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May 11, 2011
B Lab Advocates for Legislation Allowing Corporations to Have a Social Mission
    by Robert Kropp

The nonprofit has certified more than 400 companies as B Corps, while advocating for benefit corporation legislation that has passed in four states thus far.


A primary consideration in the investment decision-making process of sustainable investors is encouraging business to operate in ways that benefit all stakeholders, be they shareowners, consumers, or local communities. Yet traditionally, the fiduciary duty of public companies has been interpreted to mean but one thing: to maximize profits for their shareowners.

For years, voluntary and regulatory efforts have encouraged companies to expand such a narrow view of the purpose of business. If an ideal corporate structure that expands fiduciary duty to include the social and environmental concerns of all stakeholders could be contemplated, it may resemble that of a relatively recent phenomenon known as benefit corporations.

According to a recent article in the Stanford Social Innovation Review, "A benefit corporation must specify in its charter that it is formed to pursue a social purpose, it must have at least one 'benefit' member on its board whose sole duty is to protect mission rather than profit, it must be certified by an independent third party as complying with standards promulgated by the certifying agency, and it must produce an annual report that explains what it has done during the prior year to accomplish its social mission."

Legislation allowing for the formation of benefit corporations has become law in Maryland and Vermont. Similar legislation awaits the governor's signature in Hawaii and North Carolina, and efforts to pass legislation are underway in Pennsylvania, New York, and California.

Finding a legal basis for the formation of benefit corporations grew out of the work of B Lab, a nonprofit that certifies corporations as B corps. To become a certified B corp, a company must undergo an impact assessment of its affect on all stakeholders and improve its social and environmental performance. The company must also adopt a legal framework that gives permission to managers and directors to consider all stakeholders, and provides expanded rights to shareowners.

According to Andrew Kassoy, a co-founder of B lab, 410 companies are currently certified as B corps. One founding B corp is Good Capital, a San Francisco-based investment firm whose Social Enterprise Expansion Fund (SEEF) "provides growth capital to social enterprises that create innovative and self-sustaining solutions to the root causes of inequity in the US and around the world," according to the firm's website.

SocialFunds.com spoke with Kassoy about B Lab and its efforts to advocate for a legal framework that would allow for the formation of benefit corporations.

"At B Lab, there's an overall focus on the power of business to address social and environmental problems," Kassoy said. "One way we do this is by creating this community of B corporations. There are now 410 certified B corps, most of them in the US. To qualify as a B corp, a company has to meet certain environmental and social standards, and we built a rating system with a minimum bar."

"When we formed the concept of B corps four years ago, all we could do was work within the confines of existing law. In 31 states, there are statutes on the books that allow for such considerations, but they make them optional," he continued. "Under existing law, you had to require consideration of stakeholder interests. Our idea was to expand fiduciary duty to include consideration of community, environment, and workers."

B Lab recently completed a beta process of its Global Impact Investing Rating System (GIIRS), which is the nonprofit's effort to create a rating system for a company's social and environmental performance. Among the goals of GIIRS is to provide institutional and high net worth investors with a tool for evaluating the social and environmental performance of companies throughout the investment lifecycle.

"A big focus for us will be on accelerating adoption of GIIRS," Kassoy said. "It will go live by the end of July."

Describing B Lab's efforts to create the concept of benefit corporations, Kassoy said, "We recognized that we wanted to have a broader movement to enable entrepreneurs to get the mission, protection, and growth that they wanted; an actual new corporate form that would expand fiduciary duty by having higher standards of visibility and accountability."

A benefit corporation is "a corporate entity that looks very much like a C corporation, in a form that investors have told us they are comfortable investing in," Kassoy said. "But it has a very specific presence around corporate purpose, accountability, and transparency."

"The purpose of a benefit corporation is to create general public benefit, in addition to shareholder value," he continued. "You have to measure that general public benefit creation using an independent third-party standard, and report on it to your shareholders."

Following the successful passage of legislation in Maryland and Vermont, "In the first few months of 2011, both Virginia and New Jersey passed legislation by unanimous bipartisan approval," Kassoy said.

"There's obviously a regulatory role in allowing for changes in the mainstream public markets," he observed. "But that said, having a clear alternative is one thing that catalyzes change. As investors see a larger and larger community of benefit corporations doing business across all sectors of the economy, it will become clear to them that it is a viable approach. At some point consumers and investors will ask their companies, why aren't you a benefit corp?"

Kassoy concluded, "We're talking about a generational change in the way we think about capitalism, but you can see it in the vanguard of businesses that are doing business successfully in this way."

 

 
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