The Rise Of Benefit Businesses
Historically, the focus of business was profit without regard for employees, the community, or the impact on the environment. But that’s in the past. Recently, there’s been a dramatic shift toward the positive power of capitalism.
According to Steve Klass, the executive director at P3 Utah―an organization that believes in business for people, planet, and profit―government will never be big enough to deal with all of our social and environmental problems. But big businesses can help, a lot.
People, he says, have supported each other through trade, barter, and commerce forever. And since business is one of the major things people take part in, it needs to create positive outcomes. Enter benefit businesses.
If you’ve never heard of a “benefit business” before, that’s probably because it’s still a relatively new concept in Utah. SB 133―the bill enacting the Benefit Corporation Act was sponsored by Senator John L. Valentine and Representative Kevin J. Stratton, and went into effect in 2014. Now, there are 62 Benefit Corporations in Utah, 33 of which have a current, active registration.
“A Benefit Corporation is a corporate form designed for for-profit entities that want to consider society and the environment in addition to profit in their decision-making process,” says Jason Sterzer, the director of the Utah Division of Corporations and Commercial Code.
This emerging concept may be novel to entrepreneurs and investors, but Utahans have most certainly come across benefit businesses, such as Ben & Jerry’s, Hootsuite, Stonyfield Farm, Patagonia, and Utah’s pride and joy: Cotopaxi – Gear for Good.
Introducing The Purpose Economy
For hundreds of years, the “fortune economy” has reigned, but now it’s the 21st Century, the dawn of the “purpose economy.” Unlike traditional businesses, benefit businesses are defined by, and closely aligned with terms like sustainability, triple bottom line, socially conscious, social enterprise, and corporate social responsibility.
When I asked Davis Smith, CEO at Cotopaxi what inspired him to make Cotopaxi a benefit business, he talked about how his family moved to the Dominican Republic when he was four years old, and how he ended up spending much of his childhood and adult life in the developing world.
“From the time I was a child, I knew that I wanted to find a way to positively impact people. I wanted to help those who lived in extreme poverty, who lacked basic human needs, simply because of the circumstances of their birth,” he says.
Mr. Smith believed the way he could have the greatest impact was by building a business that could use its profits to sustainably give to causes that changed lives. “I believed that business could also inspire others to do good alongside me and that it could inspire other businesses to find ways to give back.”
Initially, Mr. Smith didn’t know much about benefit businesses, but a couple of his classmates at Wharton started a company called Warby Parker, and they told him about Benefit Corporations and Certified B Corps (benefit businesses certified by the non-profit B Lab), which drove him to consider the same structure for Cotopaxi.
Cotopaxi was the first company to incorporate from inception as a Benefit Corporation and subsequently raise venture capital, Mr. Smith explained. “We registered in Delaware because when I was moving to the US to start Cotopaxi, Utah didn’t have Benefit Corporations.”
Once Mr. Smith moved to Utah, he started working with Steve Klass and others to get Utah’s Benefit Corporation legislation passed. “Five years ago, in April, we gathered in Governor Herbert’s office and watched as he signed the legislation into law.”
Today, Cotopaxi dedicates two percent of all revenues to support social impact. Half of the money it donates to grantees and world-class nonprofits that focus on global poverty alleviation through a focus on education, healthcare, and livelihoods, explains Mr. Smith.
“The other half we use to invest in impact work within our own walls. Some of those efforts include organizing our refugee thank you card writing program, which has employed over 100 refugees here in Utah, investing in social programs for our factory workers, developing supply chains that have social impact, and funding other impact work here in our local community.”
What Are Benefit Businesses?
Brent Andrewsen, partner and chairperson of the board at Kirton McConkie, in collaboration with P3 Utah, held a series of presentations on benefit businesses in 2018 for the Bar, Silicon Slopes, and a women’s entrepreneurial group in Ogden. The purpose of the presentations was to promote the principles behind the B Corporation and BLLC, and to get more people utilizing the structure.
“They’re still not very well known,” says Mr. Andrewsen. “I spent yesterday with a client going through the ins and outs of converting their current LLC to a BLLC or B Corporation. It’s still in its infancy.”
A Benefit Corporation, or Benefit LLC is a type of state business registration, but tax-wise, the rules are the same as a traditional corporation or LLC. Mr. Andrewsen pointed out how there’s been a huge push toward purpose. “One of the largest private equity firms famously said they would never invest in another business that didn’t have some social good or impact.” A benefit business enshrines that within the organizational structure, explains Mr. Andrewsen.
“Among the reasons these entities exist are private foundations… many are interested in investing in companies that do good.”
BLLCs, Benefit Corporations, & Certified B Corporations
“Benefit corporations are different from traditional corporations in regards to their purpose, accountability, and transparency,” says Mr. Sterzer. “The purpose of a benefit corporation is to create general public benefit, which is defined as a material positive impact on society and the environment.”
A Benefit Corporation and a Benefit LLC are legal forms, and existing businesses can be converted to either. A Benefit Corporation is similar to a traditional corporation in that directors operate the business with the same level of authority. Where it differs is that directors of a Benefit Corporation evaluate performance based on the company’s social goals, rather than their financial ones.
“Shareholders in a Benefit Corporation determine if the Benefit Corporation has achieved a material positive impact,” says Mr. Sterzer.
While a Benefit Corporation and a B Corp sound the same, they are different. The term “B Corp” refers to a benefit business that is certified by the US nonprofit, B Lab. While B Lab certification is not a legal requirement, it has its perks. “The B Corp brand is seen as increasingly valuable for building trust among consumers who are understandably skeptical about what companies say about themselves,” says Callie Rojewski, brand marketer at B Lab.
“Consumers are seeking radical transparency, and by having the impact of their company as a whole verified by a third party, B Corps are able to prove to consumers they meet the highest standards of social and environmental performance, accountability, and transparency. B Corp certification is to businesses what Fair Trade certification is to coffee or USDA Organic certification is to milk.”
In Business For Good
Isaac Farley is the founder and impact director at O-Town Kitchen, a Benefit Corporation located in Ogden. He was born to a family afflicted by domestic violence. As a result, he spent the first two weeks of his life in the ICU. Later in his childhood, drug addiction played a part. “I was homeless three times in my life, totaling about a year. Moving into college, I wanted to help families that went through similar hardships,” says Mr. Farley.
Mr. Farley started to help by working in a church soup kitchen where he experienced another social issue: food waste. That’s where the concept for O-Town Kitchen was born. His idea for a socially conscious business was simple: make a product that creates jobs for single moms in tough situations, while getting produce from surplus sources whenever possible, thereby reducing food waste.
In 2015, he hired a few employees from YCC Family Crisis Center’s domestic violence program, where the women began crafting baked goods, artisan jams, jellies, and marmalade. Today, O-Town’s hand-crafted products are sold at farmers markets, sandwich shops, independent gift shops, and directly on their website.
One of their biggest categories is corporate gifts, but in November, they got into Harmons through a special holiday launch. The launch went so well that Harmons wanted to carry the products in all of their stores.
“I’m wrapping 100 cases for them,” says Mr. Farley. “From there, my plan is to get into every possible Utah grocery chain.” When I asked Mr. Farley if his Benefit Corporation model could be duplicated, he said, “Oh yeah, absolutely. Food waste is what I ended up landing with, but it can be just about anything.”
If you’re considering a benefit business, Mr. Smith says to go for it, so long as you’re willing to make the social impact a core part of your culture and brand.
“Simply becoming a Benefit Corporation doesn’t mean people will support your business. You first need to make a great product or provide a better service, but if you do everything right, and you authentically build your social mission into your business and culture, there are true benefits,” he says.
The biggest benefit of being a B Corp for Cotopaxi has been their ability to attract and retain great talent. “We typically see hundreds of applicants for every job opening at Cotopaxi. Trust me, we don’t pay well enough to drive that much interest; people simply want to work at a place that is mission-driven and not simply focused on making profits,” says Mr. Davis.