Why banks are becoming B Corps

The Sitar Arts Center turned to City First Bank to finance a new arts facility serving low-income students. Photo: Matthew Rakola

A number of community banks have joined a coalition of companies whose commitment to better business practices—from worker benefits to leadership structure—is certified by a third-party nonprofit. These B Corps, designated by the B Lab, are a growing force that count many financial institutions and household brands as members. Could being a B Corp benefit your community bank?

By Judith Sears

B Lab: Fast facts

  • Founded: 2006
  • Cofounders: Jay Coen Gilbert, Andrew Kassoy and Bart Houlahan
  • Mission: To design a set of standards that would create a legal structure for companies to hold themselves accountable to stakeholders as well as shareholders.
  • Certified B Corps: 2,698
  • Annual certification fees: $500 to $50,000, depending on revenues
  • Minimum certification score: 80 out of 200
  • Funding: Early funding came from the Rockefeller Foundation, Prudential Financial and Skoll Foundation. In 2018, B Lab’s earned revenues were 62 percent of its operating budget.

“To use business as a force for good” is the philosophy proclaimed by a relatively new, but growing, corporate movement called B Corps.

A B Corp is a business that has been evaluated and certified by the nonprofit B Lab on five categories: corporate governance, treatment of workers, impact on community, impact on environment and treatment of customers. Proponents of B Corps, which count global corporations like Danone North America, and popular brands like Patagonia and Ben & Jerry’s among their ranks, present this as “shareholder capitalism” versus “stakeholder capitalism.”

The commitment to business as a force for good is an approach that community banks can readily identify because of their community investment and involvement. As ICBA says on its website, “Community banks only thrive when their customers and communities flourish.”

Here, we talk to several community banks that have determined that B Lab’s values resonate with theirs and have sought certification, a professional designation similar to the LEED certification of green buildings.

Why community banks and B Corps align

Mascoma Bank, a 120-year-old, $1.8 billion-asset bank in Lebanon, N.H., is a mutually owned community bank without shareholders or dividends. That governing structure easily lent itself to the B Corp’s assessment. “We feel like we’ve been using business as a force for doing good for a century,” says Clay Adams, Mascoma Bank’s president and CEO. “As a mutually owned bank, we maximize and optimize for our customers, community and our employees. They are our shareholder beneficiaries. For B Corps, it’s the community, customers, workers and environment, so those match up nicely with the way mutual governance works.”

“Our approach to being a community bank was already fully aligned with what B Lab was doing.”
—Brian E. Argrett, City First Bank

Brian E. Argrett, president and CEO of City First Bank of Washington, D.C., a $350 million-asset community development financial institution (CDFI), also saw a natural fit with the B Corp approach. The CDFI designation already emphasizes City First’s mission to the community. “It’s in our DNA to serve our community, particularly low- and moderate-income communities,” Argrett explains. “Our approach to being a community bank was already fully aligned with what B Lab was doing.”

These and other community banks have found that their values and practices are in such strong alignment with the B Corp vision that they qualify for certification without having to make big changes in how they operate. “It wasn’t a heavy lift to get certified,” Argrett notes. “We were already aligned with the things that B Lab was measuring for a B Corp certification.”

That said, the certification process did require significant documentation and effort on the part of these banks. The bulk of the process is the completion of the B Impact Assessment, a survey of 200-plus questions covering the five categories of governance, workers, community, environment and customers.

“You do really need a dedicated person, especially at a bank with lots of data to comb through, to answer these questions.”
—Cynthia Newell, City First Bank

Cynthia Newell, director of impact and strategic partnerships for City First Bank, says the questions could be demanding. “One question that was a fairly heavy lift was describing what percentage of your supplies and expense ratio is associated with local, independent small businesses,” she recalls. “You do really need a dedicated person, especially at a bank with lots of data, to comb through to answer these questions.”

Bankers emphasize that they must provide B Lab with thorough documentation of their survey answers, and that can be a challenge. “In a community bank, everybody wears many hats,” says Melanie Stern, Community Reinvestment Act officer for $185 million-asset Spring Bank in Bronx, N.Y., which was certified in 2016. “In completing the assessment, we had to nudge people about the documents that were required. It was time-consuming to pull it all together and find the person who could get the information.”

Once completed, the assessment is submitted to B Lab, which follows up over email and telephone interviews. Then a verification team makes a site visit, which can last three to five business days.

“They look at the documents and validate how you came up with the score,” says David Reiling, CEO of $1.1 billion-asset Sunrise Banks, a CDFI that for the past six years has been part of B Lab’s overall “Best for the World” group, a listing of certified businesses with the top 10 percent of assessment scores.

Is becoming a B Corp worth the effort?

While the certification process is demanding, certified community banks are unanimous that the difficulty is what makes it worthwhile. “It’s very rigorous, and that’s a good thing,” Reiling says. “It adds credibility to [the certification]. You know that your score versus others’ is meaningful and accurate.”

“They are very keen to verify that you are doing what you’re touting,” agrees Stern. “They do a tremendous amount of due diligence. You can comfortably say that the certification is meaningful.”

Further, the detailed analysis and documentation gives community bankers plenty of valuable data to review and use in making decisions. The comprehensive questionnaire and the five categories combine to create an analytical method for banks that want to make improvements in their practices.

“How do you measure your impact on your community and employees? B Lab has done a good job of making a rigorous and points-based analysis that you can manage too.”
—Demetris Giannoulias, Spring Bank

“I think it’s time well spent, because it’s a way to evaluate ourselves,” says Demetris Giannoulias, CEO of Spring Bank. “It’s the notion of rigorous metrics to measure performance in something that’s not just profitability. How do you measure your impact on your community and employees? B Lab has done a good job of making a rigorous and points-based analysis that you can manage too.”

Mascoma’s Adams agrees. “It has provided us with a nice framework through which to assess the impact we have on customers, the community and employees that otherwise we’d be going through on a one-off basis,” he says.

He adds that the certification process caused Mascoma Bank to look more closely at its environmental impact. The bank recently converted 12 branches to run exclusively on renewable energy. “We wouldn’t have thought about doing this if we hadn’t been looking at B Corp criteria,” Adams says. “The B Impact Assessment is giving us ideas about other things we can do so that we continue to score well.”

Demetris Giannoulias and Melanie Stern of Spring Bank say B Lab is incorporating the New York bank’s employee opportunity loan program in its own efforts. Photo: Dan Bigelow

The value to the bottom line

For most bankers, the value of B Corp certification is that it communicates who they are as institutions. “There is a differentiation piece,” Adams explains. “It sometimes feels like community banks are put in the same category as large national banks, and this is a nice way to differentiate who we are relative to them. We’re taking a greater-good approach.”

“It sometimes feels like community banks are put in the same category as large national banks, and this is a nice way to differentiate who we are relative to them. We’re taking a greater-good approach.”
—Clay Adams, Mascoma Bank

“It’s not just a label but a true intention of how you run your business,” adds Argrett. “That can be difficult to convey, and the public may see you as just the same as any bank down the street.”

In some ways, the B Corp certification operates as a kind of specialized networking group in which membership may lead to increased business opportunities. “We’ve had prepaid business card partners as well as fintech partners that, when they found out we’re a B Corp, that’s a differentiating point that gets us the business,” Reiling says.

“We’ve had … fintech partners that, when they found out we’re a B Corp, that’s a differentiating point that gets us the business.”
—David Reiling, Sunrise Banks

Bankers report that the designation is helping to attract talented employees to their banks. Mascoma Bank recently hired an MBA graduate who confided that working for a bank had not even been on her radar when she began job hunting. The values that the certification communicated, however, made her take a closer look. “People want to work for an employer that has a purpose,” Adams says. “That has been a huge help, particularly in a tight labor market.”

Sunrise Banks has had similar experiences. Recently, when the bank was interviewing for a new CFO, one candidate explained that his daughter had spotted the electric chargers in the bank’s parking lot and enthusiastically urged her father to go to work for Sunrise. “She was selling her dad on us before he even got to the interview,” Reiling laughs.

City First Bank: DC’s first B Corp bank

This past year, $350 million-asset City First Bank was honored as one of the “Best for the World,” the B Lab’s listing of the top 10 percent of certified B Corps. It was a big accomplishment, coming just one year after City First became the first bank in Washington, D.C., to achieve B Corp certification.

City First Bank, a community development financial institution (CDFI), sought certification as a means of highlighting its philosophy and approach to doing business, according to Cynthia Newell, the bank’s director of impact and strategic partnerships.

“B Corp is very noted among organizations that care about mission,” she says. “This is an ecosystem of value-aligned profit organizations that are signaling to nonprofits, government entities and each other that we want to deepen our impact.”

Part of City First’s business case was that B Corp certification would create more business opportunities, and CEO Brian Argrett believes it has. “We’ve participated in and led various events around the B Corp community that have given us the chance to learn about other businesses and share who we are. That has definitely resulted in those folks becoming customers, vendors or partners,” he says.

City First officials are particularly pleased with the positive impact that B Corp has had on the bank’s corporate culture. “We’ve established a group of employees across the organization who call themselves the ‘B Corp Band,’” Newell says. “They’re looking at various means of energy savings, and they promoted an employee wellness week.”

“It’s great internal-culture building for employees,” Argrett says. “It gives them a central point of reference, which is very powerful and engaging.”

Getting the board on board with B Corps

One wrinkle in the B Corp certification process is that B Corp has a cousin called a benefit corporation. Both share a commitment to socially responsible business practices. However, while B Corp is a professional certification with limited legal standing, a benefit corporation is a legal framework similar to a C-corp, a sole proprietorship or an LLC that’s available in 34 states.

Benefit corporations allow for-profit businesses to incorporate with a commitment to consider the impact of its decisions on all stakeholders, not just shareholders. A business can be a B Corp, but not a benefit corporation; or it can be a benefit corporation, but not a certified B Corp; or it can be both.

While a benefit corporation is not required to seek B Corp certification, B Lab often urges B Corp-certified companies to apply for benefit corporation status if they are located in states with that option.

For many community banks, becoming a benefit corporation would require changing their articles of incorporation and bylaws. Such changes put shareholders on parity with employees, the environment and the community in terms of decision-making. This will require board approval and may have regulatory implications as well.

For some community banks, the board of directors may be quick to agree. But Reiling cautions that if the bank doesn’t already have a strong track record of values- and mission-based activity, getting the board of directors on board may be the biggest challenge.

“They could take it as a threat that you’re not going to focus on maximizing shareholders’ interest and maximizing profit,” he warns.

Reiling does not see a necessary conflict, and reports that Sunrise’s investments in social responsibility have extended its network and strengthened the bank financially. “Our actual doing good and engaging in the community and trying to figure out ways to bank and serve the unbanked, or new ways to do affordable housing and finance, have multiplied our business,” he says.

Andrew Kassoy, one of B Lab’s cofounders, points out that any regulated financial institution that is a B Corp still has an overriding duty to safety and soundness. This duty overrides any other consideration, which may provide some reassurance to skittish boards and shareholders who may worry that the community bank will neglect profitability.

Regulatory agencies are another audience that may not be familiar with either B Corp or benefit corporations. However, community bankers report that regulators have been generally favorably disposed or at least neutral. “At first, the Fed regulators looked at us quizzically,” Adams recalls. “Once they understood that the focus was not going to be much different than how most community banks already operate, they were very supportive of the change.”

Spring Bank: Best for customers

Spring Bank, located in South Bronx, N.Y., was founded in 2007 to serve underserved consumers and small businesses in the New York City area. The community bank became a certified B Corp in 2016.

“We’ve always been a double-lined institution,” says CEO Demetris Giannoulias. “We exist to make a profit but also to accomplish a social objective.”

One of the areas where Spring Bank performed most strongly on the B Impact Assessment was in the “Best for the World: Customers” category. This was based on its mission-based small-dollar loan program, which is designed to give people borrowing options to payday lending.

As an alternative, Spring Bank partners with businesses in an employee opportunity loan program, which provides loans of up to $2,500 with no minimum credit score for employees of participating companies.

To date, 26 companies have enrolled in the program, three of them certified B Corps in the area. The high rate of participation has caught the notice of B Lab, which is incorporating the employee opportunity loan program in its efforts to help low- and moderate-income workers.

“B Lab is advancing the offering as part of an initiative to help B Corps address income insecurity in a program they call Income Advance,” says Melanie Stern, Community Reinvestment Act officer.

Next steps

If you think B Corp certification might be right for your community bank, B Corp bankers suggest going to bimpactassessment.net and taking a run at the B Impact Assessment questionnaire. You can try either a 30-minute questionnaire or a comprehensive version, which will take two or three hours.

“Don’t overthink it,” Reiling advises. “Just go through the survey and see how you score. Just based on the fact that you’re a community bank, you’re probably already close to the threshold.”

If you score well, the next step might be to assign someone to be the point person for exploring the certification. They can review the scores and business practices of other community banks, and draft a business case for why the designation would add value to the bank and how it aligns with the bank’s existing mission, vision and strategy.

Community bankers at certified banks say they’re happy with their status.

“Sunrise is certified through the U.S. Treasury as a CDFI and we’re also rated outstanding in CRA, but those benchmarks are fairly geography-based and don’t include a broader, more holistic set of measurements. The B Corp certification really fits who we were and are today,” Reiling says. “We want to encourage more banks to look to the force for good that their companies can have.”


Judith Sears is a writer in Colorado.

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