What becoming a B Corp means for Couchsurfing

bcorp

Published on 11/1/2010

By now you may have heard the news that Couchsurfing is becoming a B (Benefit) Corp, a new type of socially responsible corporation.

We’ve been working on this change for the last few months but we couldn’t make any announcements until we knew for sure that it was all going to work. Now, it has and I’m so glad to finally be able to talk with you about it! This transition to a B Corp is a huge change but it’s something I’m very excited about and something I know is going to mean great things for Couchsurfing.

The biggest benefit will be the flexibility that B Corp status brings us. It means that we can run much more efficiently and meet the needs of the Couchsurfing community even better. We will have the resources that we need to achieve our vision and mission, and the freedom to innovate. We’ll be able to make even more improvements to the website, ensuring that it’s fun and easy to use. And Couchsurfers can expect to see more great features and tools that will make it even easier to host, surf and connect with the community!

Becoming a B Corp doesn’t mean that we’re going to become obsessed with profits. That never has been and will not be our primary focus in the future. In fact, becoming a B Corp means that instead of having just the one bottom line of making a profit, as in the case of a regular corporation, we are required to have multiple bottom lines. We will be accountable to all the people who have a stake in Couchsurfing: our members, volunteers, staff and our investors. To us, our members have always been our priority, but now being a B Corp requires us to make them a priority too — they’re officially recognized as stakeholders.

I’m really excited about this change but even so, it wasn’t a decision we came to easily. The rest of the team and I did a lot of research and a lot of soul-searching. We were definitely concerned that not being a non-profit would make it harder to achieve our goal of creating a better world. And, after so many years trying to get 501c3 status we knew we had to find a legal structure that would work for us even better.

We interviewed many experts about all of the options available to us. We talked to B Lab, the non-profit who created the B Corp structure, to make sure that we were the right fit for each other, and they agreed that we were. As Jordan Chazin, Ratings Associate and part of the standards and certification team at B Lab, explained:

We’re definitely excited to have you on board for a number of reasons… One of the most interesting things that I learned about CouchSurfing was how well you treat your employees, and that everyone who works there is actually a CouchSurfer themselves. It just seems like a really interesting place and you fit well with the kind of companies we are trying to get to become B Corps. CouchSurfing holds a lot of the same values that we’re trying to instill in companies.

After comparing the options, it was clearly the winner. It’s the structure that will allow us the greatest flexibility to achieve our vision in the shortest period of time. It will allow us to provide better features, support and information for our existing members, and reach more and more people. Ultimately, reaching more people is what will help us achieve our vision of creating a better world.

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What happened to 501c3?

Published on 10/1/2010

In other related posts, Dan Hoffer and I discuss the challenges we faced in getting 501c3 status, and our new goal of becoming a B Corp. Pursuing a different, and ultimately better, legal structure is a big change so it was really important to us that we properly explain how it came about.

For those of you who aren’t familiar with all the of the US tax categories, 501c3 is a legal category in the United States for non-profits and charities. In the beginning I incorporated CS as a non-profit because CouchSurfing is about creating social change and at the time, this was the best legal structure to match those goals. I didn’t want our focus to be on money. I wanted to focus on how we could make a better world and how to create magnetic, inspiring experiences for people to learn about each other and the world. Rest assured, non-profit or not, this remains our goal.

Nevertheless, we didn’t come to this decision easily. It took many years of hard work and research before we concluded that the IRS, the U.S. government agency making the decision about our fate, was never going to grant us 501c3 status, even though we went to great lengths to try to convince them they should.

We did do our best, hiring the best attorneys we could find, and amassing stacks of evidence that showed how we were operating with a charitable purpose. In the end, though, it seemed to be more of a question of this current moment in time as it was of anything else. Part of the problem is simply that fewer and fewer organizations are being awarded 501c3 status. This year alone 275,000 501c3’s lost their status; that’s almost 20% of the total number, and it signals a big shift in the US government’s attitude toward 501c3’s in general. But, this quote from the denial letter we received from the IRS shows how differently they see us from how we see ourselves:

“As your members are not required to host or to travel, any cultural exchanges that occur are independent of your control and supervision.”

Of course we’re not looking to control and supervise our members’ experiences. We think CS experiences are important precisely because they’re voluntary and self-organized.

In a phone call with the IRS we asked them why they wouldn’t grant us the status. We felt our attorney had done an excellent job of articulating ten different ways in which we were charitable. Unfortunately, the IRS just didn’t agree. They tend to view “charity” in a much more traditional sense, such as soup kitchens, shelters and hospitals. It may take a few years but I hope that at some point down the road, the IRS will widen their views to consider organizations like ours as charitable. I’ll admit though, at the time I was a little frustrated so on the call I asked them “Please level with us. What is it really that you don’t like about CouchSurfing?”

They were very candid with me which was helpful.They explained that while they can see that cultural exchange happens, to them it seemed that most people used CouchSurfing to save money. They were also in a tricky situation because they considered us a social network like Facebook, and they didn’t want to open the door for other social networks to claim the status too. I know that we’re very different to other social networks, but I can see why someone less familiar with CS would be wary. At least now we understood where the examiners at the IRS were coming from.

Another reason it may have been difficult for the IRS to agree to CS becoming a 501c3 was this report [link to PDF report] by Stanford University’s Center on Philanthropy and Civil Society (PACS) released in 2010. At this point our case was still being reviewed despite us having first applied a couple of years earlier. The report looked at how easy or difficult it was to achieve 501c3 status by the IRS and found that approval ratings were at nearly 98% and that some of the organizations being approved sounded pretty strange. There is an appendix to the report called the TOP 60 Most Eccentric Organizations Approved as 501(c)(3)s in 2008, which is a fun read. My personal favorite is The Woohoo Sistahs but Planet Jelly Donut comes in a close second. Even though publicly they stood by all of their decisions the report was a little embarrassing for the IRS and since then it seems like they have not looked favorably on any organizations with strange names. And yes, to them CouchSurfing is a strange name.

It took a lot of reflection and internal debate but we eventually had to concede that we were not going to sway the IRS in their decision, and that really, we just didn’t fit the 501c3 model, plain and simple. We’re too dynamic and innovative, and the IRS doesn’t know what to do with us. They’ve never seen a model like ours before — some have said to us that we should take this as a compliment. We also realized that being under government control, the way we would have been as a 501c3, would actually make it more difficult for us to achieve our vision. Any time we saw an opportunity for improvement in the hosting and surfing model, we would have to ask for approval from the IRS to make the upgrade. We would have to prove that it fit within the narrow framework of 501c3. Even if we were able to make that case, it would be time-consuming and would take a lot of resources, which would slow things down and make it harder for us to accomplish things at the rate we’d like.

This is a big change but it’s going to mean really great things for the future of our community, so I would like to leave you with this final thought.

CouchSurfing’s Guiding Principle # 6 is:

We reflect on our challenges as opportunities.

I believe that this point in our history is exactly that: an opportunity. After struggling with different frameworks and learning a lot about ourselves in the process, we’re now in a position to achieve our goals. We have an opportunity to take on an organizational structure that works with us, not against us, in pursuit of our vision.

So what exactly is a B Corp?

Published on 9/1/2010

In response to the need to fill a gap between non-profits and corporations, B Lab created the B Corp certification. This is part of a larger investment industry trend towards socially responsible investing: investment in businesses that considers social or environmental issues as important as making a profit. Organizations that are B Corps are often created by “social entrepreneurs.”

Ultimately, social entrepreneurs are driven to produce measurable impact by opening up new pathways for the marginalized and disadvantaged, and unlocking society’s full potential to effect social change. From Social Entrepreneurship Law

I think that’s what we’re trying to do with Couchsurfing, and becoming a B Corp will help us in achieving that vision. Our vision is that our community produce a measurable impact on the world by creating a shift in how people view each other. We want more and more people to explore and connect, and come to appreciate cultural diversity. Becoming a B Corp will allow us to use the power and resources of business to do that on a larger scale. In a way, every Couchsurfer who helps us reach our vision is a social entrepreneur.

A traditional corporate model doesn’t work for us. Normal corporate structures can only have one bottom line: profit, and are legally required to do whatever it takes to maximize profits for their shareholders, regardless of other factors. B Corps, on the other hand, are commonly referred to as “triple bottom line” corporations, where people, the planet and revenue are given equal value. Our priorities are our community and our vision, and B Corp gives us the protection so that we can keep it that way. As they explain on their website:

so what exactly is a bcorp

The B Corporation legal framework bakes your values into the DNA of the company.

Like any other organization that wants to become a B Corp, we had to take and pass a B Impact Ratings System test that sets the bar for the social and environmental impact of good companies. Once we passed that we then had to adopt the B Corporation Legal Framework. This is what helps us know we’re keeping the promises we’ve made. Lastly we had to sign a Term Sheet and Declaration of Interdependence where we promise to provide all the necessary documentation to prove that we’re honoring our B Corp requirements. That made our certification official.

And, we’ve got more strategies for us to demonstrate our transparency. We will complete a 200 point audit split across five categories, and we will have to score a minimum of 80 every year to keep our B Corp status. Jordan Chazin, Ratings Associate, part of the standards and certification team at B Corp says of their audit system:

We needed to develop a set of metrics and standards by which companies could measure themselves against themselves, their respective industries and other companies. We’re really trying to instill best social and environmental practices in companies. One way is through the self awareness of measuring.

At the moment we’re scoring over 106.8 which is above average for companies of our size and type. Not only is it really encouraging to hear that we’re already doing a good job, it’s also really inspiring to have a clear idea of where we can improve.

The breakdown of our score is available on our profile page on the B Corporation website for anyone who wants to see it, and we will be looking to improve it year after year. We will know which areas we need to proactively work on to become better and better.

To describe the value of these stringent terms that an organization has to meet to achieve and adhere to their B certification, B Lab explains on their website that:

B Corporation makes it easier to recognize a good company, and to tell the difference between a good company and good marketing.

Jay Coen Gilbert, one of the B Lab founders, goes on to explain, “B Corps are redefining success in business.” This is a really interesting statement if you pause and take a look at it. Here are two words, “success,” and “business,” that at least in my home culture in the US are generally used to talk about things like personal prestige and economic gain. Redefining those terms, as Jay suggests, to include the community, the membership, staff, and everyone else affected by a company’s actions can really cause change. It reminds me a lot of the idea behind CouchSurfing. In our community, we believe that every small interaction between human beings adds up to make the world a better place. At B Corp, they believe that every company should act just as conscientiously as CouchSurfers do. They want to create a structure that helps all of us that want to do good do even better, and they believe that the effects of this will add up one by one. I really feel that CouchSurfing has found a philosophical home with this movement.

There is an interesting TEDx talk where Jay Coen Gilbert discusses what a positive impact B Corps are having on the world, and if you want to learn more about B Lab and and B Corporation I encourage you to take a look at their website. You can see in more detail what it takes to achieve B Corp status, and see some of the other innovative socially responsible companies that have joined so far. I know we’re in good company.