What is a Benefit Corporation?
Benefit Corporation is a new class of corporation that 1) has a corporate purpose to create a material positive impact on society and the environment; 2) redefines fiduciary duty to require consideration of non-financial interests when making decision; and 3) reports on its overall social and environmental performance using recognized third party standards.
Maryland, Vermont, New Jersey, and Virginia are the first four states in the nation to pass Benefit Corp legislation, giving entrepreneurs and investors an additional choice when determining which corporate form is most suitable to achieve their objectives. Legislation is also moving forward in 2011 in New York, Pennsylvania, Michigan, North Carolina, California, and Hawaii.
How would becoming a Benefit Corp benefit my business?
- Provides clarity to directors and officers that their fiduciary duty includes pursuing the creation of a material positive impact on society and the environment, even in liquidity scenarios;
- Offers legal protection to directors and officers to consider the non-financial interests of the workforce, community, and environment when making decisions, even in liquidity scenarios;
- Increases accountability to investors by 1) expanding shareholder rights to enforce this expanded definition of fiduciary duty and standard of consideration; and 2) requiring a 2/3 majority vote of shareholders to remove these higher standards;
- Differentiates the company in a confusing marketplace in which everyone is claiming to be a responsible or green business;
- Makes it easier to become a Certified B Corporation and thus able to benefit from a portfolio of Service Partnerships which are currently saving companies $1MM/year.
Why are Benefit Corporations important to advance the sustainable business movement?
Corporate leaders need to be able to shape business models that satisfy the demands of investors, employees and customers who increasingly demand that corporations serve both shareholders and society, considering the impact of their decisions on multiple stakeholders rather than focusing solely on short term financial returns.
Without increasing regulation or impacting state budgets, Benefit Corporations:
- Remove legal impediments preventing businesses and investors from making decisions to use sustainability and social innovation as a competitive advantage, particularly in liquidity scenarios;
- Legitimize and accelerate development of the sustainable business movement by providing legal recognition for businesses that adopt higher standards of corporate purpose, accountability, and transparency;
- Rebuild public trust in business by demonstrating that businesses are willing to be held accountable to create value for both shareholders and society;
- Accelerate the development of generally accepted standards for assessing overall corporate social and environmental performance.