Becoming a B

This post originally appeared on CSRwire.

In response to a great comment on my last post Becoming a B: What Is The Difference Between a B Corporation and a Benefit Corporation, I decided to explore the B Corporation efficacy question in this week’s segment.

Are B Corporations really better for the world?

An accurate reply must begin with understanding the question – better than what, and better for whom? B Lab’s premise for the B Corporation certification and benefit corporation legal entity (my discussion of the distinction) is twofold:

1. "Current corporate law makes it difficult for businesses to take employee, community, and environmental interests into consideration when making decisions."
2. "The lack of transparent standards makes it difficult to tell the difference between a 'good company' and just good marketing."

The premise lends itself to the idea: better than traditional corporations, better for consumers and all the stakeholders the products and operations of the B Corporation affect. But let’s break it down into more economic terms:

Lower Investment Transaction Costs

In economics, “transaction costs” refer to a cost incurred in making an economic exchange.  Informational uncertainty is a key driver in increasing transaction costs – think of the time it takes you to search for the right product, at the right price, and perhaps, if you’re in the B Corp camp, with the right values.

Well, investors deal with that problem too, when they screen new businesses in which they may want to invest capital. 

First, the B Corporation certification provides investors with quantitative tools to assess which business they want to invest in: are they effective at producing environmental impact? How about their treatment of employees? It is distilled into a quantitative score. 

Second, the benefit corporation legal entity provides a standardized governance architecture to house the impact investments that fund social enterprises: over time, impact investors will be able to rely on established precedent governing how social enterprises are run, rather than having to iterate new complicated impact-protecting term sheets and bylaws provisions for each investment – with no real comprehensive doctrine governing courts’ interpretation of those provisions.

Lower Consumer Transaction Costs

How can you, as a consumer, know not only which products fit your values, but whether the companies that produce those products are creating them in a way that fits your values? Judging by the mission statement on the package may not lend you the results you seek.  

Take, for example, an un-named conglomerate that makes organic rice that is sold in biodegradable packaging, but which also produces an array of over 5,000 other products which are sustainable neither in their nature nor in their production method.

How would you know?