B-corps for Booksellers? New structure has some obvious and not so obvious advantages

AE readers first learned about B (for benefits) corporations in 2010 when we visited the warehouse facilities of Better World Books of Mishawaka, Indiana. The rapidly expanding high volume bookseller and book-recycler was an early adopter of this hybrid format. Founded in 2002 the company used the “benefits corporation” framework to acquire its inventory at little or no cost and, at the same time - by pledging a portion of its profits to literacy goals - support a larger social agenda. (www.betterworldbooks.com)

Two years ago our readers had mixed reaction to the company and its business practices. Some applauded the effort to do well by doing good. Others were more than a little skeptical of the model, which they saw as a way to undercut traditional booksellers and openly scoffed at the company’s self-laudatory motto “An online bookstore with a soul.”

What most probably did not fully understand at the time was that B corporations are a new and fast growing business structure that might be applicable to other facets of the book trade, both new and antiquarian, and might be worth a closer look.

Now in 2012 the business press is reporting that, with changing times and a changing social agenda, more and more companies are choosing this form of “social entrepreneurship.” An increasing number of states have passed or are passing legislation that not only allows, but supports and encourages, this structure.

On January 19, 2012 the Wall Street Journal took a closer look at these hybrid entities. According the WSJ, a B corporation is a company whose charter allows the board to consider social or environmental objectives ahead of profits. This does not make a B corporation a non-profit entity, nor does it exempt it from taxes. But it does protect the management from investor allegations of not maximizing shareholder value.

The enabling legislation requires the social and environmental goals of a benefits corporation to be laid out in the by-laws and the company must publish an annual report to measure itself against those goals.

The report said there are seven states that presently allow benefits corporations (Maryland, Vermont, New Jersey, Virginia, Hawaii, California and New York); there are four states where legislation is pending (Colorado, North Carolina, Pennsylvania and Michigan).

When the law took effect in California on Jan. 1 of this year, Patagonia, a high profile sportswear and outdoor gear companies (which has long advocated environmental activism) was first in the line to convert to the new corporate structure. (See coverage in the Economist, Jan 5, 2012 www.economist.com/node/21542432)