Nonprofit certifies businesses that do good

For their first act, they built the wildly successful sports-apparel company And 1. Now, these entrepreneurial college friends are trying to build a new sector of the economy.

From a converted house in Berwyn, And 1 alumni Jay Coen Gilbert and husband and wife Bart and Chrissy Houlahan are pushing a new type of corporation. Its name is but a single letter: B.

"B" stands for benefit, as in the social and environmental contributions a company makes. A B corporation might, for instance, buy its supplies from local companies and hire underprivileged people from the surrounding community.

Coen Gilbert, the Houlahans, and another Stanford University pal, Andrew Kassoy, have created a nonprofit, B Lab, to certify businesses as B corporations and advocate for them.

Their ultimate goal is to get B corporations legally recognized by local and state governments and the Internal Revenue Service so they can qualify for tax breaks, among other incentives. What B corporations currently cite as benefits are customer loyalty and networking with other socially like-minded businesses that helps reduce operating costs.

In explaining why he believes such corporations deserve more, Coen Gilbert said: "The underlying notion here is that these companies are creating benefits for all of us, not just for themselves."

It is a concept that seems to be catching on.

Last week, Philadelphia City Council's Finance Committee forwarded to the full Council for consideration a proposal to give a business-privilege tax credit of $4,000 annually to companies meeting B Lab certification standards. If the plan is approved, Philadelphia would be the first city in the country to recognize sustainable businesses in that way.

B Lab is working to get legislation introduced in six states, including Pennsylvania, that would legally recognize B corporations and, more to the point, qualify them for investment, procurement, and/or tax incentives.

Increasingly, companies have been moving toward a more sustainable, less wasteful way of doing business, not only to trim operating costs but to appeal to green-minded customers and investors.

B corporation certification is done, in part, through a rating system developed by B Lab with a panel of eight independent advisers. It uses about 200 questions - the exact number depends on the size of the business and the industry sector - to assess a company's effect on its stakeholders: community, employees, environment, suppliers, and customers.

But certification also requires what Bart Houlahan acknowledged "is not a modest task": To become a B corporation, a company must amend its articles of incorporation to include consideration of stakeholder interests.

"We're asking an organization to fundamentally change the responsibilities of the business by amending their governing documents," Houlahan said.

That is required so "the commitment that was so important to that social entrepreneur when they started the company - toward the environment, and their employees, and the community - can be preserved even if new money comes in the door, or new management, and even new ownership," he said.

Such transparent accounting of companies' activities is important to "an increasing number of investors that are looking to invest for both financial and social returns," Coen Gilbert said. "Those investors want to make sure that they're getting what they paid for - that they're not just getting a pretty annual report with green grass and blue skies and windmills."

Though other entities rate products and practices on their sustainability, B Lab is believed to be the only one assessing companies in their entirety and requiring them to legally expand their corporate responsibilities to include stakeholders' interests. Recertification is required every two years.

In written testimony submitted last week to the City Council panel, Leanne Krueger-Braneky, executive director of the 500-member Greater Philadelphia Sustainable Business Network, lauded B Lab's random audits of the companies it certifies to ensure that those firms "are doing the good things they say they are doing."

"This eliminates the potential for greenwashing, a growing problem in larger companies that are spending more on their marketing budgets than they are spending on programs with real impact," Krueger-Braneky said.

Since B Lab's creation in 2006, 240 companies in 28 states - including 34 from the Philadelphia region - have been certified as B corporations. They represent 54 industries and have a combined $1.1 billion in revenue and $7 billion in assets.

With annual revenue of $1.5 million, B Lab, which has 12 employees stationed throughout the country, was fully supported by philanthropies such as the Rockefeller Foundation for its first 21/2 years.

It began collecting certification fees six months ago. Those vary depending on a company's net revenue. For example, a company with annual revenue of $3 million would pay $3,000. For a company with $30 million in revenue, the licensing fee would be $20,000. Fees are capped at $25,000.

A passing certification score is 80 out of 200 points.

The first company to be certified was Untours, a 34-year-old cultural-immersion travel company in Media that uses profits from European vacations to help relieve poverty through the Untours Foundation.

General manager Brian Taussig-Lux said he was not convinced Untours' purchase of carbon offsets or its commitment to recycling was helping the bottom line. But he credited recent fund-raising successes and employees' loyalty to Untours' overall commitment to doing good by the environment, the community, and its workers - all elements of B corporation certification.

"A lot of the benefits are still to come," Taussig-Lux said. "It's a long-term investment."

Seventy-two percent use renewable energy.

Fifty-one percent have public-transit or carpooling incentives.

They are 30 times more likely to be located in green buildings.

Eighty-two percent have programs for volunteering in their local community.

Seventy-four percent are affiliated with local charities, and they are 30 times more likely to donate at least 10 percent of their profits to charity.

Nine out of 10 are locally owned, and they are three times more likely to be owned by minorities or women.

Forty-four percent offer some form of employee ownership.

They are twice as likely to offer health insurance and retirement plans.

Twenty-five percent are saving money as a direct result of their B certification.

Source: B Lab

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Some questions asked of companies seeking B corporation certification:

Has the company explicitly integrated social performance into its corporate mission?

Has the company explicitly integrated environmental performance into its corporate mission?

Does the company share financial information (except salary information) with its employees?

What portion of your managers are evaluated on their performance with regard to corporate social and environmental targets?

Are all company political contributions and lobbying efforts fully disclosed and transparent?

Source: B Lab

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To read more about becoming a certified B Corporation and to see and/or take the B Ratings System survey, go to http://go.philly.com/BCorp

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