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Corporations With Benefits

Mary Catherine O'Connor | Thursday December 1st, 2011 | 0 Comments

We have teamed up with Abbott to produce an article series on the future of corporate philanthropy. Please read the rest of the series here.

Triple-bottom-line businesses are getting legit.

It started in Maryland in April, 2010. Well, that’s not really the beginning — it all really started in 2006, when three friends and business associates started a nonprofit called B Lab, with the aim of creating a foundation for businesses that wanted to do more than make money.

Since 2007, B Lab has been certifying companies that pledged to meet comprehensive standards for social and environmental performance (in addition to running viable businesses, of course). Through a vetting and auditing process, B Lab began certifying some applicant companies as “B Corps” and today there are more than 475 of these firms across 60 different industries.

But B Lab’s end goal has always been to go deeper. That started taking shape when B Lab began working with sustainable business advocates in a number of states to draft legislation to push this concept from a certification to a legal designation. And so when Maryland passed a Benefit Corporation bill into law in April 2010, it codified this effort.

And this past October, when California became the sixth state in the nation to pass a law designating Benefit Corporations as a new type of corporate structure, it marked an important milestone in the sustainable business movement. As they say, as California goes, so goes the nation.

A Benefit Corporation is one with a mission to create a “material positive impact on society and the environment” as well as to widen its fiduciary duty “to require consideration of non-financial interests when making decisions” and then to report its “overall social and environmental performance using recognized third party standards.”

(It’s important to note that a Benefit Corporation is a legal designation and therefore much different than a B Corp, which is the certification that B Lab provides — for more on this, see Jonathan Mariano’s clarifying post.)

One of the main reasons the Benefit Corporation designation is important, notes Jonathan Storper, a corporate lawyer with SF firm HansonBridgett and one of the architects of the California law, is that the fundamental shift in how it defines a corporation will protect the interests of its owners, should it later be sold.

Today, if a C Corporation is sold, he says, the law makes clear that it must be sold to the highest bidder, no matter what that high bidder plans to do with the company. “If they don’t sell to the highest bidder, a minority shareholder could sue the board,” explains Storper.

But a Benefit Corporation has the ability to designate in its bylaws that if it is sold, this high-bidder condition could be superseded by other conditions that ensure the new owners keep the corporation’s social or environmental mission a priority.

California’s Benefit Corporation law is effective January 1, 2012, and companies can start filing  articles of incorporation under the Benefit Corporation designation — or, existing companies can begin the process to transfer to a Benefit Corporation —  on January 3.

Based on the turnout at a November 16 party HansonBridgett threw to celebrate the law’s passage,  there will be quite a few California companies seeking the Benefit Corporation status.

But the work has only just begun, Jay Coen Gilbert told partygoers. “All we’ve done is earn the right to be at the start line. A law not used is just a paperweight,” he said.

So in order to turn intentions into action, B Lab is holding seminars and training sessions for companies that operate in states that have passed Benefit Corporation laws. (Contact B Lab to learn more.)

In terms of its day-to-day and year-to-year operation, a Benefit Corporation can also embed its philanthropic practice into its core and mission, rather than layering these good intentions on top. The latter makes for good marketing campaigns, but it doesn’t help direct a board’s decision-making process.

Only time will tell how effective the Benefit Corporation status will be at integrating the triple bottom line into the way businesses operate. Certainly, the legal designation can’t make a benefit corporation a force for good. But if nothing else, it will serve as a legal reminder that its mission exceeds just making money.

image: B Corporation 


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