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A Third of All States Now Have Benefit Corp Laws

Redesigning the enterprise

Last month, the state of Nevada became the 17th state, along with the District of Columbia, to pass legislation enabling businesses to incorporate as benefit corporations. The last time we posted on benefit corps in June 2012, just nine states had passed legislation. Currently, there are nearly a dozen other states — including Delaware, which is home to more than 50 percent of all public companies ­— considering legislation, illustrating just how rapidly this new type of corporate designation is being embraced since Maryland became the first to create a legal designation for a benefit corporation just 3 years ago. In a time when almost every issue seems overly divisive, legislatures in all corners of the U.S. have supported this concept overwhelmingly; in 12 states there has been unanimous support. This widespread acceptance of a need for a corporation that is motivated by more than just profit is an intriguing trend especially as other environmental and economic trends continue to move in the opposite direction.

Much of this success has come through the concerted efforts of the nonprofit B Lab and their founding policy partner the American Sustainable Business Council, which have maintained an ongoing campaign that supports passing this kind of legislation state by state. B Lab certifies socially responsible businesses, designating them “B Corps” in the same way TransFair certifies Fair Trade coffee or USGBC certifies LEED buildings. However, certified B Corps are not the same as legally recognized benefit corps, which in turn are sometimes also called B Corps (creating more than a little bit of confusion). The key distinction ­­— and it is a critical one — is that states provide protective legal status to legally defined benefit corps, which ensures that these businesses do not have to pursue profit maximization at the threat of stakeholder suit. (Some disagree on whether corporate law actually necessitates profit maximization but others respond argues why practice trumps theory and a new legal form is needed.) Although stakeholder suits have not proven to be an immediate concern, as B Corps grow and become acquisition targets and as the movement scales, the benefits of this legal protection will likely become more apparent.

Each state defines this corporate structure differently, and some require more rigorous reporting of an organization’s social impact than others. However, in general, benefit corps are purpose-driven corporations that focus on creating benefit for society rather than merely creating profit. The three major characteristics from a legal perspective are:

1)     a requirement that a benefit corporation must have a corporate purpose to create a material positive impact on society and the environment;
2)     an expansion of the duties of directors to require consideration of non-financial stakeholders as well as the financial interests of shareholders; and
3)     an obligation to report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third-party standard.

Ultimately, these corporations commit themselves to greater community and shareholder transparency and accountability and are bound to consider their mission as well as their bottom line when making decisions. The goal is that by doing so these businesses will create higher quality jobs, decrease negative environmental impacts, and generally improve quality of life in communities.

Although the exact count on how many legally recognized benefit corps there are is unclear, it is easy to identify Certified B Corps; according to B Lab’s website, there are currently more than 750 Certified B Corps operating in 27 countries in 60 industries. B Lab offers a free B Impact Assessment (BIA) to participating businesses to help them measure the overall impact of their business on workers, suppliers, customers, community, and environment. To be certified through B Lab, B Corps must achieve a verified minimum score of 80 on their BIA.  From these assessments, B Lab estimates that B Corps are 18% more likely than other sustainable businesses to use suppliers from low-income communities, 28% more likely to have women and minorities in management, and 47% more likely to use renewable energy.

Some certified B Corps are easily recognizable, like Ben & Jerry’s or Patagonia. Perhaps less known is that Cooperative Home Care Associates, the largest worker-owned cooperative in the country, is also a B Corp. So is the worker-owned Namaste Solar in Boulder, CO and Greyston Bakery in Yonkers, NY, which supplies Ben&Jerry’s with brownies but also hires underserved community residents and supports low-income housing through its foundation. Of these five, Patagonia and Greyston Bakery are the only two clearly incorporated as state-sanctioned benefit corps as well (Ben & Jerry’s intends to but it is unclear whether that has happened).

While being a Certified B Corp gives a business access to support services and a strong network of like-minded corporations, the protection generated through benefit corporation legislation is critical to ensuring that these new types of businesses and corporations can remain true partners in improving — and benefiting — their communities as they grow and thrive.

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