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|B-Corps Provide Purpose and Profit|
|Published Monday, April 7, 2014|
Is the sole legal purpose of business to make money? What if the leaders and investors of a particular company have another goal—say, creating jobs or helping the environment? In public companies, their hands are tied; directors have the fiduciary duty to maximize shareholder wealth and can be sued by shareholders if their actions deviate from that.
New proposed legislation in NH—Senate Bill 215—would allow companies to incorporate or reincorporate as a benefit (B) corporation, a new class of corporation where directors and officers can consider society and the environment as well as profit in their decisions. Twenty states, including Massachusetts, Vermont and Delaware, have laws recognizing this new entity, and 17 others have proposed similar legislation.
What Is a Benefit (B) Corporation?
A benefit corporation is a new class of corporation that voluntarily meets higher standards of corporate purpose, accountability and transparency. Benefit corporations have a corporate purpose to create a positive impact on society and the environment; must consider the effect of their decisions on shareholders and stakeholders, such as employees, the community and the environment; and must make available to the public an annual benefit report assessing their social and environmental performance against a third party standard.
There are three primary reasons that a company and its shareholders would choose to become a benefit corporation:
Market Differentiation. Increasing numbers of consumers, investors and employees are attracted to companies whose social and environmental values match their own. In many cases, there is no long-term trade-off between profit and purpose; on the contrary, these companies may benefit from reduced risk through their more responsible practices. Benefit corporation status is like organic or fair trade labeling, but at a corporate level instead of individual products. People know they can trust the company behind the products.
Benefit corporations also appeal to investors who invest to generate measurable, beneficial social and environmental change, and purpose-driven employees who seek careers at companies whose values match their own.
Protection of Social Mission. Under current law, corporations are required to maximize profit and may face a shareholder lawsuit if they don't. Benefit corporations hardwire their founders’ and investors’ objectives into the legal structure of the corporation, which is especially important at the point of new infusion of investment capital and liquidity, such as a sale or IPO.
Greater Shareholder Rights. Benefit corporation laws provide shareholders a private right of action to keep the directors focused on the mission of considering society and the environment.
In benefit corporations, directors and officers are required to consider employee, community, and local, regional and global environmental factors as well as shareholder concerns in their decisions. For example, a traditional corporation facing hard times might lay off employees to maximize shareholder wealth and fulfill its fiduciary obligations to investors. In contrast, a benefit corporation with a stated responsibility to consider the well-being of its employees and community might dip into its cash reserves to retain employees. A benefit corporation provides legal protection to directors and leaves it up to market forces to reward or penalize these choices.
Benefit corporation legislation opens up the free market by deregulating the purpose of a corporation from its sole mandate to maximize profit, allowing entrepreneurs and investors to choose a broader company mission. There are no tax implications in the Granite State's proposed benefit
Since the first enabling legislation in April 2010, more than 500 benefit corporations have registered, including Patagonia, an outdoor clothing designer in California, and King Arthur Flour, a specialty flour company in Vermont. Closer to home, W.S. Badger in Gilsum and Pete and Gerry’s Organic Eggs in Monroe have earned B Corp certification.
W.S. Badger, a manufacturer of organic and all-natural body care products, partnered with B Lab, the nonprofit driving B Corp certification and legislation, to ask State Senator Molly Kelly to sponsor a bill, which secured bipartisan support.
In the meantime, organizations including NH Businesses for Social Responsibility and the University of NH are educating companies about benefit corporations and whether this model is a good fit for them.
Yusi Wang Turell is executive director of the Carsey Institute’s Center on Social Innovation and Finance at the University of NH in Durham. For more information, visit www.carseyinstitute.unh.edu/csif
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