The Honest Co and the difference between B Corps and For Benefit Corporations

Last week almost immediately after posting about Bain Capital’s purchase of Toms a number of my friends sent messages to alert me to another high profile transaction, the Series C financing of Santa Monica based The Honest Co, (“THC”) in which THC raised $70MM at a post money valuation of close to $1BN.  The syndicate investors included many traditional venture capital funds.  Why is this significant?  First THC is a “B Corporation” and second THC is rumored to be considering a public offering.  I believe this would make THC the first certified B Corporation to go public and if this happens it will provide a case study for socially responsible investors.  Will the company command a premium or a discount at the offering?  Will investors flock to the company or will they shun it?  There is one other public company which is a certified B corporation but it received its designation after it went public.  There is a fairly comprehensive story on THC’s recent transaction here.  This article though continues to perpetuate some confusion as the terms “B Corporation” and “for benefit” corporation are typically used by the business press interchangeably..  They are not however, interchangeable. 

Let me offer a simple primer.  A Certified B Corporation is a company which has gone through a certification process administered by the non-profit corporation B Lab.  A company seeking to become certified fills out a self-assessment and submits this assessment to B Lab with necessary fees.  A B Lab staff person reviews the company’s self-assessment and spot audits some of the information provided in an assessment review.  B Lab’s standards advisory council has the final say in determining the certification. B Lab performs an onsite review of approximately 10% of its certified companies each year to verify the accuracy of the certification.  Companies must recertify every two years.

A “for benefit” corporation unlike a certified “B Corporation” has legal standing. 27 U.S. States have passed “for benefit” legislation which allow companies to elect “for benefit” status.  These “for benefit” laws vary on a state by state basis.  You can read Vermont’s “for benefit” statute here.  It’s important to note that a “for benefit” corporation is not necessarily a Certified B Corporation.   Under Vermont Law a “for benefit” corporation has to provide a specific public benefit in at least one of seven ways (see 11 VSA Chapter 21.03 (6)).  Vermont Statute requires that a “for benefit” director be appointed for each “for benefit” corporation and that the “for benefit” director submit an annual report to Vermont’s Secretary of State to report whether or not the company met its “for benefit” duties.  One would think there would be an easily accessible database of these “for benefit” corporation annual reports accessible at the Vermont Secretary of State website.  One would be wrong if one thought that.  However here are two examples of for benefit corporation reports: SunCommon and, King Arthur Flour.

Assuming you have read this blog post so far and visited and thoroughly read each of the links you might wonder what the reason is that a company would want to be chartered as a “for benefit” corporation.  The New York article I linked to in the first paragraph above cites perhaps the most often used justification for a “for benefit” statute; the “infamous” Ben and Jerry’s buyout by Unilever.  The theory is that had there been a “for benefit” law in Vermont when Unilever offered to buyout Ben and Jerry’s, the Ben and Jerry’s board would have not taken the offer and the for benefit statute would have provided the legal cover.  For those that subscribe to that point of view I suggest a thorough read of this article which does a good job of debunking that theory.  Take the time to read the comments because there is some good give and take between the authors and the “B Lab” folks. Interestingly in my opinion the testimony the Vermont legislature received when crafting the “for benefit” statute a few years ago was centered on protecting the “next” Ben and Jerry’s like buyout. 

I am not a believer that form of business organization or certifications are the way to achieve social responsibility in corporations.  In fact I would argue that codification in statue or in a certification process can provide an “easy out” from tough nuanced decisions that must be made by shareholders, managers and boards. A company is comprised of human beings with all of their foibles and flaws.  If humans are willing to “do the right thing” when operating a company, then the outcome will likely be responsible no matter the corporate structure or the certifications. If they are not, then no matter of law or process will produce a responsible outcome.

Cairn Cross