The team at GrowGood specialise in helping New Zealand companies fast-track their B Corp certification journey. Part of this journey includes a scoring system. Companies that offer their employees ownership or the option to own shares in the company are offered points towards their certification.
We spoke to Tamara Pitelen at GrowGood, who shares her insight into what it means to be ‘B Corp-certified’.
What is a B Corp-certified company?
Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy. Essentially, they are businesses that undergo an independent process of certifying the ongoing improvement of their environmental and social impacts.
What are the advantages of being a B Corp company?
There are quite a few! Let’s start with:
- Recruitment: B Corps attract the best talent and have better staff retention.
- Profitability and competitive edge: Empirical data shows that B Corps are making more money than non-B Corps in their industry. As well, B Corps proved more resilient through the pandemic.
- Brand loyalty: More customers want sustainable brands and vote with their wallets.
- Access to capital: Investors now demand businesses that they invest in to have transparency in their ESG.
- Cost savings: B Corps have found innovative ways to significantly cut costs by scrutinising their operations.
- Legislation-proof: Have you noticed the raft of new ESG legislation that’s been passed all over the world? Becoming a B Corp means you’re not going to be left behind.
Why are we seeing more companies in NZ and Australia becoming B Corps?
More than 600 companies across New Zealand and Australia are Certified B Corporations, representing industries from accounting to waste management. There are many drivers of this growing interest, but the main one is that business owners have read the writing on the wall. The old way of doing business is extractive, destructive and unsustainable. A new low-carbon economy is fast emerging as the world gets to grips with solving the unprecedented challenges of the climate crisis and a population approaching 10 billion.
While the business world has driven much of this destruction, the business world is also the only sector with the innovation, creativity and resources necessary to quickly find and scale the solutions.
Ultimately, business owners and employees are just people. And most people don’t want to trash their planet and their communities. They want to see their children and grandchildren thrive. This is also driving the growth of the B Corp movement because certification offers businesses an ESG roadmap. Most people want to be part of the solution but don’t know how. B Corp shows them how.
What is the process involved and how long does it take?
B Corp certification is a positive screening tool. In other words, you score points for the good you’re doing, for example, treating your staff fairly, supporting disadvantaged groups in your community, or helping regenerate the environment.
The companies interested in a certified B Corp are already demonstrating some ongoing impact in social and environmental improvement, so they may be closer to being B Corp certified than they think!
The timeline varies depending on the number of new initiatives a business decides to adopt and how much effort it requires. As a rule of thumb, expect it to take 12 to 18 months, depending on the size and complexity of the business.
The first step is to talk with a group or consultant that knows what they’re talking about, such as Grow Good, which offers free health checks to better understand what would be involved in getting your business B Corp certified.
“There's no better way to tune people into creating value than to make them shareholders… I know it gave our people more understanding and a sense of responsibility for what was going on in the company… in my view, it's a win-win."
David Thodey - Chair of the Board, Xero
What are employee share schemes (ESS), and how do they factor into B Corps?
Employee share schemes (ESS) are legal agreements allowing employees to receive and earn ownership in the business they work for. They are a clearly defined pathway for employees to become shareholders and to benefit from the success of the company that they contribute to.
Different types of ESS exist and are best suited for different businesses, so it’s important to understand which option is best for you.
If you hang out in the B Corp world, companies score more points for having an employee share scheme.
And if your company meets the Worker-Owned Impact Business Model criteria, it’ll bag you up to 30 points in the B Impact Assessment (BIA), which is a big bite of the 80 points required to get B Corp certified.
Research also shows that companies with significant employee ownership grow faster than their conventionally-owned counterparts.
Still, if you’re a business owner who has done the hard yards to build your company up from nothing, it can seem like a big ask to just hand over ownership of that company to employees.
The research shows that companies with significant employee ownership tend to get boosted productivity, enhanced loyalty, and ultimately greater long-term success.
Still, for a conventional company, shifting to an employee ownership model can seem confusing and complicated. So why would you? There are a few reasons:
The pro's of employee share schemes:
Employee ownership grants employees a financial stake or ownership interest in a company. This can take various forms, including share options, profit sharing, or direct share ownership. The goal is to align the interests of employees with those of the organisation, creating a sense of shared purpose and mutual benefits. Benefits of adopting it include:
Enhanced employee engagement and commitment
Implementing employee ownership can significantly enhance employee engagement and commitment. When employees become partial company owners, they have a personal stake in its success. This sense of ownership can drive employees to go the extra mile, increasing productivity and dedication to their work. Furthermore, as owners, employees are more likely to take a long-term perspective and actively contribute to the organisation's growth and profitability.
Retention and recruitment of top talent
Employee ownership programs can be a powerful tool for attracting and retaining top talent. In a competitive job market, prospective employees are increasingly seeking organisations that offer opportunities for growth, financial incentives, and a sense of purpose. Employee ownership provides all these elements. It signals to potential candidates that the company values its employees and rewards their contributions. Additionally, existing employees are more likely to stay with an organisation that offers them a chance to share in its success.
Improved productivity and innovation
Ownership fosters a culture of accountability, empowerment, and innovation. When employees have a say in decision-making and are directly affected by the outcomes, they are more motivated to perform at their best. Employee owners often take on an entrepreneurial mindset, proactively identifying opportunities for improvement and suggesting innovative solutions. As a result, organisations that embrace employee ownership often experience a surge in productivity and a competitive edge in their respective industries.
Long-term sustainability and stability
Employee ownership can contribute to the long-term sustainability and stability of a business. As owners, employees are likelier to take a vested interest in the company's success, leading to increased loyalty and lower turnover rates. This continuity translates into cost savings associated with recruitment, onboarding, and training. Moreover, employee-owned companies tend to have more robust financial performance, as employees are personally invested in the business’s success.
Healthy corporate culture and trust
Employee ownership can foster a positive organisational culture and build trust among employees. Employee-owned companies typically pay more, are less likely to lay people off in a downturn, and build community wealth. When individuals feel valued, respected, and trusted, they are more likely to collaborate, share knowledge, and work towards common goals. Transparency in sharing financial information and involving employees in decision-making creates a culture of open communication and inclusivity. This culture of trust nurtures a supportive environment where employees feel motivated to contribute their best efforts.
By aligning the interests of employees with those of the company, organisations can foster a culture of ownership, collaboration, and shared success. As businesses navigate the evolving landscape, employee ownership is a powerful tool to unlock the full potential of their workforce and secure a prosperous future.
Types of employee share schemes
There are three main types of employee ownership structures that companies can adopt. Here are some common types:
- Share options: Share options are agreements that give employees the right to purchase company shares at a predetermined price (the exercise price) within a specified period. They often have a vesting period, and employees can exercise the ‘option’ to acquire shares once they become vested. This allows employees to share in the company's value appreciation.
- Phantom shares: Phantom shares are a form of equity-based compensation where employees are granted hypothetical or notional units that mirror the value of the company's stock. Employees receive cash payments equivalent to the increase in the stock's value over a certain period without actually owning the shares. This is similar to a formalised profit-sharing agreement.
- Loan to purchase plans: this structure allows employees to acquire shares in the business they work for. The company will usually issue the employee a zero or low-interest loan to pay for the shares upfront. Over time, based on various ways, such as dividend distributions, cash contributions, and salary sacrifice, the loan to the company is paid down, and the employee owns the shares outright.
Each type has its own specific characteristics and benefits, and companies can choose a structure that aligns with their goals and the needs of their employees. It's important to consult with legal and financial professionals to understand the specific details and implications of each type of employee ownership.
How to switch to employee ownership
It’s a lot easier than most people think.
The initial step is to determine the most suitable employee share scheme for your business. We strongly advise consulting with professional advisors, such as lawyers or accountants, as a first step. This ensures you select the optimal scheme to achieve your desired outcomes and are well-informed about the tax implications involved. It’s important to get this right; experts such as our team at Orchestra have resources to guide your decision.
Orchestra is Australasia’s leading equity ownership software, providing a two-sided app that enables companies to streamline the management process of the ESOP and, even more importantly, provides an online app for employee ownership participants to login to interact and engage with their ESS.
Once you have decided on the approach, the allocation of the ESS pool takes place. Typically, this pool represents around 5-15% of the total shares in the company, although it depends on the stage of the business. Employees then engage in negotiations regarding their ESS and can utilise tools like Orchestra to effectively manage and monitor their progress towards ownership.
Employee Share Schemes can be intricate and challenging to maintain. So, it’s important to have a dedicated management tool providing employees with complete transparency regarding the benefits they accrue over time.