The Rise of Benefit Corporations
When America began, the states chartered corporations for public purposes, like building bridges. They could earn profits, but their legitimacy flowed from their delegated mission.
True economic recovery will require creative solutions to deeply rooted problems. Our first great task is to change the way we talk about what's possible.
Today, corporations are chartered without any public purposes at all. They are legally bound to pursue a single private purpose: profit maximization. Thus, far from advancing the common good, many for-profit corporations have come to defy the law, corrupt the officials charged with enforcing it and inflict harm on the public with impunity. The consequences are visible in the wreckage left by BP, Massey Energy, Enron, AIG, Lehman Brothers, Blackwater and Exxon Mobil, to name a few recent wrongdoers. Profits rule; anything goes.
We need a new business model inspired by the old one. Corporations should again come to bolster democratic purposes, not thwart them. To be sure, there will be no return to the legislative short leash, especially now that the Supreme Court has invited corporations to spend treasury funds electing pliant and obsequious lawmakers. But socially minded businesses should at least have the right to operate outside the straitjacket legal requirements of Delaware Code profit maximization.
Thankfully, a promising alternative is emerging: an entity called the Benefit Corporation, which has been written into law in Maryland, New Jersey, Virginia and Vermont, and is moving quickly in other states too. The new laws permit companies to join the profit motive with the purpose of making a “positive impact on society and the environment.” In their articles of incorporation, Benefit Corporations declare their public missions—things like bringing a local river back to life, providing affordable housing, facilitating animal adoptions or promoting adult literacy. Under the law they must go regularly before a third-party validator like B Lab, the visionary Philadelphia-based alliance of more than 400 so-called B Corps across the country, to prove that they are not only meeting their goals but treating their employees, customers, communities and local environments with the same respect as their shareholders. Benefit Corporations can lose their B Corp title and their legal status for not doing right by these standards.
But why would public-spirited corporations embrace these exacting duties when they can simply roam free and do a little bit of altruistic good on the side? For one thing, Benefit Corporations can’t be held liable by courts for failing to place profits over everything else. This is an important shift in law. The fear of shareholder litigation has driven many public-spirited businesses, most famously Ben & Jerry’s, to take the high bid rather than the high road in a corporate takeover fight. Becoming a Benefit Corporation declares legal independence from the profits-über-alles model. More important, having Benefit Corporation status sends a powerful message to shareholders, employees, business partners and consumers about what kind of company you’re running. The signal generates instant branding, internal cohesion, consumer enthusiasm and links to a vibrant national B Corp network that brings in more than $4.5 billion in revenues. (Some B Corps are even worker-owned, like Vermont’s famous King Arthur Flour, which has almost 200 employees and may become the poster child for companies doing well in commerce, doing good in society and doing justice in the workplace.) The key to success here is a growing consumer demand for responsible commerce.
In a political sense, the surging popularity of B Corps will change the way people think about business. We can have a market economy without having a market society, and we can have prosperous corporations that act with conscience. Our besieged labor unions and nonprofits should bolster these businesses—green, local, progressive, entrepreneurial, community-focused—as an alternative to an economy controlled by massive state-subsidized corporations that are too big to fail and whose executives are too rich to jail.
It may take a while to displace the rent-seeking leviathans that get rich off lobbying, power plays, pyramid schemes and defense contracts. Then again, a lot of those companies have relocated their operations abroad in search of cheaper labor, while the Benefit Corporations are taking root and blossoming right here in America, restoring the bonds of community while doing honest commerce. This is what economic recovery looks like.
Read the next proposal in the “Reimagining Capitalism” series, “To Guarantee Corporate Responsibility, Open the Boardroom Door,” by William Lerach.