Here's how B Lab, the non-profit behind the movement, describes the purpose of benefit corporations: “Having a corporate purpose to create a material positive impact on society and the environment.” Benefit corporations are “required to consider [emphasis added] the impact of their decisions not only on shareholders but also on workers, community, and the environment.”
Francesca Rheannon, longtime journalist and CSRwire Talkback's Senior Editor, believes that this new legal corporate form could make a huge difference. In a recent post, she wrote:
The 2003 documentary, The Corporation, characterizes the modern corporation as suffering from psychopathic personality disorder. From “callous unconcern for the feelings of others” to “failure to conform to social norms with respect to lawful behaviors,” the film lists the features of the disorder and applies them to the typical behavior of large corporations.
But the law itself is one major reason why corporations so often flout “social norms with respect to lawful behaviors” – as long as the penalty for getting caught is less than the cost of complying with it. That’s because the fiduciary duty of the corporation is solely to maximize the return to its shareholders. (In fact, the personal assets of CEO’s can be forfeit if shareholders successfully sue for breach of this duty.)
It wasn’t always this way. When the American colonies won their independence from colonial rule, "the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end," according to the website, Reclaim Democracy.org.
But over time, the means -- maximizing shareholder profit (or share price upon sale) – became the end. The public benefit has all too often been subverted as a result. Those corporations that sincerely wanted to operate according to the Triple Bottom Line (variously characterized, but traditionally defined, as “People, Profits, Planet”) have had to privilege profit over the other two goals, or risk shareholders’ wrath if pursuing environmental or social goals lessened potential financial returns.
Until recently.
Thus far, scores of companies have signed up as B Corporations, a type of benefit corporation certified by B Lab, which puts the companies through a rigorous certification process that measures social and environmental impact, and requires them to amend their articles of incorporation to adopt B Lab’s commitment to sustainability and treating workers well.
For now, benefit corporations are small and medium-sized businesses that are committed to a triple bottom line philosophy, with Patagonia being the sole exception. I have often discussed how corporate social responsibility in its purest form, is a philosophy, a mindset that dictates all decision making and commitments. That is what is guiding businesses -- and their CEOs -- to become B Corps. If they follow this corporate governance model, they can resist shareholder pressure when their mission is threatened. As Rheannon explains:
The benefit corporation changes the definition of fiduciary duty and protects the mission. A company with the benefit corporation structure cannot be sold to a non-benefit corporation without approval by a supermajority of shareholders (2/3 in most states.)
That also means companies can’t be forced to sell – hostile takeovers that would change the company’s mission would be illegal.
But is the B Corp structure strong enough to change business forever? Will only small and medium enterprises embrace it, following the theory that smaller businesses have fewer fiduciary obligations and, therefore, more freedom? What about the Fortune 1000?
Have your say: Take a look at Rheannon's in depth analysis of the benefit corporation movement. Hear from Elisa Miller-Out, co-CEO of Singlebrook Technology on why they decided to become a benefit corporation, and tell us what you think by leaving a comment or connecting with us on Twitter and Facebook.
