Could Benefit Corporations Benefit Nonprofits?

For-profit corporations may not seem like a natural fit within the arena of organizations whose missions are legally and financially tied to the promotion of social good. But benefit corporations—along with the B corp movement, spearheaded by a nonprofit called “B Lab”—are actively trying to change that perception. If they succeed, there could be implications for the nonprofit sector. 

By way of background, a benefit corporation is a relatively new type of business entity whose board and management team have pledged that the company will work to achieve socially beneficial goals alongside its key business objectives, such as creating shareholder value. Over the last several years, 27 states in the U.S. have passed legislation that allows companies to legally incorporate themselves as benefit corporations, meaning that they are required to maintain commitments to their specified social causes. These businesses must also submit an annual report to shareholders that reviews their progress towards achieving their missions.

So far, there are more than a thousand Certified B Corps—the certification provided by B Lab—in the United States, and several hundred legally incorporated benefit corporations, including Patagonia and Plum Organics.

For all intents and purposes, there are vast differences between nonprofit organizations and for-profit benefit corporations. Most notably, benefit corporations ultimately look for investments that aim to achieve returns for investors, while nonprofits look for charitable donations that assume no return. Still, given benefit corporations’ explicit focus on advancing socially beneficial causes, there are overlaps between both groups’ work, which could become more prominent if benefit corporations continue to gain traction. Also, of course, benefit corporations are taxable.

With that in mind, here are three potential ways that benefit corporations could impact nonprofits in the months and years ahead: 

Focus on results and outcomes: As benefit corporations work to achieve social good and communicate their successes to stakeholders, they provide a model to nonprofits for measuring and communicating the impact of their work. If nonprofits adopt a strategy of investing in outcomes and effectively reporting these outcomes, it can help them to attract donors—especially the younger generations, who increasingly demand to see the results of their donations.

Potential for partnerships: Though nonprofits and for-profit benefit corporations encompass two unique legal and business entities, the fact that both types of organizations are committed to achieving social good means that there are opportunities for joint ventures or other collaborative partnerships between them. This type of strategic arrangement could yield impactful results if managed effectively.

Trickle-down good: With their legal mandate to foster a materially positive societal impact, benefit corporations promote social responsibility and transparency, which—when prevalent—become increasingly demanded by the public.

In 2015, we’re excited to see the extent to which the pursuit of social good from non-tax-exempt organizations will impact—and perhaps even expand upon—the work that the global nonprofit community achieves. While the scope of benefit corporations in the U.S. economy is still small, the potential for their positive impact on the nonprofit sector is promising.