Within the past two years, numerous state legislatures have passed benefit corporation legislation and had it signed into law. Following a PBS NewsHour report by Paul Solman this evening, I decided to take a closer look at these new-to-the-scene corporate entities. Are they really a sustainable answer to capitalist greed incorporated?
Are Benefit Corporations Here to Stay?
This isn’t my first encounter with the notion of benefit corporations. Sometime ago I stumbled upon the B Labs website, bcorporation.net, with its distinctively Metro B-in-a-circle logo. They’re clearly becoming more mainstream now with broadcast media coverage, and passage into law by 7 states (see below for a list).
At first, like many certification authorities, I did not think Certified B Corporations would catch-on. An all too common practice seen in sustainability circles is if you can come up with a logo, a set of rules, and a website–you can go into business for yourself selling that certification to companies. It’s not that I don’t like organic produce (as one example); but does the world really need dozens of organizations with certifications for organic produce? Consumers must wonder which certification is “best,” and whether one certification is equivalent to another.
Benefit Corporations Made Easy
Although the details may vary slightly from state to state, it’s relatively straightforward to make an existing corporation (S or C) or limited liability company (LLC) into a benefit corporation by changing the company charter (Articles of Incorporation, etc.) with shareholder approval. However, what is so easily made can also be un-made should it become inconvenient. The required change(s) to the charter can be removed with the approval of its shareholders.
You can register a benefit corporation in the following states (there were seven as of this writing):
Benefit corporations should appeal to societal-minded entrepreneurs that want to start a for-profit business with a strong social consciousness. A benefit corporation does not convey tax breaks like a non-profit entity might. Instead, its primary advantage is to shield directors from liability lawsuits by shareholders for considering the social implications of its business activities.
You might think: why can’t the board of directors of an ordinary, public S corporation operate their business in a socially-conscious manner? They cannot when shareholders of a public company will sell-out to the highest bidder on the market, or file lawsuits when they disagree with corporate actions that don’t deliver fully on how they value their shares in the company.
A case in point is that of Ben Cohen and Jerry Greenfield. Founders of the famous and eponymously-named Ben & Jerry’s Ice Cream company in Vermont, they lamented that they had to give-up their control over the company’s social agenda when it was bought by the Dutch conglomerate, Unilever. It became a struggle to achieve goals such as using only Fair Trade ingredients in their ice cream when they no longer had controlling interest in the company bearing their names. Benefit corporations codify a company’s socially-conscious directive within its charter, placing all shareholders on notice that the business seeks to maximize both profits and the public good.
Benefit Corporation vs. Certified B Corporation
While you can satisfy the state that you are a benefit corporation, the nifty-sounding Certified B Corporation is a trademark of B Labs that you can obtain only by scoring high on their standards. Besides acting as the certification authority, B Labs has also been a primary lobbyist in state legislatures to get benefit corporation passed into law.
Open Questions About Benefit Corporations
Can a board of directors and company management serve two masters in maximizing shareholder value and public benefits to society? It has yet to be shown that the shield provision will be upheld in court. Activist shareholders that see shareholder value in a company may find cause to challenge the protective status of benefit corporations if there is enough money involved.
While this protection is meant to stifle lawsuits coming from “greedy” shareholders who want company profits maximized, what about lawsuits coming from the other side? While no privileges are granted to individuals who are not shareholders in the company, activist members of an organization (i.e., Greenpeace, etc.) can become shareholders in a benefit corporation. Could they then file lawsuits alleging the company is not maximizing social benefits enough? The same provision within the company charter designed to blunt litigation by the first group could open companies to greater litigation coming from the activist community.
In the end, perhaps it is the lawyers who will inherit the Earth. Benefit corporations seem like a laudable goal, but they’re only a minor tweaking to the existing corporate entity laws and do not address what I think is more important to achieving sustainability. That’s finding a proper quantification (monetization, if necessary) of the economic value of social benefits. Market mechanisms that can balance such intangible qualities as biodiversity with a company’s everyday business expenses are needed.