If you own a business with interests other than just sheer pecuniary profit – say of social or environmental worth – then you may have a new option available that can not only protect those interests, but also lure customers and employees.
A new corporate charter, available in a handful of states and being introduced in several others, allows businesses to incorporate as “benefit corporations.” Under this organization, businesses can put social or environmental gains ahead of or alongside profit when making decisions.
Critics of the law say that the business decision to move to the new structure is a bad one from the perspective of an investor, as it ultimately creates a lack of accountability for management. If a company’s decisions do not garner profit for its investors, then what investors are going to stick around? And, as one commenter in the WSJ writeup points out, shouldn’t the market speak for itself? Meaning, if a company chooses to be pro-social or environmental in its mission and gains success because of it, then why do we need the interference of legislation?
Assuming that all shareholders understand marketing and customer loyalty, we don’t. But, as the lawsuit brought against Craigslist can exhibit, success with a pro-social business model doesn’t protect you legally. eBay, a Craigslist shareholder, brought suit against the community-based online service because it was declining to charge for its classified ad hosting, among other things. eBay claimed that Craiglist’s decision to not charge fees went against the corporation’s responsibility to earn profit for its shareholders. Defending their actions, Craigslist’s directors explained that the company’s “free” model lends to its mission of supporting communities and is a driver for much of its success. The court, however in admiration of Craiglist’s cause, found in favor of eBay.
The idealistic point that there is more to corporations than making money reminded me of a an article our CEO wrote four years ago attesting to the benefits of being selfless in business. And, as many successful business owners can attest, there may be more “business” to this law than meets the eye. Is it possible that legally promoting a healthy business and social and environmental good could actually provide businesses a competitive advantage?
Proponents of the law think so, and offer that it requires (and allows) board members to consider benefits besides profit, especially for organizations started by “social entrepreneurs.” Think: TOMS shoes and Patagonia. Speaking of the latter, the well-known apparel company incorporated under the new benefit structure in California last January. While Patagonia has always promoted its interests in sustainable, renewable products (and its customers and employees hail this), it now can put the money where the mouth is, so-to-speak.
“We’re trying to preserve for the long-term the way our company is run,” said Casey Sheahan, Patagonia chief executive.
For a payday lender in San Francisco and a skateboard company in New York, the benefit corporate structure helps set them apart from the competition.
“It’s really important for us to have a designation that we’re the good guys,” said Jonathan Harrison, chief executive of Emerge Workplace Solutions. His small firm offers short-term emergency loans at a fraction of the interest rates of typical payday loan companies, and also provides financial coaching and other services to help the working poor.
For Comet Skateboards, owner Jason Salfi says that starting the certification process to become a benefit corp will be great news to his customers, who already support the company’s eco-friendly brand. View more about these business stories from WSJ.
The benefit corporate structure is available in Maryland, Vermont, New Jersey, Virginia, Hawaii, California, and New York. Bills have been introduced and are still pending in Colorado, North Carolina, Pennsylvania, and Michigan. See state by state legislation status updates here.
Would you consider organizing under a benefit corporation, and do you think doing so would attract more customers?