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Certified B Corporation: Like Certified Organic, but for Corporate Governance

4 minute read

A business’s brand communicates its values and the goodwill that the business garners in the community. Expressing values that resonate with consumers is essential to the bottom line, and increasingly corporate social responsibility is becoming a value that consumers demand and is essential to finding and retaining the right talent.

The law of trademarks and passing-off is an important tool that a business can use to protect its reputation and goodwill in the community, but through the use of “certification marks” this same law is useful to express a business’s values. Under the Trademarks Act, a certification mark is a mark that is used to distinguish goods and services of a defined standard from those that are not of the defined standard.

The “Canada Organic” system is illustrative of how a certification mark works. By law, no one other than the Canada Food Inspection Agency (“CFIA”) may use the certification logo “Canada Organic”. But, if a producer meets the standards, including those set out in the Safe Food for Canadians Regulations, CFIA will permit, or “license”, that producer to use the certification logo on the producer’s products. This system allows the producer to express its values about organic food to consumers, and consumers know that the producer has met the standard set out by CFIA and the regulations.

While the Canada Organic system is managed under a different set of laws, it is essentially the same as certification marks under the Trademarks Act’s system. Under this system, one organization (the “Certifier”) owns the exclusive right to a registered certification mark – no one but the Certifier may use it. If a producer can meet the standards set by the Certifier, the Certifier will license the right to use the certification mark to the producer, allowing the producer to communicate its values to consumers. Consumers benefit by knowing that the certification means a producer has met the standards the Certifier has set out. Some examples of certification marks that use this system are the VQA certification mark for wine, and the COR and K certification marks for kosher foods.

The B Corporation certification mark allows corporations to express that they hold certain values regarding corporate governance, workers, the environment, community and customers. The B Corporation certification mark is managed by B Lab, a US-based non-profit who oversees certification. To become certified, a corporation must meet B Lab’s legal requirements and the B Impact Assessment Standards. These measure a corporation’s impact on the enumerated criteria. Once certified, a corporation must meet ongoing transparency and accountability requirements to maintain certification.

To meet the legal requirements, a Canadian corporation must amend its articles of incorporation to address the common complaint often leveled against corporations: the notion of shareholder primacy, which is the theory of corporate governance that holds shareholder interests should be assigned first priority relative to all other corporate stakeholders. The 2008 BCE decision and last year’s amendments to the CBCA have clarified that shareholder primacy is not the law in Canada, and that in acting in the best interests of the corporation, the directors and officers may consider the interests of shareholders, employees, retirees and pensioners, creditors, consumers, governments, the environment, the long-term interests of the corporation, and other considerations. To become certified as a B Corporation, however, a corporation must go one step further, and the directors must consider the interests of the shareholders, employees, suppliers, creditors, consumers, government, environment, community, and society, among others.

In addition to the legal requirements, a corporation must undergo an assessment and exceed a threshold score on enumerated categories of corporate governance, workers, the environment, community and customers. This assessment includes questions on topics such as the evaluation of management, the sharing of financial information with employees, employee compensation and engagement, evaluating suppliers on environmental performance, diversity, and environmental policies.

B Corporation certification is not for everyone. All regulatory compliance, even compliance with voluntary regulation, comes with a cost. However, for corporations whose values and philosophies align with B Lab, the B Corporation certification is a useful way to express those values to consumers, the community, and current and future employees. For the right business, the costs may be justified.

Contact a Lerners business lawyer to find out how we can help navigate regulatory compliance, certification, and intellectual property issues.

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