BY: DOLLY M. GARLO, R.N., J.D.
PRESIDENT, THRIVE!! INC.
In the business world there’s been this tension between making money and doing good. At least for an emerging group of leaders. Sure, making money – being a viable enterprise – is exceedingly important. It’s hard to be an ongoing enterprise, enduring for the long-term, without effective revenue generation and cash flow management no matter how you structure things.
But there are a greater number of people who feel that business is about more than profit. It used to be that business was not just about making money – for oneself or one’s shareholders – but also about adding value and doing something good in the world: innovating new high-quality products that last longer than one season (or one year …), building infrastructure, caring for people when they are sick or injured … More people seem to want to get back to that.
Yet, in the world of corporate law, for-profit corporate officers can run into trouble if they engage in activity designed to do anything other than produce a profit, since their duty of loyalty is to the shareholders who funded the operation in hopes of getting the greatest return on their investment. This, of course, has led to making money as an end unto itself. And that focus has led to a lot of people dissatisfied with the jobs they go to every day, just to earn a buck without much in the way of personal or professional satisfaction.
Many in business are starting to consider that such return might come in the form of value other than a dollar, euro, ruble or yen (insert your other favorite monetary currency here). Those who consider themselves social entrepreneurs will be glad of this first: the Benefit Corporation which made its debut in the state of Maryland in April or 2010. That move, followed by several other states, allows social entrepreneurs to formally state their business mission in their missions in their corporate charters. It’s actually one of the requirements of the law allowing the creation of a B Corp.
Think of it as a hybrid of the for profit and non-profit corporation.
Rather than a primary focus on ‘shareholder value’ (which is creating as much money as possible for corporate owners) – the duty of those running a for profit corporation, the B Corp, like a true social enterprise, can lawfully focus on the needs of everyone connected to the company: shareholders, officers, staff, customers/clients, vendors, communities. That’s a very different focus. So long as the public or social benefit that may serve as the mission of the enterprise is clearly stated in the corporation’s Articles of Incorporation (so investors know what that is and that their investment will not just be focused on money-making but rather value-making and money-making), then the officers and management of the company can legally seek to confer such benefits on people other than shareholders. Not only can they, but in doing so they must measure and report their beneficial results so that those efforts can be publically tracked.
Here’s a great comparison of the typical for profit to the B Corp form, from an article by Birju Pandya, practitioner of small acts of kindness, published in May 2010 by the online news blog, Huffington Post (http://www.huffingtonpost.com/birju-pandya/benefit-corporations-the_b_583824.html):
“You work for a major shoe company, and your job is to make as much money for it as possible without breaking any laws. If you see that someone is willing to make your shoes for 50 cents an hour, you’ll go out there and hire that person. You have to, because if you don’t the company has a right to fire you. Remember, your job is to maximize shareholder value, that’s the rules of the game you signed up to play. In the end, this narrow-minded focus to make money just makes everyone ‘race to the bottom.’ You end up with an entire society doing anything they can to make a buck (sound familiar?)
Same example, but now the shoe company is a B Corporation. You see the same guy willing to work for 50 cents an hour. However, now the goal isn’t just to make money, it’s to make the world a better place for everyone your company serves. This is a harder question. You have to ask if losing local jobs, the bad PR, and the poor treatment of the 50 cent worker are all consequences that are worth having cheaper shoes. In addition, the world will know your decision because you’ll have to report it. These are the new rules of the game. If everyone cared to only buy from B Corporations, we could change the world pretty quickly!
There are many for-profit companies out there trying to do the right thing. However, without anything in their rulebook saying they must do the right thing, we as consumers have no protection.”
The Requirements In More Detail
Taken from the Maryland Code, CORPORATIONS AND ASSOCIATIONS, TITLE 5 – SPECIAL TYPES OF CORPORATIONS, Subtitle 6C – Benefit Corporations, here are some of the most significant provisions of the law governing the set up of a B Corp:
- Type – Benefit corporations are for profit
- Purpose – one of the purposes of a benefit corporation is to create general public benefit as measured by an independent third-party standard. The corporation may also elect to create specific public benefits. Creation of public benefit is considered by definition to be something that is in the best interests of the corporation. Specific public benefits may include:
- providing low-income or underserved individuals or communities with beneficial products or services
- promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business
- preserving the environment
- improving human health
- promoting the arts, sciences or advancement of knowledge
- increasing the flow of capital to entities with a public benefit purpose
- accomplishment of any other particular benefit for society or the environment
- Duties of Board – Directors mustconsider the interests of certain stakeholders, though the law does not define to what extent. Interests to be included are
- Corporate shareholders
- Employees and workforce of the corporation, subsidiaries and suppliers
- Customers to the extent they are beneficiaries of the public benefit purposes of the corporation
- Community and societal considerations
- Local and global environment
- Long-term and short-term interests, including the possibility that those interests may be best served by the continued independence of the corporation
- Duties of Officers – an officer must also consider those stakeholder interests when the officer has the has discretion to make a decision, and the decision will have a material impact on the creation of public benefit
- Reporting – the B Corp must prepare an annual benefit report on its creation of public benefit, and the report
- Must be given to the shareholders
- Must be filed with the Secretary of State or, in states where the Secretary of State cannot handle the processing of the report, the report must be given to a member of the public on request
- Must be posted on the public portion of the B corp’s website, if there is one
Maryland’s law is based on the work of non-profit B Lab, a Pennsylvania company that certifies companies committed to social responsibility (http://www.bcorporation.net/). They provide an Impact Assessment for those who aspire to run socially responsible operations, help them save money and raise capital, and give them a forum to meet other kindred spirits in business.