Benefit Corporations Redefine Business As Usual
Solar panels were once just a way for Brennan to lessen his damage on the environment. Now through the company Open Neighborhoods Community Solar, he’s bringing the same options to hundreds of Los Angeles residents.
Not just solar panels, but affordable solar energy—a concept attracting neighborhoods from Santa Monica to Hollywood to alternative ways of generating power.
“I think we just came in as a different kind of a voice,” said Brennan. “We really represent the neighborhood and that's driven us to be more focused on community-wide solar solutions for anyone who has an electric bill.”
When Open Neighborhoods launched in 2009, Brennan realized the business brought benefits to both the public and the environment, but at the same time it asked for considerable amounts of money from people.
"I've done non-profit work and this to me didn't exactly feel like that,” said Brennan. “There's an awareness that we're asking people to do the right thing, but we're also asking them to write checks for solar systems—that's not a non-profit thing.”
As the solar industry continues to grow, Open Neighborhood is a part of a much larger movement.
Today, there are over 500 benefit corporations in 60 different industries. They offer everything from consumer goods to information services, with intentions to maximize social and environmental success.
On Jan. 1 of this year, California became the seventh state to offer legal protection to these relatively new corporations—joining Vermont, New Jersey, Maryland, Virginia, Hawaii, and most recently New York.
California corporate law previously required that businesses act with concern to shareholders over all other groups. The new legislation shields for-profit companies from shareholder lawsuits and allows them to do environmental or social work without being forced into the structure of a non-profit.
“I think the benefit corporation policy is something really needed in every single state,” said Dermot Hikisch, director of community development at B Lab, a non-profit that promotes the business model.
“We're working in Canada to pass something on a national level, so it has a global relevance as well,” he said.
According to the B Lab 2011 annual report, the number of certified benefit corporations went from 125 in 2008 to 212 in 2009, and grew 75 percent in 2010 to reach a total of 370. Now the website lists 517 benefit corporations worldwide.
When Brennan started researching the other businesses on the B Lab website, he realized just how seamlessly Open Neighborhoods fit the benefit corporation fabric.
The company he co-founded with partner John Ayers qualified on many levels because of the multiple projects that benefit their community and customers. Open Neighborhoods actually started as a social media site for Mar Vista and then expanded into a program connecting neighborhoods to affordable Wi-Fi options. Now in its third venture, they bring those same communities discounted solar.
Brennan’s own community of Mar Vista became the first city in Los Angeles to adopt a 100 percent clean electricity goal. Now the city has reached grid parity, meaning solar power is the cheapest energy solution, the clean electricity trend is sweeping across L.A.
For example, the program they launched in September of last year worked with local installer Permacity and provided customers with roughly 25 percent off a normal solar lease. Prices like these have the potential to cut electric bills in half, Brennan noted.
“What we wanted to do was figure out how to make it easy for people to do the right thing and be mission-driven in our cause,” said Brennan. “It just seemed to us a lot more efficient if we can provide value to our stakeholders and leverage our group buying power."
Open Neighborhoods became a certified benefit corporation July 2011 after passing an assessment by B Lab that accredits businesses as a benefit corporation.
B Lab evaluates how a company interacts with employees, how they engage with the community, what they do to better the environment and whether the product or service is a benefit to society.
Companies must earn a minimum score of 80 points (out of 200 points available) in order for their mission statement to be added in their legal framework. The assessment evaluates businesses through categories of accountability, employees, consumers, community and environment.
The structure of points considers both the commodity and business model, allowing an emphasis to be put on corporate responsibility rather than the general product.
“The way the policy is written is that environment and society, which includes your employees and investors—all things are treated equally,” said Hikisch.
“So if you're a co-operative the assessment really focuses on the employees and you can reach the 80 score even without doing much for the environment,” he said. “Whereas a company like a solar power installer, or a company really focused on conservation, you'll probably score a ton of points in the environmental section.”
Open Neighborhood’s environment score received an “Area of Excellence” on the B Lab assessment, however it just met the mark at 68 percent (area of excellence is allotted at 60 percent). In “accountability” they rated excellent at 93 percent and under “consumers,” a perfect 100 percent.
The score goes further to reflect Open Neighborhoods’ concern for economic opportunities within communities—the idea the business manifested itself on.
Expanding into campaign for clean energy, Brennan originally started with an idea to enable safe internet sharing across communities and continues to connect neighborhoods to affordable wireless options. The Wi-Fi mesh allows people to participate in a shared broadband service for a lower cost and without relying on a single Internet provider.
“On the consumer side, it’s not just about getting people a good deal, its about the underserved and the social equity component,” said Brennan. “For us, our internet programs are really just about providing free Internet to people.”
Registering as a benefit corporation allows for-profit companies to maintain their advantageous mission through legal accountability to all stakeholders, not just shareholders.
Several social and environmental businesses have disappeared over the years after being incorporated by larger vendors who fail to adopt the same mission-driven ethics.
Ben & Jerry’s, the famous ice cream company based in Vermont, faced such a dilemma over a decade ago when the business became incorporated by the consumer conglomerate Unilever.
Ben Cohen and Jerry Greenfield established a mission-driven operation in 1978 to serve the “triple bottom line,” known as profits, people and planet. However, if they didn’t sell at Unilever’s offer of $43.60 per share, they risked a shareholder lawsuit.
Dean Foods, America’s largest dairy company, purchased Silk Soymilk in 2002 and faced controversy when they switched to cheaper beans and quietly change the wording on the carton to read “natural,” instead of “organic.”
The cereal brand Kashi was bought by Kellogg in 2002, Naked Juice became part of Pepsico in 2007 and Kraft acquired Boca Burger in 2000. While some of these pairings still carry out the social and environmental ideals they were built on, the new law provides an opportunity for businesses to legally ensure the purpose stays within the company after being subsidized.
“There are so many value-based companies right now, but there's never been a group that's been able to galvanize together and work on it,” said Hikisch. “That's where we [B Lab] fit in, we bring together the voices of these companies and helping them embed this sort of language.”
Certification is starting to play a larger role in the business’ overall marketing. Customer trends show an effort to patron companies they know work with a conscious aim to help the world at large.
Especially after the recent atmosphere of the Occupy Movement and a growing corporate distrust, consumers now assert a bias to support businesses that portray themselves transparently and accountably.
“People get excited because there's a official recognition,” said Brennan about the certification. “Hopefully there will be a gradual realization that those companies that are not [benefit corporations], they can be too and should be.”
Credit providers, investors and even banks are now benefit corporations, showing a deeper model of business integrity behind b-corps and a possible future in the good-doing framework.
“The way we look at it is it's really the evolution of the corporate model,” said Hikisch. “Which was good back in the 1600s or 1700s, but how do you evolve the corporate form to do right with what we know today?”
Reach Staff Reporter Lauren Foliart here.