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Third Party Standards for Benefit Corporations

By Neetal Parekh and David Jaber

Benefit corporations are a new legal business definition, helping companies build responsibility into their governance structure. Benefit corporations have followed the cycle from idea to reality in various states including California, where a dozen companies incorporated as benefit corporations on Monday, January 2nd, 2012. As companies consider the steps in incorporating or re-incorporating as a benefit corporation, one unique aspect of the process continues to cause confusion. It is the idea that a company's "material positive impact" will be determined by a third-party standard. This post reviews what that means and provides a list of third party standards available.

What is a third party standard used in Benefit corporations?

Baked into the Benefit corporation (in each of the seven states which have passed the new legal structure) is a commitment to transparency. This includes the requirement that they publish an annual benefit report that assesses performance against a third party standard.

In this context, a third party standard is litmus test by which a company's social and environmental impact is defined, reported, and assessed. The third party standard is an independent standard that vows to be comprehensive, independent, and credible - in addition to being transparent.

Many of the third party assessments are organized as a questionnaire that companies answer and submit to the independent party for review.

A look at three third party standards:

  • B Corporation - B Lab, the organization behind the B Corp standard, has proven a champion of third party business standards and state legislation.  Their Impact Assessment questionnaire provides the framework, and responses are then weighted to determine whether or not a company has the capacity and ability to be become certified as a B Corp

  • ULE 880 - This manufacturer standard has a rigorous 1000-point scoring system and looks comprehensively across company governance and the web of relationships between suppliers, customers, employees, and the natural world.  The prerequisites approach is reminiscent of LEED rating systems, and should feel comfortable to those who have worked with green building certification.  For the service sector, the ULE 881 standard is said to be underway. TriplePundit reviewed the standard in it's infancy.

  • GreenSeal - Less known than its product standards is the fact that GreenSeal has a standard for product manufacturers themselves.  'GS-C1' features a Bronze/Silver/Gold certfication structure and clear requirements for policies and actions across an array of CSR issues.  It puts teeth behind a GRI-like framework.
Are there other third party standards?

There are any number of frameworks or certification labels that could be considered 3rd party standards, and the landscape will continue to evolve.  It is important, though, to make sure that the standard meets the requirements of the law -- i.e. that it is comprehensive, independently developed with opportunities for stakeholder input, transparent as to its content, and transparent as to its governance and financing.

What should social entrepreneurs look for in a third party standard?

As your organization considers a third party standard, it is helpful to think about what performance measures are most relevant to your operations. For example, if you are an investment firm, manufacturing standards may not be as applicable as they would be if your company manufactures products.

You can design your start-up with these performance measures in mind, establishing policies in relevant areas to support the spirit of Benefit Corporation language, and, ultimately, allow you to certify that much more easily.

Where to read more on third party standards:

Benefit Corporations - Legal Provisions and FAQs
Benefit Corporations - Business FAQ's Benefit Corporation Information Center - Selecting a Third Party Standard Criteria for Acceptable Third Party Standards

Neetal Parekh is Founder of Innov8Social.com, where she can be reached, and where she reports on novel responsible business developments.  David Jaber is a Principal at inNative and can be reached at djaber@innative.net and http://www.innative.net.

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