The Benefit Corporation

English: Reigate Town Hall The old town hall w...
English: Reigate Town Hall The old town hall was built in 1708. According to the wooden plaque that still hangs inside, it was purchased and returned to the ‘corporation… for the benefit of the inhabitants’ in 1922. It is now home to a cafe. (Photo credit: Wikipedia)

The Benefit Corporation

The rise of the benefit corporation, a type of corporate form that didn’t exist before 2010, is remarkable in its speed. This kind of corporation offers an organization not tied to the narrow goal of short term profit maximization. While the “judgment rule” seems to offer corporations a freer decision making climate to be environmentally friendly and exist with some freedom from being sued for loss of share value, there is some legal uncertainty. The Benefit Corporation removes all doubt. This kind of corporation does not exist for profit maximization.

This offers the opportunity for building purposeful organizations with a stated and legal responsibility to do no harm. This is a far better model than the soulless machines of destruction we often experience as the modern corporation.

This may herald a new era in corporate social responsibility. It only takes a small adjustment in the law to have tremendous effects on the culture over time. This may be one of those historical adjustments.

James Pilant

For my students, the most important concepts here for study are the “judgment rule” and “short term profit maximization.”

Delaware Gov. signs landmark social entrepreneurship law

http://www.salon.com/2013/07/23/delaware_governor_jack_markell_signs_landmark_social_entrepreneurship_law_partner/

The benefit corporation, the brainchild of the nonprofit B Lab, is predicated on a simple idea: use the power of business to solve social problems. Companies incorporated under legal frameworks like the one passed in Delaware strive to maximize profits, but can do so while also pursuing a broad range of social and environmental goals, from low carbon emissions to generous employee benefits and transparency in governance. Under traditional corporate law, a firm’s fiduciary responsibility to its shareholders to maximize profits is privileged over other commitments to social or environmental responsibility. The benefit corporation amends this, legally enshrining the interests of stakeholders, including employees, customers, the community and the environment, alongside those of shareholders. Among other things, benefit corporation status shields a company’s social and environmental objectives when it is up for sale. Today, there are at least 200 legally registered benefit corporations (and likely many more, as some states don’t currently track their incorporation), including large companies like Patagonia and many smaller ones like Vermont-based WomenLead and New York-based Clay Marketing. The “shared value” created by these companies is heralded by benefit corporation enthusiasts as a radical refashioning of contemporary capitalism.

From Wikipedia: (I included this section from the Wikipedia article because I want you, kind reader, to get a grasp on the speed of the change in corporate law. Business law tends to be very conservative and usually slow moving, but not in this case. jp)

http://en.wikipedia.org/wiki/Benefit_Corporation

In April 2010, Maryland became the first U.S. state to pass benefit corporation legislation. As of January 2013 California, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, South Carolina, Vermont, and Virginia had all passed legislation allowing for the creation of benefit corporations. Legislation is also pending in Illinois that establishes a new type of entity called the “benefit LLC,” making available to limited liability companies the same opportunities afforded to Illinois corporations under the state’s Benefit Corporation Law.[1] Passage of the bill would make Illinois the first state to offer a social enterprise the opportunity to be a benefit L3C.[2]

    Maryland’s legislation was signed into law on April 13, 2010 and became effective on October 1, 2010.

    Virginia’s legislation was signed into law on March 26, 2011 and became effective on July 1, 2011.

    Vermont’s legislation was signed into law on May 19, 2010 and became effective on July 1, 2011.

    New Jersey’s legislation passed on January 10, 2011 and became effective when it was signed into law on March 1, 2011.

    Hawaii’s legislation was signed into law on July 8, 2011 and became effective upon signing.

    California’s legislation was signed into law on October 9, 2011 and became effective on January 1, 2012.

    New York’s legislation was signed into law on December 12, 2011 and became effective on February 10, 2012.

    Louisiana’s legislation became law on May 31, 2012 and went into effect on August 1, 2012.

    South Carolina’s legislation became law on June 6, 2012 and became effective the same day.

    Massachusetts’ benefit corporation legislation became law on August 7, 2012 and became effective on December 1, 2012.

    Illinois’s legislation was signed into law on August 2, 2012 and went into effect on January 1, 2013.

    Pennsylvania’s legislation became law on October 24 and will become effective on January 22, 2013.

    Washington, D.C. legislation was signed by the Mayor on February 8, 2013 will go into effect after 30 days of congressional review.

    Arkansas’s legislation was signed by Governor Mike Beebe on April 19, 2013 and will go into effect 90 days after sine die.

Some Videos on the Benefit Corporation

Benefit corporations — Robert Shiller (A straightforward explanation)

Benefit corporation: John Montgomery at TEDxHultBusinessSchoolSF   (A history of the path that leads to the Benefit Corporation.)

 

From around the web.

From the web site, IIC Investing in Communities.

http://getgiving.wordpress.com/2012/02/06/public-benefit-corporations-providing-a-legal-framework-for-investing-in-our-communities/

Guest post by Layton Olson. Layton specializes in representing tax exempt community, trade, and professional organizations at Howe & Hutton LTD.

Last month, a dozen companies committed to advancing social good filed to be classified as ‘Benefit Corporations’ in California. Their decisions represent a commitment to business strategies that systematically contribute financial, time, human, and other resources to charitable, educational and community improvement initiatives and institutions.  California has joined the six states – Vermont, Maryland, New York, New Jersey, Virginia and Hawaii- that have enacted so-called public benefit or “B Corp” legislation since 2010.  Colorado, North Carolina, Pennsylvania and Michigan and some cities have similar laws under consideration.

While traditional C Corporations are chartered to maximize benefit (i.e. profits) for shareholders, the B Corporation is legally chartered to consider and benefit stakeholders – a group that also includes employees, the environment, vendors, and the broader community… This legal status shields corporate directors from “stock-drop lawsuits,” in which shareholders can sue corporate leadership for knowingly acting in ways that decrease profits (i.e. raising social or environmental standards). Benefit Corporations must also publish an annual benefit report, which publicly discloses environmental and social performance using 3rd party reporting standards – therefore increasing transparency and accountability to shareholders and a burgeoning class of social investors.

From the web site, Paradigms for Progress.

http://paradigms4progress.wordpress.com/2013/07/18/the-benefit-corporation-a-promising-corporate-legal-structure-for-sustainability/

What I learned at the workshop was that a benefit corporation is a new corporate legal structure that several states have established (Massachusetts passed BC legislation in August 2012) to provide an alternative to for-profit entities that want to include a public mission equally alongside seeking a profit. This is significant because historically, for-profit corporate legal structures bound CEOs and boards to pursue profit over all other considerations, regardless of the potential social and environmental costs. In addition, while not all corporate lawyers agree, founders and CEOs of traditional for-profit corporations perceived as making decisions that jeopardized the bottom line, can be fired.

Consequently, while there are many contributing factors to the numerous social and environmental challenges humanity’s faces, a very significant factor is the corporation’s pathological pursuit of profit at the expense of public health and environmental sustainability. This pathological pursuit of profit leads many corporate decision-makers to externalize as many costs as possible. As Joel Bakan, highlighted in his book, The Corporation, “It is no exaggeration to say that the corporation’s built-in compulsion to externalize its costs is at the root of many of the world’s social and environmental ills.” (My Emphasis, jp)

From the web site, Pennsylvania Nonprofit Law blog.

http://pennsylvanianonprofitlawyers.wordpress.com/2011/10/12/prosperity-and-integrity-harnessing-the-new-power-of-benefit-corporations/

This new construct, called a “Benefit Corporation,” stresses sustainability along with financial success. More to the point, this new model is a boon to the non-profit world. It provides the opportunity for increased cooperation with a conscientious corner of the for-profit sector and the potential to leverage more sustainable impacts on business practices beyond existing corporations. Benefit or “B” Corporations redefine the modern notion of commercial success by valuing “stakeholders” above “shareholders.” Unlike traditional corporations, B Corporations must facilitate, and publicly report, positive social and environmental impacts through their work in order to register with the non-profit organization, B Lab (http://www.bcorporation.net). This third-party validation process provides a number of valuable benefits to participating businesses:

 

    Save Money.  B Corporations have the potential to deliver immediate financial value, and B Lab has already saved B Corps over $1M through service partnerships.

    Set Yourself Apart.  B Corporations differentiate themselves in the marketplace, and the certification process allows companies to generate press, meet sustainability requirements set by other companies, enhance reputation and mitigate potential trust erosion from consumers.

    Find Common Ground.  B Corporations offer a “common ground” for businesses that are committed to both the mission-driven ethos of the non-profit world and the best practices of the for-profit section.

    Connect With Your Peers.  Through B Lab, B Corporations are encouraged (and incentivized) to collaborate amongst themselves and share best practices in sustainability, marketing, finance, IT, and HR.

    Grow Faster and Smarter.  The raw numbers (http://www.bcorporation.net/resources/bcorp/documents/2011-AR_B-Index.pdf) demonstrate that registered B Corporations expand at a more consistent rate, work more closely with other area organizations, offer better benefits to their employees, and foster more positive change within their communities than traditional corporations.

From the web site, Class War in America. (I particularly enjoyed this post and recommend you visit the site and read the entire article. jp)

http://classwarinamerica.wordpress.com/2012/02/15/introducing-the-benefit-corporation/

There’s a promising development in the capitalism department these days. It’s called the Benefit Corporation. It’s pretty new, and it’s important. This article in The Nation tells you what’s what.

Benefit corporations are characterized by three things: (1) The purpose of such companies is to support the triple bottom line. That is, they are sworn to protecting the environment and doing good things for the community as well as earning profit; (2) Their social accountability standards are high; (3) They work to build sustainable businesses that are designed to last.

Here are some web sites of Benefit Corporations:

Seventh Generation

Impact Makers

PhilanTech

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The Bastille; the desacralization of corporate power (via Carol Hardick)

This post compares the storming of the Bastille and the eventual end of corporate hegemony. It’s an interesting comparison, and very imaginative. Please give it a read.

James Pilant

Best paragraph –

Corporations and their top tiers, including the stock market which serves them, have grown so huge and so powerful they don’t see the loss of one job as a tragedy, they don’t see the loss of millions of jobs as a tragedy, all they see is statistics. The planet is going to exist in perpetuated chaos until the corporations recognize that there are people behind the numbers. One day as the world is crashing around those on whose backs the corporations created their wealth, executives will look to the horizon and see that their Bastille is going to be stormed. They will be dethroned. -Not because capitalism doesn’t work, it does- but because the people are starving, and they’re starving at the expense of corporate greed. Does this sound similar to the era leading up to the French Revolution? Just like the kings and queens who faced the axe because of their greed and overreach, corporations and the politicians who supported them, will be in the same position and need to seek a peace treaty while they have the chance.

The Bastille was stormed because women had no bread to feed their families. The royalty was desacralized, dethroned and sentenced to death.  Five decades later Karl Marx wrote his manifesto on the plight of the working class. Ironically Marx did not work, but lived off the money of wealthy patrons.  Even when his child was dying as a result, he did not go out and search for work, but searched instead for more entitlements.  How did his manifesto … Read More

via Carol Hardick

RESEARCH PAPER ON CONSUMERISM (via My Way Of Expressing!!!)

I very much enjoyed this paper and hope as many people as possible read it.

James Pilant

  ACKNOWLEDGMENT   I have taken efforts in this project. However, it would not have been possible without the kind support and help of many individuals and my college. I would like to extend my sincere thanks to all of them.   I am highly indebted to Mr. SHASHIDHAR CHIRON, our program director for their guidance and constant supervision as well as for providing necessary information regarding the project & also for their support in … Read More

via My Way Of Expressing!!!

WHAT DO WE KNOW ABOUT HOW MUCH FREEPORT PRODUCES? (via West Papua Media Alerts)

This is a David vs. Goliath story, if there ever was one.

A lone blogger wants to call a giant American corporation to account for how much ore it takes out of his country.

Well, at least due to the internet, he can make the demand. I’m not sure we could make the company report how much it takes out of the U.S.

James Pilant

WHAT DO WE KNOW ABOUT HOW MUCH FREEPORT PRODUCES? JUBI, 22 June, 2011 It is still very difficult for the Mimika district administration to get information about the quantity of gold and copper produced by Freeport-Indonesia and how much is exported via Portsite, Amamapare. The head  of the mining, energy and minerals department of the Mimika a … Read More

via West Papua Media Alerts

Creative Space (via Project CSR)

At one point the author talkes about life changes. There have been some major ones in her life. And then she says at one point these words, “I left my career, changed cities, left my community. I wouldn’t advise this radical restructuring. Yet it was necessary for me. I’d been so malformed over the years of being determined by others that I needed space to create, to build my own structures.”

I very much disagree. If at all possible, do what she did, leave your career, change cities, and get a new community.

We all need to break the bonds of our lives and form our own personalities and grab desperately on to the possibilities of a life of meaning, a path with heart in it.

How many of you have gone back to your high school reunion and listen to the guests discuss how high school was the best part of their lives. I remember some vaguely pleasant hours but no whole days. I started having a real life when I became a full adult. I have made many bad decisions and quite a few good ones, but the best one was not to stay in the pattern laid out for me in the communities I grew up in.

I do a job I love, teaching, and I fight to change the world.

That’s not what they taught me. I was supposed to conform and I don’t.

Now, once you have disagreed with a writer (and in the first paragraph no less) you are compelled by custom to do a kind of rain dance of stomping on the rest of the article. Nothing could be further from my intent. I loved the blog entry and the writing in it.

I, old man that I am, thinks she should be more willing to take the example of her life and say, “You ought to do this too!” She didn’t just make the correct decision to leave her community – she made the courageous decision. I don’t think she gives herself enough credit.

This is a good article from a thoughtful writer. I went down the list of her last six entries and that intelligence and commitement is evident in all of her writing. It’s one of those blogs that might very well merit a place in your bookmarks or favorites.  — Project CSR.

James Pilant

“Creation is pleasure and torture at the same time. It’s trying to make something out of nothing. It’s a birth of some sort. Sometimes it’s like pulling a piano out of a swamp. Sometimes it’s like walking on air. The torture of that nothing-space in front of you, and the pure elation of filling that space with something good—it’s one of life’s great juxtapositions. I’m grateful for that—the torture and the pleasure.” Zooey Deschanel I used to thi … Read More

via Project CSR

A Scary Thought (via kevinwutd)

This guy has it exactly right.

This is what is at stake in the struggle for net neutrality – Corporate profit or General access.

James Pilant

I recently watched a video on net neutrality and it scared me. The idea that major corporations may be able to control what we do with the internet is devastating to even think about. I love money, and I love power, but I think that if the cost for those things was to ruin the internet I would have to be content with having little. The internet has been the platform for so many different ideas that have shaped how we live today. It is also a ve … Read More

via kevinwutd

The McGowan Blog on Business Leadership and Ethics – Brand New Business Ethics Blog!

I want to extend a warm welcome to Larry Kahaner and his new blog. I have been reading it and I recommend you do so as well. I added it to my favorites and my blog roll. I believe that would make it the 12th blog I have recommended in that manner.

This is the intro for the first post on The McGowan Blog on Business Leadership and Ethics.

Larry Kahaner

This is the first of a twice-weekly blog on business leadership and ethics hosted by the William G. McGowan Charitable Fund. We will discuss current issues, ask questions, offer opinions and solicit your comments with the goal of spurring conversations among the business, government and academic communities.  The subject of whistleblowers has been a controversial topic lately, so let’s begin.

There are now three posts as follows:

Feb. 27 –

Is Whistleblowing  the Only Way to Spur Ethical Behavior?
  
( First Line) As a society, we Americans love whistleblowers. They are our folk heroes, our Davids versus Goliaths.

March 2 –  

Are B-Schools Teaching the Right Lessons About Ethics?After the Enron scandal and again after the Worldcom debacle, B-schools juiced up their ethics courses partly out of guilt, partly to deflect public and government criticism and partly because these scandals offered a perfect time for professors to sell ethics curricula to school leadership. We’re seeing the same thing now. Don’t get me wrong; I applaud any effort to increase ethics training – and I’m not so cynical to say that it won’t work this time – but have  previous attempts worked as well as we had hoped?

March 8 –
 
In light of these massive changes, what is the role that multinational U.S. business should play in American society considering that their main interests are moving offshore? Indeed, the U.S consumer and the U.S. government have all helped produce world-class, profitable and innovative American companies. What, if anything, do these companies owe the U.S. government and its people for making them the global giants that they are today?
 
 Here is a brief biographical sketch from the blog –
Larry Kahaner has been a business journalist for more than 20 years, a former Business Week Washington correspondent, and the author of many books about business ethics including: Values Prosperity and the Talmud: Business Lessons from the Ancient Rabbis; Competitive Intelligence: How to Gather, Analyze, and Use Information to Move Your Business to the Top; and Say It and Live It; The 50 Corporate Mission Statements that  Hit  the Mark, (co-author). You can reach him at: McGowanFundBlog@gmail.com.

Economic Issues That Should Influence Ethical Multi-National Enterprises (MNE) (via hinaumer)

This is a good article about multi-national corporations and corporate social responsibility. In fact, it’s excellent. I really enjoyed it.

From the web site - Unite the Union

It’s from the web site, hinaumer. I recommend you read it.

James Pilant

Multi-National Enterprises (MNE’s) are huge organisations whose boundaries of influence and philosophy exceed those of the home country they originate. They are a very real and important part of the business world in which we live today. Companies such as IBM, McDonald’s, Microsoft, Nike, Starbucks and Wal-Mart, to name but a few, are huge organisations whose sales and profits often far exceed the Gross National Product (GNP) and Gross National I … Read More

via hinaumer

The Growth Of CSR – Corporate Social Responsibility

Well, these statistics are encouraging but whether CSR is a form of green washing, PR or a simple waste of time and resources on the one hand or a promising corporate move toward some limited form of responsibility, I’ll leave up to you.

And They Don’t Pay Their Share Of Taxes Either

I wrote in the previous post about how the fifty companies that laid off the most workers paid their CEO’s a total of 598 million dollars. But if you read the study itself, you discover that they also shirk their duties as good corporate citizens.

This is from the study –

Under current law, U.S. corporations face a 35
percent statutory tax rate on corporate profits. Of the 50
layoff leaders, only two reported paying this statutory
rate in 2009 and most paid substantially less, according
to an IPS analysis of domestic earnings and federal tax
payments in company 10-K reports.20 Hewlett-Packard,
under Hurd, remitted $47 million in federal corporate
income tax, a mere 2 percent of the company’s reported
$2.6 billion in pretax domestic net income.


Citizens for Tax Justice has used forensic accounting
methods to demonstrate that corporations
often pay an even lower tax rate than they report to
the SEC. Overall, as a result of various tax avoidance
schemes, U.S. corporate income taxes have plummeted
from almost a third of all non-Social Security federal
tax revenues in the 1960s to only a sixth of total taxes
today.22

In some extreme cases, major U.S. corporations
are actually paying less in taxes to Uncle Sam than
they pay, in compensation, to their CEOs
. At Occidental
Petroleum, for instance, CEO Ray Irani made $31.4
million last year. That represented almost twice as much
as the $16 million the international oil firm paid in federal
corporate income tax for all the services the federal
government provides.

It is almost too obvious to mention that when corporations avoid their taxes, the burden falls on the middle class.

What is meant by CSR, corporate social responsibility? Are they just code words, that mean, “Get off my back and stop complaining,” or “Can’t you crazed citizens and nosy government officials recognize our good works and let the magnificent engine of capitalism grind on?”

I wonder if it is just a public relations thing. I bet you do too.

James Pilant