Since the dawn of corporate social responsibility, Patagonia has been it’s pioneer and poster child. The company was founded on the principle that the business’s bottom line was more than just monetary. As early as 1974, founder Yvon Chouinard published an essay in the Patagonia catalog urging climbers to be more conscious of their motives and to tread lightly on their climbing environments. Today, the company’s mission is defined in terms that clearly reach beyond profit: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”
Patagonia’s history may explain why 72-year-old Chouinard was literally first in line at the California Secretary of State’s Office on Tuesday to register the company as a Benefit Corporation, a new legal status for businesses. Legislation creating this new designation in the state of California passed into law back in October and came into effect at the start of the new year. The new legal structure provides businesses with a way to integrate considerations for social and environmental efforts more fully into their operations while also giving them legal protection from shareholders concerned solely with protecting their financial interests. Under the current corporate law, shareholders can sue company boards for using company money to pursue social or environmental issues in the name of maximizing profits.
By registering as a Benefit Corporation, a company is committing itself to:
- Creating a material positive impact on society and the environment
- Expanding its fiduciary duty to require consideration of non-financial interests when making decisions
- Reporting on its overall social and environmental performance using recognized third party standards
Not surprisingly, these are actions that Patagonia has already committed to doing. But according to Chouinard, the establishment of this type of corporation validates what he set out to do with Patagonia when he first founded the company and protects its mission into the future. In a press release Tuesday he said, “Patagonia is trying to build a company that could last 100 years. Benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership, by institutionalizing the values, culture, processes, and high standards put in place by founding entrepreneurs.”
On Tuesday, Chouinard was joined by dozens of small and midsize companies filing to become Benefit Corporations including DopeHut, Give Something Back Office Supplies, Scientific Certification Systems, Solar Works, Sun Light & Power, Terrassure Sustainable Land & Resource Development, and Thinkshift Communications. In order to adopt the designation, companies must get a two-thirds vote of approval from its shareholders.
The author of the legislation that created this new type of business, Assemblyman Jared Huffman, touted the law for creating a “platinum standard” of social responsibility that will also support the health of the state’s economy. In a news conference outside the secretary of state’s office he said, “There is a way to create jobs and grow the economy while raising the bar for social and environmental responsibility. With this new law, we are attracting new socially conscious companies, investors and consumers.”
Kara Scharwath is a corporate social responsibility professional, marketing consultant and Sustainable Management MBA Candidate. She is currently working as a Graduate Associate in Corporate Citizenship at the Walt Disney Company while pursuing her degree at Presidio Graduate School. Follow her on Twitter @karameredith.