Doing good while doing business in San Francisco

SAN FRANCISCO -- Mike Hannigan and Sean Marx started their Oakland office supply company, Give Something Back, with an unusual mission -- donating all profits to charity.As they grew to sales of more than $26 million, they often wished for additional capital to help fuel that growth. But they held back from seeking outside investors for fear of undermining their philanthropic mission."Even if investors came in saying, 'I am totally into giving away the profits,' two years later they might change their mind," Hannigan said.Now Hannigan and Marx believe they've found a solution to their dilemma -- writing their values into their company's legal structure as something called a "B corporation."B corporations are the latest innovation within the small world of companies with a social as well as financial mission. Such firms have banded together for decades in networking groups such as Businesses for Social Responsibility, Co-op America's Green Business Network or the Social Venture Network.But the B corporation movement -- with the "B" standing for "beneficial" -- takes things a step beyond networking and newsletters. B corporations must receive a passing grade on a long scorecard that covers environmental practices, employment practices, purchasing policies and whether their products are beneficial to society.They must also adopt legal language stating that their directors may consider the welfare of outside stakeholders such as employees, customers, their community and the environment, as well as the financial interest of shareholders."These companies are stewards of the whole, not just stewards of maximizing shareholder wealth," said Jay Coen Gilbert, a Stanford business school graduate and entrepreneur who co-founded the B corporation movement.The Bay Area is a hotbed of this movement, home to 24 of the country's approximately 100 B corporations -- including firms such as Method Home in San Francisco, Numi Tea in Oakland and the Hanson Bridgett law firm in San Francisco.But the movement had its start and headquarters near Philadelphia, where Coen Gilbert and two of his Stanford classmates found themselves looking for a new challenge after successful careers in sporting goods and private-equity investment.All three had become interested in social entrepreneurship, or businesses that see social and environmental goals as part of their core mission. But rather than start a green business or a social investment fund, the three friends decided to strengthen and expand the entire sector."There was a lack of basic infrastructure preventing this marketplace from developing more quickly," said Coen Gilbert. "There was a lack of standards, and of knowing what we mean by 'responsible, sustainable, green business.' There was a lack of legal structures reflecting the values of these new enterprises. And there was a lack of a unifying voice for this market."B corporations don't have any special tax status. And it's too early to know how much legal cover the B corporation language will really offer firms like Give Something Back if, for instance, they are sued by an unhappy investor who doesn't like their social or philanthropic priorities.The situation is muddied further by the fact that some states have laws allowing companies to consider the interests of constituencies other than shareholders, while others including California don't have laws explicitly addressing that.Even with such unknowns, the B corporation idea has been spreading in social entrepreneurship circles.Advocates see the current explosion of consumer interest in green products as offering them unprecedented opportunities for growth -- if they can obtain the capital needed to finance that growth.They've also watched large corporations buying up one small socially conscious brand after another, with Unilever buying Ben & Jerry's in 2003, Colgate buying Tom's of Maine in 2006, Clorox buying Burt's Bees in 2007, and Coca-Cola buying a 40 percent stake in organic Honest Tea in February."The biggest fear of any company like ours is that if we merge with a strategic partner, will they try to strip our values away just to save on the cost of goods?" said Ahmed Rahim, who founded Numi with his sister Reem in 1998. "Having this as a part of our operating agreement carries a lot of weight. It means that whoever our strategic partner is, they will be committed to our values from Day One."(E-mail Ilana DeBare at idebare(at)sfchronicle.com)(Distributed by Scripps Howard News Service, www.scrippsnews.com.)