Corporations Commit to Both Profits and People

24/03/2011 at 5:30 am Leave a comment

For-profit corporations have become known over the past two decades for layoffs, outsourcing, and determination to maximize profits for investors—no matter the cost to employees, consumers, or the economy.  But such practices may be waning:  States across the U.S. are considering laws to enable entrepreneurs to create corporations that do as much for society as they do for their shareholders.

Maryland was the first state to pass Benefit Corporations (“B-Corps”) legislation.  The law, which went into effect in October 2010, creates a new class of corporation committed to having a positive impact on the environment and society.  Vermont and New York passed similar legislation in June.  Legislators in other states including California, Colorado, North Carolina, Oregon, Pennsylvania, and Washington, are also considering the issue.

Businesses incorporated under B-Corps laws have social goals and commitments written into company bylaws.  This ensures that companies will no longer face the hard choice of sacrificing their socially beneficial goals in order to fulfill their responsibility to investors when, for example, an acquisition offer is on the table.  Under traditional corporate law, company heads can’t refuse such an offer for fear of a lawsuit from shareholders.

“There have been a number of socially conscious companies that have been forced to sell out to large corporations and end up sacrificing the public side of the equation,” explains Raskin.  “Ben & Jerry’s is an excellent example.  The directors of the corporation were required to accept a handsome buyout offer even though they knew the business would lose its soul.”

B-Corps may choose any goals that will have a measurable “general public benefit.”  They can go totally “green,” offer worker training or literacy programs, or host activities that promote the arts and sciences.  Companies incorporated under the law will have to submit an annual report detailing not only their finances but also their good works.

The Benefit Corp movement should bring a change in mindset to the business world and entrepreneurs.  The two will be able to acknowledge the vital role business can play in making the world a better place.

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Entry filed under: Business, Economy, Social Responsibility. Tags: , , , , , , , .

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