B Corps Creating More Disruption in the Nonprofit Sector

B Corporations have existed for years; however, they are in the process of expanding, and this is something nonprofit leaders should understand. Before now, not too many companies or social enterprises became B Corps (under 4,000). Sure, there were notable ones, such as Ben & Jerry's and Patagonia. However, recent social events, such as the Black Lives Matter and #MeToo movements, have pushed corporations to embrace capitalism — and social good — together.

It’s no secret that corporations exist to make money and a profit. That said, in the current environment, with Millennials and Generation Z being activist generations akin to what the Baby Boomers used to be decades ago, corporations realize that they must now do more than primarily give capital to causes. For instance, as noted in Stanford Social Innovation Review, in 2020 alone, companies such as Coca-Cola and Ford pulled Facebook advertisements for not doing much against racism and hate speech. Also, Disney signed Colin Kaepernick to produce movies on social justice.

Becoming a B Corp is a demanding process; however, corporations understand the public's mood and sentiment, so they see the value of going through it. The largest B Corp in the world is now Danone North America, a $6 billion company, but it will soon change.

B Corp Benefits

Obtaining B Corp certification demonstrates to the public that a company is adhering to prescribed social and environmental performance metrics that are positive for society. A B Corp's operations and business model gets evaluated using the highest standards: impact on the community, the environment, workers and customers. Moreover, once companies or social enterprises become B Corps, they are obligated to meet the standards.

Once an organization becomes a B Corp, it has bragging rights, so to speak. In other words, it could promote that it is one step ahead of its competitors for the benefit of society, its community, the environment and its workers. In turn, this becomes an excellent tool for recruiting top talent and retaining and expanding the customer base.

The Legal Landscape

Currently, 37 states in the U.S. have passed legislation promoting B Corps, and an additional four states are in the process of doing so. New laws are necessary because directors of for-profit companies must ensure financial returns to their shareholders. Meaning that if they engage in activities for social good, they must demonstrate shareholder value.

Therefore, by enacting new laws in promoting B Corps across the U.S., corporations and their subsidiaries gain more flexibility. In short, directors at B Corps allow directors and corporate officers to expand beyond shareholder profits and demonstrate value when engaging in social responsibility. With legal recognition of B Corps, companies and corporations can more freely focus on social impact than they would if they were solely recognized as for-profit businesses.

The Changing Social Good Landscape

Unfortunately, the nonprofit sector is not one that fully embraces risk, innovation and disruption. Sure, there are leading nonprofits such as charity: water. However, generally speaking, most nonprofits have small budgets, don’t fully understand the ramifications of artificial intelligence and its impact, and don’t innovate to become large enough to have a broad reach in their community.

As we know, in cities and large towns, separate organizations are doing the same work. Yet, if they consolidated their resources, they would have a more substantial reach and attract more fundraising dollars. The larger the organization, the more money it attracts.

Corporations are now moving into the social good space. Sure, Ben & Jerry’s was there from the beginning, but now you have Danone and Avon. Moreover, corporations such as SC Johnson, Procter & Gamble, Campbell Soup Company and Anheuser-Busch Exchange Commission have subsidiaries that are B Corps. The B Corp movement poses a challenge to nonprofits.

What Corporate B Corps Mean for Nonprofits

What is the bottom line of the corporate “takeover” of B Corps? It means nonprofits have a lot of new competition. Think about it: These companies have billions of dollars. Now that they have started to go through the rigors of getting certified as B Corps, or having subsidiaries certified, it becomes a competitive advantage for them in support of social good.

For instance, what prevents a company such as Avon from expanding its view of corporate social responsibility through a B Corp certification? Meaning, it demonstrates to its consumers and the public that it is a socially responsible company. In turn, it retains and attracts more consumers to its products. Then, it takes its philanthropy directly to the communities it serves by supporting impact investing and for-profit social enterprises or creating its own nonprofit subsidiaries.

In short, nonprofit leaders must absorb a fundamental truth that is happening. Nonprofits are no longer the primary means for creating programs, efforts and initiatives that support social good. Increasingly, philanthropy is getting corporatized, and people are much more comfortable with companies making a profit and doing social good.

Therefore, it's my prediction that within the next decade, the nonprofits that will thrive will be those that understand the changes happening in philanthropy, such as B Corps, and the rest will flounder. There’s a whole new paradigm shift happening in the sector, and nonprofits are no longer the only solution for philanthropy and social good.

Editor's Note: This "Legal Matters" column was originally published in the November/December 2020 print edition of NonProfit PRO. Click here to subscribe.