Will Social Benefit Corporations Be Our Future?

     Morgan A. Cline is a student in my Corporate Governance seminar.  She wrote the following post regarding Benefit Corporations:

Who does a corporation owe responsibilities and duties to? Corporations that embrace social responsibility want to increase profits to satisfy their shareholders, while giving back to communities, and improving society as a whole. In today’s world, being green or environmentally friendly, is not only seen as a lifestyle, but many companies are seeking to change the way in which their business is conducted to be socially responsible. Familiar companies such as Kickstarter, Patagonia, Warby Parker, and even Ben & Jerry’s have entered the do-good realm. In fact, state legislation has been introduced, in which a new legal entity may be incorporated as a benefit corporation.

            Lynn Stout, a Corporate and Business Law professor at Cornell Law School, argues that, “shareholder primacy is a ‘myth.’” Stout’s book, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public, opposes the well accepted idea that corporations are required to, “maximize shareholder value.” Alternatively, individuals such as Leo E. Strine, Jr., of the Delaware Supreme Court, have argued that it is, “not only hollow but also injurious to social welfare to declare that directors can and should do the right thing by promoting interests other than stockholder interests.”

            Numerous articles interchange the labels, “Benefit Corporation,” and “B Corp.” While both have similar goals, they are in fact, separate models that have specific distinctions. B Corp is a certification awarded to companies that have been certified by B Lab. B Lab was founded in 2006 by a group of founders with the goal to, “build a global community of Certified B Corporations who meet the highest standards of verified, overall social and environmental performance, public transparency, and legal accountability.” In order to meet certification, there is a performance Assessment. In addition, there are legal requirements in which it may be necessary to amend the governing documents and/or adopt benefit corporation status to meet legal requirements for some states.

            Although B Lab has made major growth within this certification process, they have also been working towards the larger goal of changing legislation overall. In 2010, the beginning stages of this goal were reached, when Maryland became the first state legislature to pass a Benefit Corporation Act. This new law has allowed corporations to ensure that their, “mission-driven businesses are held accountable and operate transparently.”  This is done by filing annual reports, which specify their social impact. In addition to increasing profits, when corporate leaders are making decisions, their fiduciary duties now require them to consider the social and environmental impact that they may have. Since 2010, 30 other states and the District of Columbia have passed similar legislation in order to recognize Benefit Corporations. While most of these state statutes are similar to Maryland’s statute, others have made deviations. For example, Connecticut allows business owners the choice of, “legacy preservation.” This option provides that despite change in the ownership of a company or the structure in which it may operate, the corporations overall mission to positively impact society, will remain.

            Arguably, society is benefitting from the new social approach of incorporation and certification available to companies. While skeptics argue that benefit corporations are not succeeding in their goal of large-scale societal impact, there can be no argument that the mission of these corporations to have a larger influence is commendable.

For further information about the differences between a Benefit Corporation and a B Corp, please see this helpful chart.