An increasing number of legal entities (collectively referred to below as companies) are or aim to be engaged in corporate social responsibility (maatschappelijk verantwoord ondernemen). Such companies take the impact on people, the environment and society into account throughout their operations. Companies can express their aspirations in terms of corporate social responsibility in several ways. Some companies follow the principle of impact first, which means that they operate primarily on the basis of a social mission. Other companies focus on making a profit but, in doing so, also want to contribute to society.
Since to this date no specific legal form for the social enterprise exists in the Netherlands, companies are looking for other ways to demonstrate publicly their commitment to corporate social responsibility, for instance by aligning with various private codes and labels. In this blog, we address some possibilities in this regard: (i) the B Corporation; (ii) Social Enterprise NL; (iii) the Social Enterprises Code; (iv) the Social Business Performance Ladder; and (v) the CSR Performance Ladder. Finally, we address the possible future statutory basis of the Social Private Limited Liability Company (the BVm).
II. Forms of corporate social responsibility
2.1 Obtaining certification as a B Corporation
The certification of a company as a B Corporation (B Corp) is a private initiative of B Lab, a US non-profit organization.
B Corp certification shows the focus of a company on corporate social responsibility. B Lab issues B Corp certificates to for-profit companies that also want to be successful in achieving social and sustainable goals. A company certified by B Corp will consider every stakeholder – such as customers, employees, and investors, but also the environment and the local and global communities – when making a business decision (stakeholder governance). A B Corp aspires to do no harm through obtained profit and means to benefit all stakeholders of the corporation in the long-term.
The B Corp certificate can be issued to all types of Dutch companies. Additional requirements may apply, depending on the type and size of the company. In order to obtain the B Corp certificate, an extensive procedure must be completed, starting with a specific assessment, known as the B Impact Assessment (BIA). Companies must meet legal requirements as part of the procedure. A company’s articles of association (Articles) must include certain provisions. First, the company’s objects must provide that the company aims, through its operations and activities, to have a significant positive impact on society and the environment in general. Furthermore, the provision regarding the adoption of resolutions by the management board must state that the managing directors, when adopting resolutions, must also consider the social, economic, legal or other consequences of the company's business operations with respect to:
(i) its employees, subsidiaries and suppliers;
(ii) the interests of the customers of the company and its subsidiaries;
(iii) the communities and society in which the company, its subsidiaries and its suppliers conduct their business;
(iv) the local and global environment; and
(v) the company’s short-term and long-term interests.
Three years after certification, the company must complete the BIA again in order to retain its B Corp certification.
2.2 Becoming a member of Social Enterprise NL
Companies can also become members of Social Enterprise NL, a network that connects and strengthens social enterprises in the Netherlands. The network is a private initiative of several founding partners, currently consisting of PwC, ABN AMRO and Stichting Doen, and functions as a Dutch foundation (Stichting Social Enterprise NL). The membership of Social Enterprise NL is suitable for companies that want to invest in professionalising their business and achieving a social mission, whilst also helping other social entrepreneurs and stimulating the growth of social entrepreneurship in the Netherlands.
Social Enterprise NL operates on the basis of the definition of a social enterprise used by the European Commission, namely a company that:
(i) enters into business first and foremost from a social mission (impact first);
(ii) makes an impact as an independent business providing a service or product;
(iii) has a revenue model;
(iv) sees profit as a means, not an end;
(v) is transparent and honest to everyone;
(vi) is social in the way the business is run; and
(vii) bases governance and policy on equal influence of all the stakeholders.
Multiple admission criteria apply to companies that become members of the network of Social Enterprise NL. Companies must have at least one year of turnover and a (somewhat proven) earning model, for instance.
Social Enterprise NL offers tools to ensure that the company's social mission remains firmly anchored. A company’s Articles can play a major role in this regard. Social Enterprise NL has drafted recommendations for the set-up of Articles of a private limited liability company, a cooperative and a foundation, all of which are based on the Social Enterprises Code (as elaborated in 2.3).
2.3 Complying with the Social Enterprises Code
Dutch companies aiming for a social entrepreneurship may choose to comply with the Social Enterprises Code (Code Sociale Ondernemingen). The Social Enterprises Code was developed by an independent committee in 2017 at the request of Social Enterprise NL. The Social Enterprises Code relies on the principle of impact first, whereby companies primarily operate on the basis of a social mission. The Social Enterprises Code is based on five principles, namely mission, stakeholders, finance, implementation and transparency. The purpose of these principles is to show what social entrepreneurship stands for and are subsequently followed by a practical elaboration.
The Social Enterprises Code Foundation (Stichting Code Sociale Ondernemingen) keeps a register, i.e. the Register of Social Enterprises (Register Sociale Ondernemingen). A Review Board decides on admission of a company to the Register of Social Enterprises . Multiple admission criteria apply. Only private limited liability companies, foundations, cooperatives, associations and public limited liability companies can qualify for the Register of Social Enterprises. Sole proprietorships and general partnerships are eligible only under certain conditions. The company must furthermore be financially and administratively independent.
According to the Social Enterprises Code, certain provisions must be included in the Articles. Social Enterprise NL has drawn up model Articles for private limited liability companies to comply with the Social Enterprises Code. To start with, the objects clause must explicitly state the social issue to which the company contributes (being the mission). Also, the Articles must describe which requirements the decision-making process must meet in order to amend the company's objects. In addition, the company must record in the Articles how the principle of impact first is safeguarded in the financial policy. Finally, the company must record how the principle of impact first is safeguarded in the event of sale or cessation of the company. The second, third and fourth provisions are mandatory for companies that qualify as medium and large companies under Dutch law. For companies that qualify as micro and small companies under Dutch law, this is a (growth) recommendation. In addition, provisions regarding the company's stakeholder policy, dividend/distribution policy and remuneration policy can be included in the company’s Articles.
The registration is an ongoing process. Two years after admission to the Register of Social Enterprises, the admission criteria are reviewed once again and a peer review is conducted by two fellow entrepreneurs who are registered in the Register of Social Enterprises.
2.4 Membership of Social Enterprise NL and compliance with Social Enterprise Code
Membership of Social Enterprise NL and registration in the Register of Social Enterprises may coincide. Social Enterprise NL and the Social Enterprises Code are both committed to strong growth of the social enterprise sector, as well as connecting this sector with key stakeholders. The difference between them is that companies are reviewed more stringently in order to be registered in the Register of Social Enterprises. Members of Social Enterprise NL therefore cannot count on being admitted to the Register of Social Enterprises without further changes. Conversely, in principle, endorsement of the Social Enterprises Code does entitle companies to become members of Social Enterprise NL.
2.5 Obtaining a Social Business Performance Ladder label
The Social Business Performance Ladder (Prestatieladder Socialer Ondernemen) (PSO) is a scientifically based quality mark from the Netherlands Organisation for Applied Scientific Research (Nederlandse Organisatie voor toegepast-natuurwetenschappelijk onderzoek (TNO)). TNO is a legal person governed by public law (publiekrechtelijke rechtspersoon).
PSO is an instrument that provides insight into the extent to which companies focus on the employment participation of vulnerable groups in the employment market in relation to standard social entrepreneurship. In a benchmark year, the PSO maps at a company level the ratio between the number of employees with poor job prospects and the total number of employees.
All types of companies are eligible for PSO. PSO consists of four performance levels on the basis of which a PSO label may be applied for, from Candidate to Step 3. Applying for a PSO label consists of five process phases, including the submission of data that is reviewed by means of an audit and an audit report. A PSO certificate is valid for two years. After that period, the company may reapply and an audit is carried out.
A company may also apply for a PSO 30+ certificate. Such companies must meet specific statutory requirements. The PSO 30+ certificate is intended for sheltered workshops and entrepreneurs whose main object is the social and professional integration of disabled or disadvantaged people, or the implementation of which is reserved in the context of sheltered employment programmes. A company may explicitly include this object in the Articles.
2.6 Obtaining a CSR Performance Ladder label
The CSR Performance Ladder (MVO Prestatieladder) is inspired by internationally accepted guidelines, such as ISO 26000. The CSR Performance Ladder is a private initiative originating from a collaboration between KIWA, DNV and LRQA. The CSR Performance Ladder is a certification standard for corporate social responsibility, based on the right balance between people, planet, profit and purpose. In order to be eligible for a CSR Performance Ladder label, a CSR management system must be in place that meets the requirements of the CSR Performance Ladder. This is a policy document that sets out the processes surrounding corporate social responsibility. All types of companies may apply for the CSR Performance Ladder.
The CSR Performance Ladder has 31 CSR themes within seven core themes, specifically: (i) organisational governance; (ii) working conditions and meaningful work; (iii) human rights; (iv) fair operating practices; (v) consumer issues; (vi) the environment, raw materials, energy and emissions; and (vii) community involvement and development.
Once the CSR management system is in place, it is audited by a registered certification body. The certificate for the company can be issued on the basis of the CSR Performance Ladder at levels 1 to 5, according to the result of the certification audit. For step-up levels 1 and 2, the certificate is valid for one year. The CSR certificates at levels 3, 4 and 5 are valid for three years and are redefined or updated every three years by the registered certification body.
III. Social private limited liability company
On 9 March 2021, the Dutch cabinet took a first step towards legal provisions for a new form of the private limited liability company (besloten vennootschap) (BV), namely a social private limited liability company (maatschappelijke BV) (BVm) (aanzet tot een wettelijke regeling). No legislative proposal (wetsvoorstel) has yet been published by the legislature. To date, it remains unclear when (and therefore whether) such a legislative proposal will follow, and subsequently an actual act (wet) and statutory basis for the BVm.
Based on the initiation of legal provisions for the BVm, the following is suggested. The BVm will ensure that BVs can clearly express that they are social enterprises to third parties such as customers, suppliers, financiers and other business relations. The BVm will be a company that prioritises social impact over distributing profits to shareholders.
With regard to distributions to shareholders of the BVm, it is intended that its general meeting must prioritise the realisation of advancement of the social purpose of the BVm. This requirement will be met if more than half of the profit of the BVm is appropriated and used for the social purpose and distributions are allocated as such. The general meeting must ensure the preservation and long-term interests of the BVm. Finally, the management board must refuse to approve a distribution resolution of the general meeting if the management board has or should have more than reasonable doubt that such a distribution would prevent the BVm from fulfilling its social purpose.
It is proposed that a company must meet three requirements in order to become a BVm: (i) the directors of the BV must have declared before a civil-law notary that the BVm regulation applies to the BV unconditionally; (ii) the Articles of the BVm at the time of that declaration must be in conformity with the requirements of the legislative proposal; and (iii) the civil-law notary must have declared in a notarial deed that requirements (i) and (ii) have been met. Once a BVm qualifies as such, it is mandatory to record this status in the Trade Register of the Chamber of Commerce.
More information on the BVm can be found in our newsletter of 6 July 2021 (Dutch only).
IV. Stibbe's ESG Corporate and M&A team and corporate social responsibility
Stibbe's ESG Sustainability Strategy, Governance and M&A team specialises in corporate social responsibility, among other things. Our civil-law notaries can advise on which form of corporate social responsibility is appropriate for your business. They can arrange for customised Articles that either comply with the relevant legal requirements described above or, more generally, meet the company’s corporate social responsibility needs or both. If you have any questions about implementing ESG and sustainability within your company or wish to discuss your company’s Articles in the light of corporate social responsibility, please feel free to reach out to one of your Stibbe contacts.