6 Reasons To Morph Into A “Benefit” Corporation

Patagonia- California's first Benefit Corp (Andrew Hyde/ CC BY 2.0)

Ever heard the words “fiduciary duty”? I hadn’t either, till I looked up Corporate Law for Dummies. Here is what caught my attention, “Unless modified by statute, traditional fiduciary duties require corporate officials to
further the interests of shareholders, and thus require them to maximize corporate profits subject to the obligation to comply with independent legal constraints”. Translating into English, it simply means it is the legal responsibility of a corporate to maximize profits and protect the interests of its shareholders. On the flip side, it is not within the scope of the “fiduciary duties” of a corporate to consider the interests of other stakeholders, including, employees, suppliers, communities and the environment. If they do, a corporate can set itself up for some expensive lawsuits by profit-hungry stakeholders. Craigslist found out the hard way. Ben and Jerry’s, that role model do-good business, lost a lot of its glory in the Unilever buyout and the founders still think it cuts deep.

Doing good in the business world is not easy. For all the simplicity of triple-bottom line thinking (People, Planet and Profit), marrying profit with the other two is forced, at best. In the ideal world, a company that wants to improve the lives of employees and communities should be given extra incentives, not have the fear of lawsuits tie their hands behind their backs. The good news is that a significant part of that dream has come true, at least in Maryland, Virginia, Vermont, New Jersey, Hawaii, New York and most recently, California.

What these states have done is to allow companies to register as a “Benefit Corporation”.  From the official website, “A benefit corporation is a new class of corporation that voluntarily meets higher standards of corporate purpose, accountability, and transparency. Benefit Corporations:                                             1) have a corporate purpose to create a material positive impact on society and the environment; 2) are required to consider the impact of their decisions not only on shareholders but also on workers, community, and the environment; and 3) are required to make available to the public an annual benefit report that assesses their overall social and environmental performance against a third party standard.”

Sounds great? Here are six top reasons to consider a legal switch to a Benefit Corporation;

1. Sustainability decisions can be made without fear of lawsuits:  The fiduciary responsibilities of a Benefit Corporation can include the non-financial good of a wider circle of stakeholders and its directors can feel legally protected while making these decisions. Phew, that is a big relief.

2.Real top-down corporate responsibility: Too many well-intentioned projects have failed to take off in corporate boardrooms because they are knee-jerk reactions to the market and not a outcome of any long-term company belief. Benefit Corps show a way to embed sustainability into the core of corporate ideology and have it protected over time.

3. Keeps the dreaded “Greenwash” accusation at bay: In a marketplace crowded with eco-this and fairtrade-that, consumers don’t like the mismatch between slick marketing and real company policies. By moving into the Benefit Corp camp, it shows you put your business where your marketing is.

4. Acquiring a Certified B Corp label is that much easier: B Corp, not be confused with all that we discussed in this piece, is a non-profit that certifies companies based on their social and environmental performance. 500+ companies have passed their rigorous tests and are part of a community that has saved them in excess of $2M in services. Registering as a Benefit Corporation makes it easier to be certified and access the many advantages of being a Certified B Corp.

5.Attract like-minded investors: Impact investors are a growing force in the venture capital world and the combination of a new legal status and mandatory third-party audits would make Benefit Corps extra attractive to responsible investors. More capital is always a good thing.

6. Help accelerate the mainstreaming of responsible business: Legal recognition is just the first step, albeit an important one. Establishing common third-party reporting standards will be the next. With these two in the bag, the future could hold tax breaks, grants, subsidies and much more. Responsible businesses can become the only way of doing business. Isn’t that a sweet thought?

Well, what are you waiting for? For more information on how to register or amend registration and information on qualified attorneys, click here. More states are in the pipeline.

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