Corporate Social Responsibility Comes In Many Flavors, Some Not So Tasty
December 2, 2013 Mark Hrywna
Whether it’s the bad rap that capitalism got during the Great Recession or shareholder activism that has turned heads, no longer is it just the realm of do-gooder charities and nonprofits to save the world. For-profit businesses are getting into the act, whether it’s calling it a social enterprise, impact investing, or taking advantage of newly created legal structures such as Public Benefit Corporations (PBC or B-Corporations) or Low-profit Limited Liability Corporations (L3C). Corporate Social Responsibility (CSR) has taken on a new life. And to some, it blurs the line between profit and nonprofit, potentially confusing donors, consumers and lawmakers. B Lab in Wayne, Pa., is a nonprofit that certifies businesses based on a social responsibility assessment. B Lab creates corporate standards for social and environmental performance. Businesses must score a minimum of 80 points on a 200-point assessment and possibly participate in an on-site review. Certification is good for two years, at which point a company must recertify, with an annual fee ranging from $500 to $25,000, based on annual sales. The most popular references for B Lab certification or B Corporations are typically Patagonia or Ben & Jerry’s (which only became certified last year). B Lab has certified about 850 corporations and some 400 benefit corporations have been created in the 20 states that have enacted legislation in recent years. Only about 50 of those certified are Benefit Corporations. B-Corps are not required to focus solely on maximizing shareholder value and profits but aim for a bottom line that also incorporates employees, people or the environment. A Benefit Corporation, or B-Corporation, does not have to be certified by B Lab. Likewise, a B Lab-certified entity does not have to be a B-Corporation. For Erik Troijan, that means 350 were created generally in the marketplace, showing that there was a demand. B Lab’s director of policy, Troijan said his organization’s assessment for certifying a for-profit is akin to organizations that provide guidelines in other areas, such as the U.S. Green Building Council and its LEED (Leadership in Energy & Environmental Design) standards or the Federal Accounting Standards Advisory Board (FASB) and its Generally Accepted Accounting Principles (GAAP). These are non-government entities that certify and keep up-to-date standards that industries can follow. “Government doesn’t have the wherewithal to keep up with business and keep current with trends,” Troijan said. “New building products are coming out all the time, it would be daunting for government to keep up with it,” he said. Two cities -- San Francisco and Philadelphia -- have adopted legislation related to B-Corporations. In San Francisco, public benefit corporations (B Corps) get an incentive in the procurement process, similar to formulas used to incentivize contracts for female- and minority-owned businesses. In Philadelphia, as many as 25 companies certified by B Lab are eligible for up to $4,000 in tax credits annually against the gross receipts portion of the city’s Business and Income Receipts Tax. The measure was approved in 2009 but is available in tax years 2012 through 2017, accepting applications started in February 2013. There are approximately 38 certified companies based in Philadelphia, according to B Lab’s website. There were 19 applicants this year, all of which were approved. Eleven have received the credit so far, five are pending and three are on hold for compliance issues, according to Mark McDonald, press secretary for Philadelphia Mayor Michael Nutter. So far, the total credit granted is more than $12,000. Count Phil Buchanan among the skeptics when it comes to B Corps. “If as so many ‘shared value’ proponents suggest, there is no trade-off between pursuit of profit and pursuit of social impact, then why would tax incentives be needed? If, in fact, there is a trade-off, and there is a case to be made that some firms in a competitive bidding process are doing more social good than others, than make the case for this being a criteria in the procurement process,” said Buchanan, executive director of the Center for Effective Philanthropy in Cambridge, Mass. “But a tax credit? I don’t get it.” To be eligible to complete the assessment, a for-profit must be in operation for six months. Troijan estimated that 10,000 companies have taken B-Lab’s impact assessment, which looks at five categories:
- Impact on employees;
- Impact on the community;
- Impact on the environment; and,
- Overall generic specialty impact.