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July 24, 2023

Nearly a decade after CT established benefit corporation legal structure, few companies embrace it

HBJ PHOTO | SKYLER FRAZER Jenn T. Grace is the co-founder of B Local Connecticut, an organization that aims to increase the number of certified B Corp businesses in the state.

With the state’s benefit corporation law nearing its 10th anniversary, a new nonprofit is hoping to boost the number of for-profit companies that want to double-down on their commitment to social and environmental good by becoming certified B Corps.

But advocates of the business type and certification may face an uphill battle. Nearly a decade after Connecticut legalized benefit corporations, only 241 companies have adopted the ownership model, which requires businesses to do things that generally benefit society and the environment, or create specific public benefits.

And just 26 companies in the state are certified B Corps, an additional process that requires businesses to formally commit to certain social and environmental goals through a third-party assessment and certification.

While some nationally recognized brands such as ice cream maker Ben and Jerry’s and outdoor-clothing retailer Patagonia are certified B Corps, just a few dozen Connecticut businesses have gone through the process, including some well-known names like Athletic Brewing, Bigelow Tea and Ideal Fish.

B Local Connecticut formed in September 2022 to try to change that. The nonprofit provides networking and consulting services with the goal of increasing the number of certified B Corps in the state.

“We have two target audiences,” said Jenn T. Grace, co-founder of B Local Connecticut. “People who know what a B Corp is and want to be somehow involved in the space. And then there are the folks who we call ‘B curious,’ who are curious about what it means to be doing business sustainably, or what it means to be environmentally conscious, and putting those choices at the center of the decision-making process within your business.”

Supporters of B Corps and benefit corporations say they’re a good way to highlight and promote a company’s commitment to social entrepreneurship.

However, some say the complexity of the legal structure and hurdles for official certification outweigh the benefits.

Businesses can pursue their commitment to social responsibility without the designation, critics say.

Nancy Hancock

“I think there are other ways to do it now, and other ways to take advantage of all our learning over the past ten years since the statute was first passed,” said Nancy Hancock, a business attorney with law firm Pullman & Comley. “A well-run corporation now takes into account stakeholders in addition to its shareholders quite routinely.”

B-corp vs. Benefit corporation

There are two different socially-conscious designations Connecticut for-profit companies can consider.

B Lab is an international nonprofit that certifies businesses as B Corps. To qualify for the designation, companies need to submit assessments that meet “verified standards of social and environmental impact,” such as having recycling or donation initiatives and diverse hiring programs.

Certified companies also have to commit to transparency requirements related to their business’ impact and operations, and be legally accountable to all of their stakeholders — employees, suppliers, the community, etc. — not just investors or shareholders.

Companies must recertify every three years to make sure they’re living up to their commitments; there’s also an annual certification fee based on a company’s gross revenue. The fee starts at $2,000 for companies with up to $4.9 million in annual sales.

“Basically, the certification is really a forcing function,” Grace said. “They have a very rigorous process that tracks and measures everything that you are doing in your company that has a direct impact to either socially-responsible practices or environmentally-responsible practices.”

Grace opened her Hartford-based for-profit publishing company, Publish Your Purpose, in 2015, and quickly became interested in becoming a certified B Corp, she said. She connected with Jenifer Gorin, founder of consulting firm Impact Growth Partners, to learn more about the certification process, and was certified in 2020.

Grace, Gorin and Kerrie McDevitt, also of Impact Growth Partners, eventually partnered to co-found B Local Connecticut as a direct affiliate to B Lab.

As a book publisher, one way Grace’s company fulfills its environmental mission is by promoting electronic and audiobooks to reduce paper consumption.

A benefit corporation, on the other hand, is a legal business structure that Connecticut permitted in 2014. It has many of the same principles as a B Corp — legally requiring a company to serve a broader array of stakeholders than just shareholders — but it self-reports its results and doesn’t require B Lab’s certification or evaluations.

Benefit corporations can be certified B Corps, but they don’t have to be. Gorin said B Lab requires a certified B Corp to become a benefit corporation, if that legal designation is allowed in a company’s home state.

More than 30 states have authorized benefit corporations.

Pros and cons

Grace said B Corp certification lets like-minded companies connect with each other and collaborate on events and initiatives.

There’s also the public relations potential: a B Corp logo designation on a product can show consumers they’re buying from a socially and environmentally responsible company, she said.

“I think it’s a great marketing angle for a business,” Grace said. “If somebody is looking for organic food, or something sustainable, they might already know what a B Corp is, and when they see our logo it’s just immediate recognition that this company is doing business with integrity.”

With about 10.8% of benefit corporations going the extra step to become certified B Corps, Grace called those companies “low-hanging fruit” when it comes to recruitment.

James Zahansky

But business owners have raised concerns about the long wait time for certification — sometimes up to a year or longer — and the complicated nature of assessments, which can be intimidating, said James “Jim” Zahansky, a principal and managing partner at Weiss, Hale & Zahansky Strategic Wealth Advisors.

“When you try to obtain a B Corp certification it isn’t easy — it’s sort of a rigorous process,” Zahansky said. “If the process wasn’t as rigorous, and it wasn’t as time-consuming, you probably would have more companies considering this.”

Gorin and Grace acknowledged B Corp certification can be daunting, which is part of the reason B Local Connecticut and consulting firms like Impact Growth Partners exist.

“It’s super complex, there are a lot of gray areas, data and documentation that’s required to get verified,” Gorin said.

Hancock, the business attorney, said it’s just not worth it for many companies to convert to a benefit corporation.

For-profit companies can form not-for-profit entities or charities to fulfill their social goals, she said, and those contributions can come with tax deductions.

Connecticut’s benefit corporation law doesn’t offer tax incentives to companies that choose the legal framework.

Further, she said companies can adhere to B Corp standards and “self-certify” without going through the assessment process, though they won’t get the official designation.

A 2018 report by the state Office of Legislative Research suggested the state could adopt financial incentives and statewide marketing efforts to boost interest in benefit corporations.

It noted that the city of Philadelphia has a sustainable business tax credit for companies that are certified B Corps. It provides up to a $4,000 credit against the city’s business income and receipts tax.

For now, B Local Connecticut will continue to pitch the value of B Corp certification to entrepreneurs, its founders say. The organization held a networking event at Athletic Brewing in June, and is planning an event in November with another partner.

“It’s about exposure and really finding opportunities where we can get in front of other business organizations,” Grace said. “There are a lot of people who really care about what’s happening to the environment and who really care about social justice. … I think it’s just a lack of local awareness.”

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