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What Etsy, Patagonia and Warby Parker have in common

Etsy executives and sellers ring the Nasdaq Opening Bell in Celebration of IPO at Nasdaq on April 16, 2015 in New York City. (Photo by Paul Zimmerman/Getty Images for NASDAQ)
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Etsy, the online bazaar of handcrafted goods, received gobs of attention for its initial public offering last Thursday, in which shares nearly doubled to close at $30. Its big public offering could also help shine a spotlight on something else, though — the certification of "B Corp," which the company holds.

That third-party badge, which comes from a nonprofit called B Lab, is intended to signal to customers, future employees and investors that a company has a strong commitment to being a good corporate citizen. To earn the certification, companies need to meet certain standards of social and environmental performance, accountability and transparency.

Etsy, for its part, has done plenty to earn its B Corp status, such as giving workers paid time off to volunteer, paying employees well above the local living wage and composting its office food waste. The company holds a score of 105 out of 200, according to B Lab's Web site, significantly higher than the score of 80 that's required to be eligible for certification.

[CEO Chad Dickerson on his philosophy for running Etsy]

Etsy is among the first certified B Corps to be publicly traded. Yet as more companies look for ways to juggle social responsibility and shareholder value, it's worth taking a deeper look at what the certification means, both to companies and investors. Her are five questions and answers that help explain the concept.

So what's a B Corp? B Lab’s Web site says the designation aims to be to businesses "what Fair Trade certification is to coffee or USDA Organic certification is to milk.” Some companies that go through the certification see it as a marketing tool that helps promote their do-gooder business approach in a credible way to customers, potential employees or socially minded investors. Others see it as an organizing principle that helps hold them accountable to their corporate ideals when making decisions.

To become a B Corp, companies first fill out an online assessment. After getting their score, they can elect to continue the process through a review with a B Lab staffer. To complete the certification, companies then must meet certain legal requirements that vary by state and reshape their legal cover for the company's management and board, so they can make decisions that benefit stakeholders besides just investors. (More on this below.) Companies must then get re-certified every two years.

The chief executive of Etsy, Chad Dickerson, tells The Post's Lillian Cunningham about his efforts to resist becoming your stereotypical CEO. (Video: Lillian Cunningham, Julio Negron, Jayne Orenstein and Randolph Smith/The Washington Post)

How much does it cost to become a B Corp? Katie Kerr, a spokeswoman for B Lab, said there are no fees to take the assessment that determines eligibility. But to become certified, the nonprofit requires annual fees based on a sliding scale. Those with annual revenues of less than $1 million pay a fee of $500 a year; those with revenues greater than $1 billion will pay a fee of $50,000 or more a year. Kerr said the fees go toward discounts, events, online portals for sharing best practices, as well as advertising and public relations campaigns by B Lab that feature certified companies.

How many B Corps are there? Currently there are more than 1,200 B Corps, based in some 38 countries. Several recognizable brands have been certified, including baby food maker Plum Organics, ice cream maker Ben & Jerry’sNew Belgium Brewing Co., online glasses retailer Warby Parker, outdoor gear line Patagonia and soap maker Method Products.

Yet it’s not all crunchy consumer products that have made the effort to get the sustainability stamp of approval. Law firms, manufacturing companies and real estate developers have all become B Corps. Vermont-based Green Mountain Power became the first public utility company to get certified.

What’s the difference between a B Corp and a benefit corporation? It's a confusing but important distinction. B Corp is the name given to companies that have been certified by B Lab. A benefit corporation, meanwhile, is a legal status conferred by one of 27 states (plus Washington, D.C.) that have passed legislation allowing a new class of corporation.

When companies incorporate under the benefit corporation legal structure, their responsibility to other stakeholders — such as employees or the community — becomes part of their charter. This means the companies are required to weigh the impact of their decisions on others besides just shareholders. The idea is to give these companies legal protection for working toward more than mere profit, but also give shareholders a way to hold them accountable if they slip on their social mission.

Just to make it more confusing, B Lab has been part of the push for states to adopt the benefit corporation status. As part of its certification process, it also requires companies in most states to either become a benefit corporation or amend their legal documents so they mirror that structure. B Lab's site says that in Delaware, where Etsy is incorporated, certified B Corps are required to eventually become benefit corporations. Etsy's CEO, Chad Dickerson, told the New York Times that for now, the company does not have plans to make the transition.

What does this mean for investors? It’s too soon, really, to know. Etsy and Rally Software are the only two publicly traded U.S. companies to hold B Corp status. And like Etsy, Rally Software also isn't registered as a benefit corporation. Making that conversion in the state of Delaware, where both are incorporated, would require a vote of 90 percent of shareholders, a very high bar. (A spokeswoman for Rally Software declined to comment on whether it planned to become a benefit corporation.)

Still, it will be interesting to watch how such companies find a way to balance their social and financial goals in a business world that has long believed the purpose of a public corporation is to maximize shareholder value.

Some investors could be concerned the focus on eco-friendly efforts or generous worker pay is happening at the expense of profits. Etsy’s Dickerson, for his part, has said a focus on people and profits can coexist. As he wrote in a company blog post Thursday, “Etsy has become a touchpoint of debate for larger issues, including whether the human-centered craftsmanship that we exist to support is compatible with being a public company, which requires a new set of responsibilities to shareholders. We understand the concern, but reject the premise that there is a choice to make between the two.”

Read also:

Podcast: Etsy CEO Chad Dickerson on leadership

Creating a class of 'do-good' companies

Can a happy, crunchy company like Etsy really survive on Wall Street?

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