at the time of its initial public offering.

Thinking Longer

Etsy could be the nation’s first company to become a benefit corporation after going public, if its board and investors approve the change. Whether that will happen has been up in the air ever since investor pressure led the online marketplace for homemade goods to shake up its management team and streamline costs.

While Etsy’s former CEO indicated it’s unlikely to re-incorporate as a benefit corporation, B Lab is giving the company’s new leadership until the end of this year to decide. An Etsy spokeswoman didn’t comment.

“It’s a big part of their identity, so I’m hopeful,” said Rick Alexander, who practiced corporate law for 20 years in Delaware, a state that many companies call home, before becoming B Lab’s head of legal policy. The problem for companies like Etsy, according to Alexander, isn’t shareholder activism but short-termism.

While public companies are under pressure to focus on near-term profits, benefit corporations are meant to focus on the long-term. “They are going to focus not only on economic profit but other impacts,” said Luciana Aquino-Hagedorn, a Boston and New York-based partner at Goodwin Procter LLP who gives legal advice to companies on B Corp formation or certification.

“As people start to understand that, and look at the long term more than the short term, maybe you’ll see more benefit corporations that are publicly traded,” she told Bloomberg BNA. “But I’m not sure we’re there right now.”

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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