Local ‘for-benefit’ companies look beyond the bottom line
Companies motivated by more than profit are increasingly calling Encinitas home.
Known as “for-benefit” businesses, they aim to earn a buck while producing tangible benefits for society. Benefit corporations, one category under the for-benefit umbrella, even have a legal obligation to follow through on social and environmental objectives.
Andrew Hewitt, an entrepreneur and Encinitas resident, has met with city leaders in recent months to discuss how the city can become a model for this movement.
“We’re already far down the path with the businesses we’re attracting,” Hewitt said. “It’s not like we’re starting from scratch. Yet I think we could take it to the next level, and other cities across the world could look at us as an example.”
Several years ago, Hewitt created GameChangers 500, a list profiling the top for-benefit companies, which he’s presented at places like Harvard’s Igniting Innovation Summit.
Patagonia, one organization on the list, became the first California company in 2012 to register as a California benefit corporation.
So Patagonia, which has a store in Cardiff, spelled out its environmental and social goals in its bylaws. Under the rules of this legal structure, it then has to confirm it’s pursuing those ends annually by publishing an independently verified report.
Patagonia, in return, can pursue both economic and environmental goals. Company executives have said this approach will lock in the company’s mission over time as it scales up.
In contrast, many companies are pressured or have a fiduciary duty to focus on profits in the short term. For these businesses, refraining from maximizing shareholder value leaves the potential for lawsuits.
Filing as a benefit corporation, however, offers protections from legal action.
Not to be confused with benefit corporations, b-corps also have socially conscious objectives, but the nonprofit B Lab awards the status.
Kristen Buchanan is the founder of Encinitas-based Good on Ya Bar, a registered b-corp. She said obtaining the certification demanded quite a bit of time.
Buchanan completed an in-depth questionnaire that gives points to companies that pay employees fairly, conserve on utilities, aid the planet in other ways and volunteer within the community. She then had to support her answers with paperwork, including her company’s pledge to sustainably produce health-food bars.
Fees to become a b-corp range from $500 to thousands of dollars annually, depending on the business.
So why go through the trouble?
Buchanan said the certification sends a strong signal to customers that Good on Ya Bar cares about the community.
“We were already doing a lot of the b-corp requirements, but this makes it official,” Buchanan said. “And going through the process gave us ideas on how to be more sustainable. It was like, ‘Oh, I didn’t think of that.’”
She added that besides being good for business, the certification is a morale boost for employees who connect with a larger purpose.
Although the b-corp certification aids marketing efforts, it doesn’t afford the same legal protections from investor lawsuits as a benefit corporation.
But whether b-corp or benefit corporation, Buchanan said the area is ripe for these kinds of companies.
“It’s just the vibe of this area … People are healthy, into yoga and connected with preserving the environment, so they frequent these businesses,” Buchanan said.
Hewitt, the entrepreneur behind GameChangers 500, agreed. After living throughout the nation, two years ago he began searching for a place to put down roots that would attract for-benefit business. Encinitas jumped out.
“I wanted a spot where I could help encourage this new way of doing business, where this could flourish around me,” Hewitt said.
In this arena, he said the city already has a lot going for it: a number of socially conscious businesses, an environmentally minded populace and a slow-growth mentality.
“I really appreciate the city has been careful with development,” he said. “It hasn’t sold the soul of the city to condo developers.”
On paper, a cluster of for-benefit businesses in Encinitas would contribute to the city’s tax base, while giving back to surrounding communities. If this comes to pass, Hewitt said Encinitas would help make the case for rewriting national tax laws so that more companies have reason to file as benefit corporations or under a similar legal status.
Some states’ tax structures force entrepreneurs to pick from either for-profit or nonprofit. Going the former route encourages companies to eschew social goals in favor of increasing profits. Hewitt said the latter limits organizations’ ability to raise capital.
“They shouldn’t have to pick between outdated legal structures,” Hewitt said.
However, to fall under the for-benefit umbrella, Hewitt said companies don’t necessarily have to be a b-corp or benefit corporation.
San Francisco’s Recology, a traditional for-profit company featured in GameChangers 500, collects and processes municipal solid waste, reclaiming materials otherwise destined for the landfill.
Hewitt promoted for-benefit businesses in front of the Encinitas Economic Development Council several months ago in hopes of encouraging their growth.
There hasn’t been any local opposition to the idea, though many have questions since it’s a new concept, Hewitt noted.
Tess Radmill said Hewitt’s pitch is well-timed. Radmill is the executive director of Cardiff 101 Mainstreet and sits on the economic development council.
The council is embarking on a new approach for the city: proactively seeking desirable companies. Radmill said socially conscious businesses are likely candidates.
“In the past, we’ve been lucky that a lot of great companies decided to move here on their own,” she said.
She later added: “By being proactive, we can bring in additional high-caliber companies that help the area by making money and giving back.”
Radmill said the committee could potentially inventory and highlight socially minded companies already in Encinitas. That way, more would be inclined to set up shop in the city.
Marketing materials could play a role in attracting them, but talks are still early, she said.
Micha Mikailian is the founder of a yet-to-launch startup called Intently in Encinitas, which he plans to register as a b-corp. Even without marketing, he said the word is getting out about the city being a great spot for socially conscious businesses.
Echoing others, he said Encinitas has its challenges, though. Office space is limited, and rent is steep.
Still, he said, “most of the ingredients are in place” for the movement to take off.
“More of these businesses are discovering Encinitas,” Mikailian said.