Today’s guest is Rick Alexander, Rick Alexander is Head of Legal Policy at B Lab, which is a non-profit organization dedicated to enabling people to use business as a force for good. In his role, he counsels business owners and executives, entrepreneurs and investors on how to create corporate structures that balance profit with societal purpose.
Rick is the author of Benefit Corporation Law and Governance: Pursuing Profit with Purpose. The first authoritative benefit corporation guide, written for investment and legal professionals.
Rick has 30 years’ experience in law.
Here are some of the things you’ll learn in today’s podcast:
- What is a Benefit Corporation
- What is the purpose of Benefit Corporation
- Law and Governance around Benefit Corporations
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick. You’re at The Sustainable Business podcast.
Today, I am really, really, really – and I’ll say it one more time, really excited with my guest. His name is Rick Alexander. He is the head of Legal Policy at B Lab which is a nonprofit organization dedicated to enabling people to use business as a force for good. In his role, he counsels business owners and executives, entrepreneurs and investors on how to create corporate structures that balance profit with societal purpose. Rick is the author of Benefit Corporation Law and Governance: Pursuing Profit with Purpose, the first authoritative benefit corporation guide written for investment and legal professionals. Rick has 30 years of experience practicing law. And I’m really thrilled to have him here. So instead of me yammering on, let’s bring Rick in.
Hey, Rick. How are you today?
Rick: Hey, Josh. I in turn am really, really, really, really excited to be on your show today.
Josh: Well, thanks so much. I’m glad to hear that.
So, Rick, first of all, tell me a little bit about your book. So what is in your book and how does it help us learn more about benefit corp’s?
Rick: The subject of the book from the title, is clear, is benefit corporations and that’s a fairly new idea. They’ve been around less than 10 years in the United States. Maryland adopted the first statute in 2010. They’re now in about 35 States. And there’s about 5000 benefit corporations across the US.
But I think it’s still a form that a lot of people, they may have heard of it but they’re unfamiliar with it. And so, it was actually a little bit tricky to write the book and think about who the audience was. So I would say, I wrote the first half of the book really for a general audience to sort of introduce them to some ideas in investing in fiduciary duties and sort of why the benefit corporation structure ought to be a candidate whenever you’re forming a business as one of the structures you think about using. And the second half of the book is a little more technical and aimed at lawyers and other professionals who are advising people like how to actually get it done.
Josh: So what is s a benefit corporation?
Rick: The most important thing to think about a benefit corporation is probably what it’s not because traditionally— and there’s a long history of this and I talk about in the book, conventional corporations have come to be seen, particularly in the United States, as institutions whose fundamental goal is to produce a financial return for the people who own it – the people who have invested in it. And I will say that’s not how it’s always been. It’s been a long historical process that got us to that point.
And a benefit corporation is a corporation that looks just like a conventional corporation in terms of accounting, in terms of tax treatment, and in terms of governance. But the one difference is that it’s purpose is more than producing a profit. So it’s a for-profit company but nevertheless is intended to be accountable for its impacts on the environment, for its impacts on worker, for the impacts it has on its community.
Josh: So if I own a business, why do I care about that?
Rick: If you own a business, the reason you might care about it is because you want to conduct your business the same way you conduct your life. So many of us like to be comfortable. We like to earn a good living and use that good living to have a nice life. But, at the same time, we recognize that there are other things that are important. We care about the other people in our life. We care about the planet we live on and the people who are going to come after us. And being a benefit corporation allows you to be your authentic self in your business life just like in your personal life.
Josh: That sounds to me a little bit like we’re talking about a values-led company which ties into the values of the owner of the business.
Rick: I think that’s absolutely right. I’d emphasize that the legal form could be used for a one‑person business. And so, it’s a way of putting your values into your business. But it also can be used for a business that has lots of investors. You can think of it as a way for those investors and the entrepreneur involved to agree that the company’s going to be run on a values-based platform.
Josh: Why is that important for them to agree?
Rick: Because if they don’t agree upfront, there may be some disappointment down the road when some investors want to go in one direction and the other investors in a different direction. One example would be you could think of a business where the entrepreneur had a very values-based business plan and he brought in some impact investors – investors who specifically invest with a view toward not just making money but also the impact of the social and environmental return of their business.
But if you do that through a traditional business form and then it comes time– you know, there’s some transition period. For example, a sale of the company. Under conventional corporate law, when you sell the company, you have to sell to the highest bidder because financial gain is the highest value. And in that situation, the impact investors might be disappointed because the entrepreneur says, “Well, I have a fiduciary duty and I’ve got some investors who want me to go ahead and follow that fiduciary duty of value maximization. And benefit corporation governance would be a way to avoid that upfront.
Josh: So what if I’ve been running my business for 15 years and I’ve got four or five outside investors, I’m the majority shareholder and I say, “Well, you know, I don’t want to sell my company.” I’m getting a lot of pressure from my outside investors to sell my company. And if I decide to become a benefit corporation, am I asking for a lawsuit?
Rick: Well, the way the statute works, it’s different in different jurisdictions but most jurisdictions would require a two-thirds vote to become a benefit corporation. So you’d have to get the buy-in from a super majority of your shareholders before you make the switch. And I’ll also say, in some jurisdictions, there are appraisal rights for shareholders who don’t agree. So even if you’ve got a two-thirds vote, the other shareholders might be able to cash out and that might create liquidity issues that would stop you from doing it.
So I’ve worked with maybe a hundred companies who have converted to benefit corporation status. In all those cases, they got basically unanimous stockholder approval. They went to all of their shareholders and they spoke to them in advance.
Josh: So from what you just said, it probably makes sense, if you like the idea of becoming a benefit corporation— by the way, for the folks who are listening, I hope you take this very seriously and do think this is a good idea. But before you go and raise some money, it might be a good idea if you’re thinking about becoming a benefit corporation to make that conversion before you bring in outside investors. That would make sense, I would assume?
Rick: Yes, absolutely. I spend a lot of my days talking to worried investors who are nervous about the idea.
Josh: Let me ask you something because I think this is— I mean, I have a theory and I want to see if my theory actually has any basis in reality. And my theory is that if you want a company as a benefit corporation, there’s a pretty good chance that you’re going to outperform your peers when it comes to profitability.
Rick: The work on benefit corporations per se is limited. I would say there’s a fair amount of work out there right now being done to show that sustainable practices generally lead to greater value over the long-term. So I would hope that once we have enough of a sample set benefit corporations that we’d see the same thing. Although I also think it’s important for people to be honest upfront that one thing that being a benefit corporation enables you to do is make a choice to take a lower return when that feels like the right thing to do.
Josh: Oh, absolutely. I’m not discounting that.
My thought processes comes from the ESOP world. And the National Center for Employee Ownership has said, for years, that “ESOPs outperform their peers in the same industries. And I have said, for years—”I’m not really quite sure it’s becoming an ESOP. I think it’s running with the culture of ownership that actually does that. And whether you’re an ESOP or not, you’re still going to get the benefit if you run with a culture of ownership. And for me, becoming a benefit corporation is an extension of running with that culture of ownership.
Rick: Yeah, absolutely.
And there are a number of benefit corporations that are also ESOPs, King Arthur Flour is a pretty well‑known one. Another fairly large one is EA Engineering. It’s a Maryland environmental engineering company. It’s a 100% owned ESOP.
Josh: Oh, cool. Yeah, I’m actually familiar with the King Arthur story because their ex-CEO is a friend of mine. And being in Vermont we’re in a small place. And they’ve been a leader in the ESOP world also. And he told me— and I thought this was actually a really interesting thing that— and I sort of knew this in the back of my mind that an ESOP— which, by the way, stands for Employee Stock Ownership Plan. I try to run a jargon-free world here, if possible – and benefit corporation, I’m not sure are going to be possible because it’s kind of a complicated, jargon-laden world. But he said, one of the moving reasons that he decided or wanted to move the company towards being a benefit corporation was they were starting to getting pokes from privet equity groups they weren’t specially interested in. And they said the benefit corporation allowed them to require the suitors to be talking more than about money.
Rick: Yeah. I’ll tell you an interesting story. It’s not an ESOP but it’s relevant to the point you make. You know, I work at a– as you mentioned at the beginning, at a nonprofit called B Lab. The origin story of B Lab was there were three like friends from college. Two of them started a business and one of them was an investor. And it eventually became very successful. Yes, they started in their garage. And it became a $250-million apparel business. It’s called And1. They sold basketball shoes and shirts. And they were kind of well-known for they had these funky videos that had basketball players doing all kinds of crazy dunks.
And anyway, they grew their business to a point where it really was time to sell the business. And they had put all of these ethical practices into their business. The way they gave back to the community, the way they treated their employees and, importantly, for an apparel company, their supply chain and how they audited that to make sure that it was ethical and there were not unethical practices back in other countries where the shirts were being manufactured. But when it came time to sell the company, they had taken in private equity money and their lawyer said, “You’re a Delaware corporation, your fiduciary duty is to sell to the highest bidder.” And within weeks of that sale, all the practices they had put into the business were stripped out. And so, they decided at the next phase, their life was going to be developing a way that entrepreneurs— because at heart, they’re capitalists, but they wanted entrepreneurs to be able to do the kind of thing they did without having to compromise their values.
Josh: And that becomes especially true in the private equity world.
So, out of curiosity, if I have a benefit corporation and I decide to sell it to a private equity firm, does the private equity firm have to keep the benefit corporation or can they get rid of it?
Rick: Well, they presumably would be able to do whatever they wanted to do. The difference would be that when you engage in that sale process, you would be able to extract promises from them. And there’s all sorts of different ways you can do it.
You’re in Vermont, so you know the Ben & Jerry’s story. This is before benefit corporations but they ran their company with certain ethical practices. And when they sold their company to Unilever, they bargained for certain rights to maintain oversight of certain social practices. And they were able to do that because they had this stock structure that gave them a veto. But the board itself wasn’t able to negotiate for that kind of thing. So in a benefit corporation the board would be able to negotiate for something like that. But also, they would be able to choose their buyer based on more than just the dollar value so you might take a slightly lower bid from a more environmentally and socially reputable buyer.
Josh: Which Unilever seems to be since they allowed Ben & Jerry’s to become a benefit corporation.
I’ve actually heard rumors that Unilever, as a corporation, is considering becoming a benefit corporation. Are you able to comment on that at all?
Rick: So I can’t comment on whether they’re considering becoming a benefit corporation entirely. I don’t have enough insight but I will say that they’ve acquired not five benefit corporations necessarily but five certified B corporations, like they’ve acquired Seventh Generation, another Vermont company.
Josh: Oh, that’s right. I just heard that. I remember. Yeah, you’re right.
Rick: So I should make a distinction here. Benefit corporation is this corporate structure we’ve been talking about. There’s also something called a B corporation. That’s a corporation that B Lab, the nonprofit where I work, certifies. Because in addition to promoting the legal structure that we’ve been talking about, B Lab has also developed something called the B Impact Assessment. And it’s a system that allows companies to measure and to manage the impact they have on society and the environment, and the community. And in order to become a certified B Corp you have to take that test, achieve a certain score and become a benefit corporation or something equivalent to that with your corporate governance. In that way, you’ve shown that you have good performance by taking the B Impact Assessment but you also have locked it in with the corporate governance. And so, Unilever has acquired five companies that carried our certification.
Josh: Yes. So that certification, I’ve looked at it. I like it a lot. A lot of times, in the world of business, people say, “Well, I’m going to do the Malcolm Badridge Award.” And that always made me break out in a cold sweat because anybody I’ve ever known who’s gone through the Baldridge certification has then basically almost gone bankrupt or gone bankrupt as a result. And part of that is because the certification for Baldridge, which is the national quality award, is so onerous that you end up getting certified and not running your company. The thing I like about the B Lab certification is it is not an onerous process. It’s intense but not onerous.
Rick: Yup, I’m glad to hear you say that. I’m not sure every company that’s been through it would say it’s not onerous but we always say, “If people weren’t complaining a little bit, we wouldn’t be doing our job.”
Rick: One thing I should mention, just for your listeners, is that the B Impact Assessment is a free tool, like you can go to BCorporation.net, that’s our website, and just type in B Impact Assessment. And you can log-in and take the test and it’ll remember your answers.
And it’s not just a test, it’s really a tool. So if you’re just starting a business and you’re trying to put in like the right kind of practices, like it’ll say— one of the questions, “Do you have a whistleblower policy?” And if you don’t know what that is, you can ask it and it’ll tell you. And it’ll even send you two examples so you can adopt a whistleblower policy and thereby increase your score. And there’s all sorts of lots of things like that in the environmental area, in the community area and how you treat your workers, so it’s a nice tool and it’s a free tool.
Josh: So that sort of tool, if you’re interested – and you should be by the way interested what your impact is, specifically with your customers and your employees, it would be a really good sort of audit tool you can use to say, “Am I doing the right thing and doing best practices for making sure I have a place that people are going to want to work?”
Rick: Yup, and it allows you to benchmark, too—
Rick: –against all companies.
Josh: One of the things that kind of occurs to me with B Labs certification is that if I am trying to attract millennials into my company, to work for me, this could be a really good tool to make sure I’m doing the right things so I’m attractive to that cohort. Does that make sense?
Rick: Not only does it make sense, it is— before I was involved with B Lab, I would’ve thought that the primary reason to get a certification was customer-facing, so you could tell your customers like, “I’m organic. I’m B certified” and things like that. It turns out that the number one benefit that certified companies report is employee engagement. It really changes the game. Companies do things like they’ll have— you know, you get a B score and you want to increase it. And so, they’ll have like a Hack-a-thon Day were people just try to figure out ways that the company can improve its score.
Yeah, it’s very attractive to the millennial workforce.
Josh: I’ve actually thought for years that we, as employers, put too much emphasis on customers and not enough on our employees because one of my little silly sayings is, “Your employees are not going to treat your customers any better than you treat them.”
Rick: Yup, absolutely.
Josh: We, as employers, need to learn that. And we need to be using tools that help us along there.
I know there’s one local business that got a bad Glassdoor which is a site where people rate employers – review. And instead of quietly figuring out who the person was and talking to him, he gets into a public conversation about, “Why don’t you come and talk to me, man. You know, we’re kind of an open place” [laughs]. You know, I was saying to myself. I say, “You fool, they’re giving you a gift and you’re giving them a hard time.” I don’t think this company would every qualify to be B Lab certified. And that’s just one reason but the truth is that– yeah, having that—
You know, I was just in the restaurant the other day with the B Labs logo displayed. And I walked in said, “Oh, that’s really cool.” Now, I might be one out of a thousand customers that ever walks in that restaurant that has any clue what B Labs is. But what really shows up was our waiter was incredible.
Josh: The food was incredible. This great place was really cool to hang out in. And because of the work they have been doing with their employees through B Labs, they turned around and paid it back to the customers – me, so I got the benefit of that being a B Lab place.
Rick: Yeah. And I would say there’s very much a community around B Lab and B Lab-certified companies. We do a retreat every year where like 600 companies come.
Josh: I have heard from friends of mine. It is an incredible retreat also.
Rick: Yes, yes.
Josh: One of my friends is a large Ben &Jerry’s supplier and one of the reasons they got certified, they’ve always been an unbelievably socially responsible company, they needed an independent way to prove to Ben and Jerry’s that they were socially responsible.
Rick: Interestingly, Ben & Jerry’s uses the B Impact Assessment to assess its supply chain.
Josh: Well, that’s exactly what they did.
Josh: Rick, I am really sorry but we’re out of time for the podcast. So if folks want to learn more about B Labs, where would they go?
Rick: I’d say the best place to start is BCorporation.net. That’s about B Lab in general and the certification and other measurement tools. And then if you’re interested in benefit corporations, we have a separate site BenefitCorp.net.
Josh: And to find your book, how would they go about doing that again?
Rick: If you type Frederick Alexander and Amazon into your computer, you should hit my book.
Josh: You’ll find the book [laughs]. And I take it, Rick, that you also consult with people about becoming B Corps, am I correct?
Rick: Absolutely. And a big role that I have at B Lab is helping people who want to make the legal change, and so. And that doesn’t cost anything.
Josh: Rick, thanks so much for your time today.
I have an offer for you. I just published my first book and I’ll show a copy of it to you here. See? Here it is. If you’re watching on Facebook Live, you get to see it right now. And there’s my elephark. It’s called Sustainable: A Fable About Creating a Personally and Economically Sustainable Business. It is a parable which means that it’s a novel written about a dysfunctional business family. You’re going to enjoy the story and you’ll learn a ton about how to create an economically and personally sustainable business.
To get it, it’s really pretty easy, you just go to www.sustainablethebook.com. There’s a big orange button. You push it. You buy the book. And with it, you get a free 20-minute conversation with me about a problem you’re facing or an opportunity you’re not taking advantage of. And I have written a 37-page how-to guide because it’s not in the book but you might want to know how to implement some of the stuff.
So you’ve been at the Sustainable Business. This is Josh Patrick. I thank you so much for stopping by today. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at email@example.com.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.